You’re one of the highest-paid people in the country: dentists and specialists consistently rank among the most successful working professionals in the U.S.
Part of the American dream is to own your home and own your own business. In today’s business environment, there are many challenges facing the next generation in achieving the American dream. The repayment of student loan debt is one of those challenges. Are you looking for a Tax Accountant in Maryland to help you?
Studies show that recent dental school graduates can be overwhelmed with their student loan debt. Many are afraid of taking on more debt, such as that for starting or purchasing a practice. New and complex tax laws and burdensome government compliance can also be factors when new dentists choose not to own a practice. A CPA For dentists in Maryland can help you manage your finances and optimize your accounts to help you start, grow and expand your business. Sigma Accountants are the best Maryland based accountants for Dentalpreneurs
As a dental CPA and provider of accounting for dental practices, my role is to help dentists become entrepreneurs, and to guide them toward finding the rewards and minimizing the risks of realizing the American dream. Are you ready to realize your dreams? Contact our Accounting Firm In Maryland today!
11. Trying to pay off student loans or other debt too fast.
Every dentist coming out of medical school has a mountain of personal financial debt from student loans to credit card dues. Besides starting a practice, paying off their student debt is the number one thing on a dentist’s mind, but one thing medical school does not teach you about dentistry is that you need to spend money to make money in a business. A reliable Dental Accountant in Maryland offering Dental CPA Accounting Services can help you plan for your future. When first starting a practice, many dentists will shy away from taking a business loan because they associate their personal debt with their business debt. What they don’t understand is if they take out the business loan, they will have the necessary capital to improve their business, allowing them to pay off both loans faster. When first starting a practice, if the dentist puts the business first, the personal debt will take care of itself. Confused about your growth? allow our CPA Firm In Columbia MD to help you.
- Your Goal should be creating savings, not “getting out of debt.”
- You pay higher taxes if you have no
- Principal reduction of debt is not deductible
If you didn’t know these, you need an outstanding accounting firm based in Maryland to help you. Contact us today!
10. Doing their own accounting.
One of the biggest mistakes a dentist can make is trying to do their own accounting. Most dentists do not know the basics of accounting, let alone taxes and hidden fees. The best thing a dentist can do for their company is hire a qualified dental and medical accountant to handle their finances. As a dentist, you should be focusing on your clients, and not worrying about what goes on the books. Hire someone who went to school for accounting to handle your books because it will keep your finances in order and make your life easier.
- Spend your “free” time doing things you enjoy, not learning accounting.
- Makes income tax preparation easier and less expensive because records are more reliable.
- Average cost is less than half the fee for a crown.
Contact Sigma, the best Dental Accountants in Maryland today to schedule a meeting.
9. Not keeping business and personal financial transactions separate.
It’s imperative that business and personal expenses are recorded separately at all times, irrespective of the size of the organization. One of the first things that small business owners should do is to open a business account and keep all of their business income in it.
The next thing to do is to work with a CPA to develop an owner compensation strategy defining how cash is separated from the business to maintain personal expenses. Your owner compensation strategy will be guided by aspects such as how much of your profits need to be invested back into the business, the time of payments for big business expenditures, your seasonal cash flow requirements, and your long-term personal financial plan.
- Makes income tax preparation more difficult.
- Exposure to potential IRS adjustments in the event of an audit.
Allow an expert Tax Accountant from Columbia MD to help you. Book an appointment today!
8. Doing their own payroll, including making payroll tax deposits.
Handling payroll for a dental practice is often thought of as a simple task. The truth, however, is that there are many minor errors that can easily lead to major problems and penalties.
Payroll errors can be frustrating and costly to both employers and employees. For employees, a mistake in state tax deductions can require an unexpectedly sizable tax deduction from an employee’s final paycheck of the year, at a time that coincides with the holidays. Missed hours or improper pay rates can also inadvertently decrease an employee’s pay, which may cause frustration and lasting resentment. These mistakes can negatively affect your employees and ultimately result in employer/employee strain.
For the employer, payroll errors can cause fines and penalties for improperly calculated tax obligations. Generally speaking, dentists aren’t experts in the complicated world of government tax regulations. At the same time, they’re legally responsible for any cases of misrepresentation or a failure to accurately report employment taxes to federal and state government agencies.
