Associate Agreements

Associate Agreements (contracts) can suffocate us at a time we should be reveling in a new opportunity.  However, many dentists don’t understand what is in their contracts, in turn complicating the process and turning this joy of new opportunity into a whirlwind of anxiety and trepidation.

This article is not intended to be legal advice.  ALWAYS consult an attorney or legal expert in your jurisdiction.

Here are a few points to pay attention to when reviewing your Associate Agreement:

1. Employee or Independent Contractor:  Regardless of the debate on what is technically legal or acceptable by the IRS, make sure you know which status you are agreeing to.  If taxes on income are not paid correctly, it could come back to bite both the associate and the practice.   Consult a CPA or Attorney on what is correct for your situation.

2. Compensation: Are you going to be paid on collections or on production?  These two do vary, but don’t get stuck in the mindset that production-based income is the only way you will accept to be paid.  Keep in mind that even if you are paid on production, many practices will adjust your future paycheck if there are any unpaid patient balances or write-offs.  In essence, you are being paid on collections anyway.

3. Notice Period: The length of termination periods are widely becoming 30 or more days long.  We’re seeing more and more asking for 60 to 90 days notice.  Understand what is required of you to terminate your employment with a practice. 

4. Restrictive Covenants and Non-Compete Clauses: Dental practices will protect their interest by requiring you to agree to some sort of restrictions upon the termination of your employment.  They will restrict you from practicing dentistry in any capacity within a certain distance for a specified length of time.  There will be other language that restricts you from soliciting patients or staff for a specified time period.   Distance varies upon geography.  For example, rural areas can have 20 miles or more of a restricted zone, while a metro area will be 2 to 5 miles.

5. Lab Expenses:  Most practices are paying these costs; however, make sure to ask if you will be paying for any lab expenses.  There is no real standard on this in the industry.  Practices will have associates pay for half or an amount equal to the Associate’s percentage of pay.  Also, make sure you understand the formula for calculating your pay with lab expenses.  You want the lab expense to be deducted from the total production prior to calculating your percent of pay.  {Pay = % of production * (Production – Lab expense)}

These are just a few of the “biggies” that develop in contract negotiations.  Again, refer to your attorney for precise legal advice.

Posted by Carl Guthrie, Senior Dentist Recruitment Consultant with ETS Dental. To find out more, call Carl at (540) 491-9104 or email at cguthrie@etsdental.com.

The Top Twelve Mistakes Dentists Make Filing Their Taxes

The following is a guest post from our friends at the Dental CPAs

Lance Jacob of the Dental CPAs has compiled a list of the top twelve most common tax filing mistakes that he sees his dental clients making. If you don't have a dental CPA, contact Lance.    

Filling out tax forms with an incorrect Social Security number. The IRS computers will automatically reject your deductions and credits if your Social Security number is wrong.[i] This mistake seems careless and trivial, but it is paramount to have the right Social Security number when filing your taxes.  Your social security number is your tax ID number, which is linked to numerous transactions such as income statements, savings account interest, and retirement plan contributions. It is also vital to claiming tax credits. Since the majority of returns are now being filed electronically, a correct social security number is paramount. An incorrect social security number will result in the reject of an e-filed return.   

Double dipping on dependents for divorced taxpayers. Ill repercussions could result such as additional taxes, penalties, and interest charged.[ii]  A child can ultimately meet the rules to be a qualifying child of only one person.[iii] Once divorced, your children do not duplicate out of thin air; therefore they cannot be claimed twice in taxes.  The IRS does not allow both divorced taxpayers to claim a child as a dependent. 

Not reporting non-deductible IRA contributions.  Any contribution to an IRA, whether it is deductible or non-deductible, should be reported on Form 8606, so when you withdraw it you are not taxed on it.  Plain and simple, all contributions to an IRA must be reported.

