Tuesday, October 30, 2012

When Should Dentist Begin Paying Rent?

Hypothetical situation....well not really.

Say you and your partner are expanding your office.  Say your partner owns the building.  Say you are splitting the cost of the furnishing and equipping of said office.

How would you split the cost of construction? 

It depends on the nature of the construction. The portion of the construction that the landlord might generally incur will be paid 100% by the landlord, improvements generally done by the tenant is paid 100% by the practice.

Or, determine a reasonable landlord TI allowance for the area, say $50/square foot and that's the cost the landlord covers.

Or, a combination of both if the "construction” includes things like cabinetry, etc.

How would you/wouldn't you have this influence the new rent? (obviously it will increase, but would you tie this to construction cost?)

It seems to me you've already established a fair rental rate when you bought into the practice, so I wouldn't expect it to deviate much from the current “per square foot” rent you're already paying. If you select a TI allowance which the landlord pays I don't think it impacts the construction cost. If the landlord is funding 100% of all improvements above an allowance, they'll generally include the tenant financing on top of the base rent so you, the tenant winds up paying for it anyway.

 When should rent increase?  When construction starts?  When you occupy the space fully?

When the space is done and the tenant occupies it. Don't forget that sometimes the landlord will offer free rent for several months as an incentive for the tenant signing a long-term lease. The tenant may also be able to negotiate a lower rent “per square foot” for more space. Has the rental market decreased in your area since you bought in?

Give me some advice.  I'm sure I will have more questions as we discuss.


If you can, see if you can find a commercial real estate rental agent who you can consult with either together with your practice partner or individually to represent you more or less. George Vaill may also be able to assist you in what might be "fair" (I know he hates that word) based on all the lease negotiations he's been involved with.

Good luck.

For more information, please contact info@dentalcpas.com

Wednesday, October 24, 2012

Should a Dentist Take Section 179 - First Year Expensing Election in 2012?

I hate to sound like an equipment sales rep, for that I apologize, however, this question keeps coming up about a couple of tax breaks that are set to expire at the end of 2012.

Through the end of 2012, a business can elect to expense this year up to $139,000 of most furniture and equipment that is purchased AND placed in service in 2012. If your purchases exceed that, you can also take an additional bonus depreciation of 50% of the cost, again, if purchased AND placed in service in 2012. 

Now, JUST because it is available does NOT mean it makes sense to take these deductions in 2012. You really need to consider your 2012 income tax brackets compared to the brackets you expect to be in for 2013 (and beyond) in addition to the additional taxes you might be subject to (like the new 3.8% tax in future years.)

For example, taking a $100,000 deduction (or expense) this year in a blended 15%\25% income tax bracket could save you $20,000 in federal income taxes. However, if you expect to be in the 35%+ income tax bracket in 2013 and beyond, that $100,000 deduction could be worth $35,000+. You have to decide if it is worth waiting for an additional $15,000+ in tax savings (I think it may be worth the wait.)

Keep in mind the new 3.8% tax will hit next year and joint filers with adjusted gross income over $250,000 might be subject to this tax (single filers will be hit at a lower AGI) . So the other benefit of spreading out the deduction over future years or waiting to purchase items in 2013 will be the potential for you to remain near or below the $250,000 AGI threshold to avoid or minimize this new tax.

Higher income earners will get hit hard starting in 2013, so anything you can do to try to keep your income down in future years will make sense....even if that means NOT taking advantage of these expiring tax breaks right now.

Happy tax planning to all!  

Tim Lott, CPA, CVA

For more information, please contact info@dentalcpas.com

Monday, October 15, 2012

Listening to Dental Customers

“Customers who engage with companies over social media spend 20% to 40% more money with those companies than other customers.” Bain & Company

Your customers are talking.  Telling others about their experience – both good and bad – with your organization.  As Bain & Company discovered in their research, if customers are invested enough to spend time to talk on social media, they are investing their money with you as well.  And they are influencing others which makes their voices are more powerful than ever.

Do you currently have ways to hear the customer’s voice?  Do you directly ask your customers what they think about your organization and their experience?  Do you know all the ways customers try to tell you what is going right and what could improve to make their experience better?  Consider all the ways you can find and listen to the customer’s voice.  

