Were you planning on upgrading your equipment or upgrading your IT infrastructure in the new year? Have you been saving up throughout the year for these upgrades? I’ve got some news for you. Read on to learn how borrowing money for these upgrades could be the best decision you make all year.
Today, the interest rates are low, which makes borrowing money for upgrades and new purchases easy and effective. By borrowing money instead of spending out of pocket, you can maximize your tax benefits while keeping the cash flow of your dental practice healthy.
Should Dentists Borrow Money For Tax Savings?
Yes, we firmly believe dentists should borrow money from the current market to expand their practice. This allows them to leverage the low-interest rates to fuel their growth.
Debt can be an inescapable trap if used injudiciously. However, if you work with an experienced professional dental CPA, we strongly recommend taking a loan with a tenure of 7 to 10 years for any upgrades, new purchases or improvements.
Why do we believe this is the best way to grow? Because we fundamentally believe that all significant purchases and equipment should be paid for throughout its useful life and not upfront. A long-term load helps you spread the outflow of cash across multiple years, which also helps with appropriate depreciation write-offs.
In our experience, dentists who have used this approach tend to always have cash on hand, ready for emergency use. Your earned money is better used for your personal growth, while borrowed money can be utilized for business growth. A professional dental accountant and dental tax consultant like sigma can help you structure your expenses in a way that’s beneficial for your dental practice as well as for yourself.
Are Low Interest Rates A Trap?
Interest rates are at record lows thanks to the economic troubles. Lenders are aggressively pushing loans with relaxed credit standards to attract more customers.
If you’re planning to start your dental practice, you can get a loan for as low as 2.99%, whereas expansion loads are available for as low as 3.5%. After getting your tax rebates and tax write-offs, these funds cost you less than 2.5% on average. This deal is too good to pass up.
So to answer the question, no. Low interest rates are not a trap and, if used judiciously with consultation from a professional dental bookkeeper and dental CPA. If you don’t have access to an expert Dental CPA in Maryland, speak to our team at sigma for a free consultation.
Can Borrowing Help Me Reduce My Tax Liability?
Yes, absolutely! According to the current tax laws, $1,050,000 can be expenses for purchases in a tax year. However, this number keeps changing, and you may not be able to keep up with the updates.
Any borrowed funds allow you to use your cash in hand to lower your tax liability even further by claiming tax deductions like retirement plan contributions.
We recommend focusing on your core competence and allowing a team of professional dental accountants and virtual CFOs to help you grow your practice. This way, you always take home what you deserve!
Does Borrowing Have Any Benefits For Me When I Want To Transition From My Dental Practice?
Absolutely! If you’re part of a large group of practices and plan to incorporate new partners or practices into your business, there are multiple benefits of borrowing money.
The cash outflow can be spread across the years and optimized by changing income division formulas or incorporating new members into the business. With each successive year of ownership, a new partner’s share of the cash burden will grow proportionately.
Similarly, if you’re nearing retirement and planning to sell your practice within a few years, you won’t have to bear the full cost of those upgrades and expenditures, which will be beneficial for you on a personal level.
The primary purpose of borrowing money for significant expenses is to create fairness in practice transition situations.
Other Benefits Of Borrowing Money For Dental Business Growth
1. It’s Convenient And Easy To Get Loans
Getting an investor on board can take months, if not years, for the deal to close. On the other hand, a business loan is a lot easier and convenient to get and usually requires getting in touch with a lender, submitting documentation, and getting the money in your account.
2. User-Friendly And Flexible
Loans are flexible and can be used for any purposes you see fit. On the other hand, investments are usually earmarked for certain kinds of expenses.
3. There Is No Profit Sharing
Investors expect regular returns in the form of dividends and distributions. On the other hand, loans don’t require any additional profit-sharing apart from what you already have in place. This is another major benefit of debt borrowing.
4. No Collateral Required
In today’s economy, getting collateral-free loans is a straightforward task. Most business loans are unsecured and don’t need any collateral as long as you meet the required qualification. This makes loans an excellent way for smaller businesses and startups to grow.
We hope this blog helps you understand how you can borrow money from the market and expand your practice while maintaining a healthy cash flow. If you are confused and need help with your dental accounting, dental bookkeeping or Virtual CFO services for dentists, then please feel to drop by our office to discuss how we can help you grow.