Incorrectly reported estimated tax payments.  If your accountant instructed you to make quarterly estimated tax payments, be sure to let him or her know the details of the payment for each installment.  Provide the check numbers, dates of payment, and the amount of each payment.  What often happens is people claim they made the payments as their accountant told them, but did not keep any records and inadvertently forgot a payment or two.  If the accountant includes all of the estimated payments on the return when they all were not really made, the IRS or state government will send a notice of tax due with penalties and interest.

Incorrect Federal ID number used on 1099 MISC.  Although your accountant can easily fix this, the less the IRS has to contact you, the better it is. The IRS matches 1099MISC and the Social Security number or Federal Identification number used. If you provide services, and the client you did the work for issues a 1099MISC, be sure they know to use the federal identification number of your business and not your social security number.  If they use the wrong number the IRS will send you a notice that you did not report income on your personal return, when in fact it was reported correctly on your business return.

Exceeding the mortgage interest deduction limit on Mortgage and home equity debt in excess of $1.1million.  This error commonly falls as the fault of both the taxpayer and accountant.  They only deduct the amount reported of the mortgage interest statement, Form 1098, and do not bother to check the amount of mortgage the taxpayer has.  The tax laws limit the amount of deductible interest to the interest on the first $1,000,000 of home mortgage debt and $100,000 of home equity debt [iv].  So if you have a mortgage of $2 million, you can only deduct mortgage interest related to the first $1.1 million in total debt.   

Standard mileage vs. actual expenses.  Mistakes in this area come from inconsistent use of methods.  If your car is for business purposes only, then the entire cost of its operation can be deducted.  However, if the car is used for both business and personal use, only the cost of its business use can be deducted. The amount of your deductible car expense can be found using either the standard mileage rate method or the actual expense method. [v] Some people will qualify for both methods but you must choose only one method when you start using the vehicle and continue with that method until you replace the vehicle.  Be sure to figure your deduction with both methods initially to see which gives you the larger of the deductions.

First-Time Homebuyer Credit recipients unaware of the fine print.  Those who received a First-Time Homebuyers’ Credit towards their purchase of a home settled on prior to 12/31/08 must begin repaying that money on 2010 tax returns. Now is the time to take a good hard look at the details of this credit. Many who accepted the $7,500 credit may not realize that it was in fact a loan, and the government will begin not-so-politely asking for the money back over the course of the next 15 years starting with 2010 individual tax returns. As with any federal money however, there is a lot of fine print to read into on this one. Use form 5405. [vi]

Forgetting to tell your tax preparer you took an early distribution on an IRA; therefore, failing to calculate the early distribution penalty of 10%.  If you are under the age of 59.5, a distribution on an IRA (including employer matching and profit sharing) is considered early, and subject to a 10% additional tax.  This tax is in addition of other taxes that apply to the distribution. [vii]

Forgetting your signature on your return! If you were an artist, you wouldn’t forget to sign your masterpiece upon its completion, would you? You must sign your taxes for the IRS to process your taxes.  Filing your taxes electronically is a foolproof way to ensure your taxes will not go unsigned.  These software packages do not allow documents to be sent unless every step is completed.

Incorrect bank account information for refund. If you are having your accountant file your returns electronically and want your refunds directly deposited (or payments automatically) withdrawn from your checking or savings account, provide the correct account information including name of bank, bank routing number, and account number. This will avoid delays in processing your refunds and/or payments

Forgetting to file a Form 1099 for rental property or a business as a sole proprietor.

The IRS now requires you to answer the following questions

1. Did you make payments during the tax year that would require you to file Form(s) 1099? (these are forms used for rents, non-employee compensation, interest, and other income).

2. “If yes have you or will you file all required Form(s) 1099?

It is important for your accountant to ask this question of the client and also important for the taxpayer to be aware when a 1099 is needed. You can see the problem you might have if you answer yes to the first question and no to the second.