Ask your people.  Anyone who has direct contact with the customer knows the most about how and what they are trying to accomplish, what upsets them, what delights them and what drives them to stay with your company.

Go online.  Find feedback emails to your contact center. Use online survey tools, ask questions on Facebook, poll them on your website, observe their online behavior, and many other ways your customers are telling you what they want.

Find the hidden voices.  Reviewing comment cards, listening to customer service logs and technical support calls, and doing a little “secret shopping” yourself (for example, being with customers in a retail location and listening to conversations) can all help you understand their perspective.   

Talk to them. Pick up the phone and really dig deep into what customers like and don’t like about your business.  You will discover ways to serve them better, listen to their ideas about how you can make their experience easier and more enjoyable.

Confirm you heard them.  Encourage feedback by responding to it.  If you don’t listen and confirm what you heard, they will stop talking and take their business elsewhere.  Give them updates about what you are doing to respond to their issues or overall changes to your products and services.

Share it.  The customer voice is one of the most powerful things to change your organization.  We often become very inwardly focused about our goals and forget theirs.  Everyone in your organization should put on the customer’s shoes and understand their experience.

Reaching out and listening to customers is a critical activity.  It is an ongoing and consistent way to provide valuable insights into how customers experience your organization.  Their voice is the springboard for insights and actions which can lead to financial results. Go find their voice and find the next opportunities for your organization. 

Diane Magers is a team member at the Interactions Group, who help organizations develop and implement customer-focused strategies to improve business performance.

For more information, please contact info@dentalcpas.com

Friday, October 12, 2012

District of Columbia "use" Tax Impacts Dentists

For DC businesses there is a new requirement under the DC Code regarding so-called “use” taxes. Beginning with the 12-month period ending September 30, 2012, any employer that is required to file a DC withholding tax return, but is not required to collect and remit sales taxes, is required to file an annual use tax return. The return, Form FR-800A, must be filed on or before October 20th of each year, and any use taxes due must be remitted with the return.
Most States imposes a “use tax” on certain personal property purchased for use in their state.  The use tax complements the sales tax by taxing the use of goods inside the State on which no sales tax has been paid. Typically, this is property that was purchased from a seller outside of the state.
Unlike sales taxes, which are charged and collected by the vendor, the use tax is self-reported by the purchaser.
You should contact your tax advisor for advice on your specific situation.

For more information, please contact info@dentalcpas.com

Wednesday, October 3, 2012

Is Charitable Dental Care Deductible?

Several dentists have asked us about what deductions may be eligible for the volunteer dental work they do for the community. We looked at a few scenarios and have come up with some guidance.

A charitable deduction is not allowed for contributing services (time) for dentist (or anyone else) but they can deduct unreimbursed out-of pocket expenses that they incur when they render services to a (qualified) charitable organization.

Examples of deductible expenses include the cost of uniforms that are required to be worn while performing the donated services (clothing that is not suitable for everyday use), and supplies used in performing the donated services.  Other examples include equipment, copying charges, office supplies, long distance charges, and postage.

A dentist can also deduct “reasonable” expenses meals and lodging while they are away from home. “Away from home” for purposes of charity is the same as “away from home” for business. In other words, the trip has to require the taxpayer to sleep or rest outside of their home in order to continue to do the charitable work. The cost of child care that someone incurs while providing the charitable services can’t be deducted even if the person can’t do the volunteer work without paying the child care expense.

The expenses have to be non-personal (i.e. no pleasure trips, entertainment costs etc.) and directly connected to performing the services for the charity. If they are primarily for the benefit of the taxpayer they are not deductible. The unreimbursed expenses are treated as being paid directly to the charity.

For auto expense a dentist can deduct 14 cents per charitable mile or actual expenses (gas and oil directly related to the use of your car for volunteer activities) but you can’t deduct general expenses such as depreciation, lease payments, license and registration or insurance. Parking and tolls directly related to the charitable work can be deducted whether you use the mileage or actual expense method.

Treat this advice as general guidelines and consult you CPA for specific guidance related to your particular situation.

Lance Jacob, EA, is a principal with the Dental CPAs. ljacob@dentalcpas.com (410) 453-5500. The Dental CPAs have been providing accounting, tax planning, practice purchase assistance, bookkeeping, practice management services and other advice to the dental community for over 50 years.

For more information, please contact info@dentalcpas.com