These mistakes can lead to audits and penalties — situations no business wants or needs. According to the IRS, more than 1.8 million tax returns were audited in 2016 for businesses with income between $200,000 and $1 million, and 978,564 businesses were assessed civil penalties. Even if these errors are caught before they are submitted, they can still cause countless hours of reprocessing employee paychecks and tax returns.
Given all of these complicated tasks and the potential for mistakes, processing payroll on your own can cost you more in the long run than what you may save initially.
- Mistakes are costly.
- Penalties can run 15% of taxes deposited late.
- Outside services specialize in payroll and are not expensive.
Avail our qualified and affordable Dental CPA Accounting Services to give your business the attention it deserves.
7. Not understanding the difference between cash flow and profit
Another common accounting mistake being committed is not knowing the difference between cash flow and profit. Make no mistake: the cash that flows in and out of your business is separate from your profits!
This might seem like a fairly simple concept, but it’s an important one in accounting. It’s also something some small business owners sometimes struggle to understand. Most dentists and their in-house bookkeepers do not know how to read and understand financial reports. When the dentist requests the figures for a particular period from the bookkeeper, it is a common and costly mistake for the bookkeeper to provide the dentist with the profit figures. The dentist unknowingly thinks this is the cash available. The problem with this is that the profit amount does not represent the cash available for purchases. As a result, the dentist makes purchases and incurs overdraft fees and extra charges.
Profit is the result of revenue less expenses for a certain period of time. Cash flow is the money moving in and out of the business from the beginning of the month to the end of the month. The profit is computed after completing a profit and loss statement. Cash flow is computed after completing the cash flow equation and factoring in accounts receivable, inventory, and depreciation expenses.
Talk to a CPA in Columbia MD today if these concepts are new to you or you feel out of your depth.
6. Hiring friends or family or other inexperienced people to work in the dental practice.
Owning a dental practice can be profitable and rewarding. It’s pretty amazing to achieve your goals with the people you love by your side, especially when you know they’re doing their part to help you succeed. Yes, these practices can be very successful. But if you’re not careful, they can also crash and burn.
The problem is, doing business with friends and family tends to be very complex. Emotions and family dynamics often take over, clouding judgement and keeping a practice from meeting its true potential.
When recruiting employees for your dental practice, whether friends, family or other, look for people whose skills complement your own. For example, if you love spending time with patients but hate any kind of admin work, don’t hire someone else who has the same aversion to paperwork or your practice is likely to lack organization. Instead, choose people whose strengths match your weaknesses to ensure your practice has a good balance of skills.
- Hurts practice to have inexperienced staff dealing with patients, especially the front
- Hurts practice to have inexperienced staff dealing with filing insurance claims for patients.
Need help? Our Dental Accounting firm in Maryland is happy to assist your growth.
5. Putting off setting up a retirement plan until out of debt.
When it comes to achieving financial goals, procrastination is the enemy of success. The average dentist will need about $2.5 million to fund their retirement. Delaying funding for just five years will cost an additional $228,000! Don’t wait any longer, talk to an Accountant In Maryland today!
- Review different types of plans and establish one as soon as you start working.
- You Can retire in 20 years if you save consistently.
Talk about your retirement plans with a CPA For Doctors in Maryland. Get in touch with Sigma right away!
4. Focusing too much on interest rates and not monthly payment when borrowing money.
Managing debt properly is perhaps the most important challenge in overcoming financial stress and creating wealth throughout a career in dentistry. Managing debt incurred for student loans, practice purchases, and equipment acquisitions presents a major financial management puzzle to new dentists. For most young dentists, the solution to this puzzle is merely maintaining the lowest interest rates available and paying off the debt as quickly as possible. Is there any other way to manage debt?
The bigger issue is how to eliminate the debt with the most safety, while maximizing wealth creation (i.e., the ability to comfortably retire). Eliminating debt the wrong way can sabotage wealth creation and peace of mind. While a dentist will pay the lowest amount of interest expense by paying off debt rapidly, he or she will also forfeit a very large amount of compound growth potential that could have been realized by paying debt more slowly and having a plan to save 20% of income each year.
- Focus should be on cash flow, monthly payment.
- Longer term loans are better for creating savings and lowering taxes
A Tax Accountant based in Maryland can help you manage your debt appropriately while helping you prepare your taxes optimally.
3. Not setting up the proper type of business entity.
Choosing the right business structure for your dental practice is a vital decision that can have significant consequences for the future of your practice. If a dentist selects the wrong structure, it can cost their business thousands of dollars down the line. Choosing the correct business structure for your dental practice is a fundamental decision that will impact your business daily and should be guided by a specialized attorney.
