Believe it or not, we’ve hit the middle of 2015! So do you feel like you’re at the high water mark? If you’re like most dental practitioners, it seems like all you’ve done so far this year is pay tax bills for 1st & 2nd quarter 2015 while shoring up any 2014 tax obligations. If you haven’t paid any tax bills yet this year then you definitely need to keep reading to avoid a very unpleasant surprise.
What was that line about taxes and death?
Anyway, chances are your business accounts are tighter on cash than you would like. The last thing you can afford is a large expense that comes out of nowhere. And when a dental practice isn’t prepared to handle its tax obligations properly, your tax bill could end up a lot heftier than you planned for.
Getting smacked again and again with a tax surprise doesn’t have to be a cost of doing business. Just ask our clients. While we will never make paying taxes pleasant, we can make the amount you pay predictable. This, in turn, opens up some new avenues for improving cash flow both in the practice and at home..
Here are three ways you can make the second half of 2015 perform better than the first:
1. Fix your practice structure
If the foundation upon which your practice’s finances are built is shaky, there’s a far greater chance of tax disaster. The corporate and income structures of the practice need to settle properly as the foundation before you build upon them. Establishing an S-corporation — instead of a sole proprietorship — allows you to maximize the amount of money you take in W2s, rather than distributions. Without taking these steps first, anything else you try to do will be a waste of time.
2. Put the proper systems in place
With a rock-solid foundation, you can now build a system to forecast financial expectations for the practice. The forecast should center around historical trends including changes expected on a yearly basis from season to season, and anticipated changes from improvements in logistics and practice management. If your practice slows down every year when school starts, or maybe hits the afterburners in the beginning of the year, plan for that in your tax payments.
Your system for accounting must be proactive, not reactive. This means account reconciliations should be done every month by your accountant, with the smallest number possible of uncertain or uncategorized transactions. The numbers should then be integrated into your business strategy and tax planning on a regular basis.
Regular tax estimates should be based upon financial forecast changes and the practice’s overhead. Using prior year tax liability is a recipe for disaster if it doesn’t represent what your practice is currently doing. For example, a large piece of equipment may have been purchased and written off last year but that may not reoccur in 2015. As a result, a huge tax surprise!
3. Advice Cohesion
Finally, your business management, accounting and tax advice need to have cohesion. In a vacuum, no one can make decisions that are right for your practice. They don’t have the whole picture. To build an intelligent strategy, you have to look at your finances from both sides. To make the right decisions about your taxes, your accountant needs information about your whole financial picture (both business & personal) as well as retirement savings strategies. We’ve yet to hear from a dentist that has had this in place in over a decade—are you in this boat?