---

[i] http://www.walletpop.com/taxes/most-common-taxpayer-mistakes/

[ii] http://taxes.about.com/od/dependents/a/Dependents.htm

[iii] http://www.irs.gov/individuals/article/0,,id=218767,00.html

[iv] http://www.irs.gov/publications/p936/ar02.html

[v] http://www.irs.gov/taxtopics/tc510.html

[vi]http://money.cnn.com/2009/09/24/pf/expert/home_buyer_credit.moneymag/index.htm

[vii] http://www.irs.gov/faqs/faq/0,,id=199762,00.html

Financial Planning for a Better Future with Glen Weaver

Time and again we speak with dentists whose careers were significantly impacted by financial decisions outside of the practice. Many were impacted for the worse, but those with a clear plan and the guidance of financial planners are significantly better off for having done so. With that in mind, we recently invited Glen Weaver of Capital Financial Partners to contribute. Glen has experience advising dentists and dental practice owners and so has a good perspective on the questions dentists should be asking themselves and their advisors.

Here is his summary of the important questions dentists need to be asking:

 

Every business professional generally thinks about the following:

• How can I grow and protect my business?
• How can I take care of and provide a rewarding future for my employees?
• How can I build wealth and protect my assets so I retire on my terms and leave a legacy for my family?
• How can I protect my principal from the volatility of the market?
• What financial strategies can I implement so when the market crashes again I don’t lose any money?
• How can I get guaranteed tax-free income for life?
• Did you know that over 450 banks across the US have failed since 2008?  How is that possible?
• Do you know who the best financial managers in the world are and have proven it through various depression eras over the last century?
• Do you have a Variable Life product?

If you do not have these answers then you need to speak with someone who does.

Keep in mind, rising inflation and tax rates can quickly erode retirement savings. You will need more money during retirement to purchase the same things you buy today. Tax rates are rising with plans in Washington to raise them even further. Do you have a plan that allows you to pay current tax rates, grow your money tax-deferred, and then enjoy tax-free income for life?

I am frequently asked, “How can I plan for my kid’s college that does not involve poor performing 529's? With higher education tuition rising at nearly 9% every year, how can I get more aid/grants/scholarships from colleges/universities for my kids education simply by moving assessed assets to non-assessed buckets?”

Did you know with the right plan your kids could attend a private school at or better than the price of a state school?

Regardless where you are in your practice and career if you fail to plan, you plan to fail.  One of the greatest motto's for success is: Plan Your Work and Work Your Plan!  You have objectives and goals for the future that fosters the professional, personal and economic growth of your business and staff members, but do you have a defined plan to get there?  Don’t kid yourself. Most people don’t.

Henry Ford had an 8th grade education. He also had an incredible belief that an 8 cylinder car was possible. He surrounded himself with a team of engineers, advisors, and together went to work on their plan. As we all know and see everyday on the roads, Ford created enormous wealth and legacy for generations.

Consider adding a financial planner to your team. We have the skill, experience, and resources to weather any market situation to keep you on the path of financial growth and prosperity for generations to come. With good people, like Morgan Pace at ETS Dental, we can plan a very rewarding future together. A simple no obligation phone call, email, or connection on Linkedin is all it takes to continue the journey.

For more information, contact:

Glen Weaver

Financial Services/College Planning Advisor
Capitol Financial Partners
703-222-1960
weagl01@gmail.com
http://www.linkedin.com/profile/view?id=22383898&trk=tab_pro

Dental CPAs: The Top Ten Mistakes Dentists Make Filing Their Taxes

Original Article found at http://dentalcpas.blogspot.com/2012/11/the-top-ten-mistakes-dentists-make.html

Lance Jacob of the Dental CPAs has compiled a list of the top ten most common tax filing mistakes that he sees his dental clients making. If you don't have a dental CPA, contact Lance.

1. Filling out tax forms with an incorrect Social Security number. The IRS computers will automatically reject your deductions and credits if your Social Security number is wrong.[i] This mistake seems careless and trivial, but it is paramount to have the right Social Security number when filing your taxes. Your social security number is your tax ID number, which is linked to numerous transactions such as income statements, savings account interest, and retirement plan contributions. It is also vital to claiming tax credits.