The main factors to consider when structuring your business are: (1) the financial and tax consequences; (2) liability protection; and (3) flexibility versus formality. Selecting a business structure is one of the most important decisions you will make for your practice. When selecting the right entity, substantial tax, legal, and accounting expertise is recommended. It is advantageous to start your business on good footing, and while it may look daunting to hire expert consultants at the beginning of your endeavor, it is a valuable investment for your future success.
The proper structure of your dental practice will allow you to reap all the possible benefits and increase your chances at a successful practice. However, it is recommended for dentists to stay active in the process in order to ensure that the expert’s proposals reflect the needs and goals of your practice.
Tax benefits are a primary driver when choosing a proper legal structure for a dental practice. Key aspects include: taxation on income/profits; taxation on the sale/transformation of a practice; and the deductibility of practice expenses and starting costs. A proper business structure agreement will maximize tax opportunities and can greatly affect the profit margin of your business.
Liability protection is another significant consideration when deciding between business entities. Because it combines features of a corporation with elements of a partnership, a limited liability company (“LLC”) can be tactical from a tax standpoint. Single member LLCs are taxed as sole proprietorships. Multi-member LLCs on the other hand, can elect to be taxed either as ‘S’ Corps or partnerships.
For certain dental practices, it can be advantageous to be the only owner and in complete control of the practice; there would be no requirement for seeking approval and or consent of any partners, members, or officers. With a sole proprietorship, there are also minimal to no reporting requirements. Sole proprietorships do not need to file an annual report with the state or federal government. However, under a sole proprietorship, a dentist will be held personally liable for all general debts and liabilities of the practice. Similarly, in a partnership, each partner is jointly and severally liable for the debts and obligations of the business. In comparison to sole proprietorships and partnerships, the significant advantage of a corporation or LLC is that the owners of the business (the shareholders/and or members) enjoy the benefits of limited liability.
The real estate should be owned in an entity other than the practice entity for both taxation and timing of practice sale purposes. The practice should have a written lease with the real estate entity to which rents and occupancy costs are paid. Owning the real estate in an LLC is the preferred entity, so that “basis” includes any debt or unpaid mortgage when the real estate is sold.
Talk to a CPA For Doctors in Maryland today to know if your business is set up correctly.
2. Not setting up their business entity early enough.
They say most businesses won’t survive their first 5 years. But I once read that businesses that incorporate are 40% more likely to be in business past 5 years.
If your business is a sole proprietorship or general partnership, you and your business are one and the same. That means that your personal assets are at risk if your business is sued or can’t pay its debts.
If you form a business entity such as a corporation, LLC, or limited liability partnership (LLP), your business becomes legally separate from you. If there’s a judgment against your business, you may lose the money you have invested in it, but you won’t lose your house, car, or personal bank account. Not forming a business entity can be a big mistake if you have partners or have a solo business with significant financial obligations or legal exposure.
- Why incorporate? And when?
- Current school of thought is to set up a business entity as soon as you start working.
- Can begin funding a retirement plan.
- Can deduct certain costs against the income generated from dentistry services
Allow Sigma, Columbia Maryland CPA firm, to help your business entity be set up appropriately. We help you from setting up to running your business profitably.
1. Not setting up your “team” soon enough.
As a dental practice owner, navigating legalities, insurance plans, funding, and more are all important aspects when setting up a smooth running dental practice. It helps to have an advisor team at the ready to assist you with the headaches that come with dealing with paperwork and the behind-the-scenes details that come with owning a dental practice. Keep in mind that it is worth it up front to invest in a team with dental industry knowledge.
An experienced CPA, lawyer, banker, insurance agent, dental broker, dental tech and IT advisor, will help you navigate the complexities of practice ownership.
- Attorney to review office lease, contracts, employment agreements, entity formation, etc.
- CPA and financial advisor to advise on setting up business entities, retirement plans, arrange financing and to review contracts from a tax perspective.
An expert for your dental practice…
No matter how great your patients’ oral health, if your accounting practices are full of mistakes and errors, it could affect your practice’s financial health.
If you’re looking for a CPA service in Maryland that can help clean or manage your account, get in touch with us today.
Sigma Accountants is a virtual-based accounting and tax service that caters to small and medium-sized businesses just like yours