2. Double dipping on dependents for divorced taxpayers. Ill repercussions could result such as additional taxes, penalties, and interest charged.[ii] A child can ultimately meet the rules to be a qualifying child of only one person.[iii] Once divorced, your children do not duplicate out of thin air; therefore they cannot be claimed twice in taxes. The IRS does not allow both divorced taxpayers to claim a child as a dependent.

3. Not reporting non-deductible IRA contributions. Any contribution to an IRA, whether it is deductible or non-deductible, should be reported on Form 8606, so when you withdraw it you are not taxed on it. Plain and simple, all contributions to an IRA must be reported.

4. Incorrectly reported estimated tax payments. If your accountant instructed you to make quarterly estimated tax payments, be sure to let him or her know the details of the payment for each installment. Provide the check numbers, dates of payment, and the amount of each payment. What often happens is people claim they made the payments as their accountant told them, but did not keep any records and inadvertently forgot a payment or two. If the accountant includes all of the estimated payments on the return when they all were not really made, the IRS or state government will send a notice of tax due with penalties and interest.

5. Incorrect Federal ID number used on 1099 MISC. Although your accountant can easily fix this, the less the IRS has to contact you, the better it is. The IRS matches 1099MISC and the Social Security number or Federal Identification number used. If you provide services, and the client you did the work for issues a 1099MISC, be sure they know to use the federal identification number of your business and not your social security number. If they use the wrong number the IRS will send you a notice that you did not report income on your personal return, when in fact it was reported correctly on your business return.

6. Exceeding the mortgage interest deduction limit on Mortgage and home equity debt in excess of $1.1 million. This error commonly falls as the fault of both the taxpayer and accountant. They only deduct the amount reported of the mortgage interest statement, Form 1098, and do not bother to check the amount of mortgage the taxpayer has. The tax laws limit the amount of deductible interest to the interest on the first $1,000,000 of home mortgage debt and $100,000 of home equity debt[iv]. So if you have a mortgage of $2 million, you can only deduct mortgage interest related to the first $1.1 million in total debt.

7. Standard mileage vs. actual expenses. Mistakes in this area come from inconsistent use of methods. If your car is for business purposes only, then the entire cost of its operation can be deducted. However, if the car is used for both business and personal use, only the cost of its business use can be deducted. The amount of your deductible car expense can be found using either the standard mileage rate method or the actual expense method. [v] Some people will qualify for both methods but you must choose only one method when you start using the vehicle and continue with that method until you replace the vehicle. Be sure to figure your deduction with both methods initially to see which gives you the larger of the deductions.

8. First-Time Homebuyer Credit recipients unaware of the fine print. Those who received a First-Time Homebuyers’ Credit towards their purchase of a home settled on prior to 12/31/08 must begin repaying that money on 2010 tax returns. Now is the time to take a good hard look at the details of this credit. Many who accepted the $7,500 credit may not realize that it was in fact a loan, and the government will begin not-so-politely asking for the money back over the course of the next 15 years starting with 2010 individual tax returns. As with any federal money however, there is a lot of fine print to read into on this one.[vi]

9. Forgetting to tell your tax preparer you took an early distribution on an IRA; therefore, failing to calculate the early distribution penalty of 10%. If you are under the age of 59.5, a distribution on an IRA (including employer matching and profit sharing) is considered early, and subject to a 10% additional tax. This tax is in addition of other taxes that apply to the distribution.[vii]

10. Forgetting your signature on your return! If you were an artist, you wouldn’t forget to sign your masterpiece upon its completion, would you? You must sign your taxes for the IRS to process your taxes. Filing your taxes electronically is a foolproof way to ensure your taxes will not go unsigned. These software packages do not allow documents to be sent unless every step is completed.
___________________________________

[i] http://www.walletpop.com/taxes/most-common-taxpayer-mistakes/
[ii] http://taxes.about.com/od/dependents/a/Dependents.htm
[iii] http://www.irs.gov/individuals/article/0,,id=218767,00.html
[iv] http://www.irs.gov/publications/p936/ar02.html
[v] http://www.irs.gov/taxtopics/tc510.html
[vi]http://money.cnn.com/2009/09/24/pf/expert/home_buyer_credit.moneymag/index.htm
[vii] http://www.irs.gov/faqs/faq/0,,id=199762,00.html

You can contact Lance Jacob with additional questions or comments at ljacob@dentalcpas.com or (800) 772-1065.www.dentalcpas.com

From Dental CPAs: Dental Associate has Practice Purchase Questions

Thanks to our friends over at Dental CPAs we bring you this great thread from Dentaltown regarding Associate transitions.

Check them out at www.dentalcpas.com and http://dentalcpas.blogspot.com

I'm going to begin a 1-2 year associateship with the opportunity to buy 50% of the practice after that period.  I've hired a practice sales broker/CPA to provide me with a second opinion on the appraised value of the practice.  

Jason Wood, Dental Attorney:

Is he representing you as a CPA or as a broker?  There is a big difference in fees I would imagine.   

I'm trying to arrange it so everything about the associateship, transition, and purchase of the practice will be arranged in a contract prior to beginning.  

Jason Wood, Dental Attorney:

This is extremely expensive to do.  My recommendation would not be to do this but to have everything addressed in the associate agreement with the particulars of the deal (ie purchase price, ability to acquire 50% of the building, etc.) being built into the contract.  Otherwise to properly do this now will cost you around $15,000.  Wait until you know you can work together before spending this kind of money.  

However, I'd like to receive an appraisal of the building/real estate, but the CPA has informed me that it can become very expensive to have the building appraised.  Although the CPA does not appraise office buildings himself he has recommended an agent he has used in the past.  He has also told me that the building appraisal could cost several thousands of dollars and may not even matter since any bank/lender will want another appraisal to loan me the money.  

Jason Wood, Dental Attorney:

Agree that you can buy in to the building at the appraised value of the building when you acquire the practice, that way you push the appraisal out and the bank that will lend you to money for the acquisition would be happy to lend you more on the real estate since it strengthens their position.

Is there any benefit to having the building appraised this early into the associateship?  With the real estate market as bad as it is I would like to capitalize on the depressed market values. 

Tim Lott, Dental CPA

You should keep in mind having it appraised now won't guarantee you that this value will be the price in the future. Put yourself in the seller’s shoes. Historically, after real estate has declined substantially, would you be willing to lock in a price on an asset that's likely to go up in the future?

What you can do is consult with a commercial real estate agent and see what the comps are for similar space so you can get a range of what to expect in terms of real estate value. See if that range matches what the seller is thinking. I don't see any benefit in paying for the appraisal now.

With respect to the practice, I do see the benefit in trying to establish the price now; however, just know that you can appraise the practice as of say 12/31/2011 in 2013 very easily.

Good luck.

Jason Wood, Dental Attorney:

Sure.  Creating the partnership agreement, the purchase agreement, the lease review, etc. would be very expensive to do right now.  You can:

1.  Agree to the purchase price now
2.  Agree to the closing date
3.  Agree to when the parties need to back out before it becomes binding
4.  Agree on stop gap measures to insure compliance after the back out date
5.  Agree on the structure of the partnership
6.  Agree on the building acquisition

All in the associate agreement without having to draft all of the other documents right now.  That way if the deal doesn't go forward, you don't spend the extra money on the details contained in all of those other documents.

Went ahead and attained an appraisal. I'm meeting with the sales broker/CPA to discuss the appraisal. What are some questions to ask him?

Tim Lott, Dental CPA 

It seems to me your questions will be driven by how that meeting goes and the information that gets presented. I don't know what questions I'm going to ask of a seller\broker re: their valuation or asking price until I've seen what they've done, how they did it, the information they used generate their report.

Once you see this you'll be in a better position to know what questions to ask I would think.

Good luck!

This first appeared on Dentaltown.