3 WAYS YOUR ACCOUNTANT MAKES TAX DAY EVEN WORSE

Posted by Brogan Baxter on Tue, Feb 11, 2020

sad-person-with-tax-paper-and-orange-background_1200x1200-1

If your CPA doesn’t provide dental-specific accounting, by managing tax liability throughout the year, painful tax surprises will arise.

If you're a dental practice owner, tax uncertainty doesn't have to be your tax reality. Bad tax planning also means you won't save money consistently.

WHAT DO DENTAL TAX SURPRISES LOOK LIKE?  

A tax surprise is any tax refund or taxes owed over $10,000 in a given year. If this is happening to you, something is broken and your current tax advisor or accounting system is hurting your practice.  

  1. FLAWED TAX ESTIMATES 
    Most accountants calculate your current estimated taxes based on your prior year profits. This works great for the Q1 payment, but most accountants also fail to evaluate business profitability throughout the year. What happens if you have decent growth and a drop in expenses in a given year?

    In a practice that collects $1 million a year your practice's net profit can easily swing more than $100,000. This translates into a $40,000 surprise your accountant didn’t detect.

  2. INFREQUENT RECONCILIATION OF BOOKS
    Most dentists are lucky to meet with their accountant once or twice a year. And when they typically have the “tax-planning meeting” late in the year, much of the opportunity to spot and avoid tax surprises has passed. A semi-annual or quarterly reconciliation won’t cut it.

    Outdated numbers lead to a lack of monitoring. This lack of monitoring means your accountant didn’t catch the $100,000 in profit. Instead of celebrating this growth, you now have little time to put together an additional $40,000 to cover a tax surprise. 
     
  3. IDENTIFYING PROBLEMS TOO LATE 
    An unexpected increase in profit means new taxes to worry about. Your accountant didn’t identify this problem and now new problems arise. Just as you pay for the mistakes of last year, you will also have to pay the estimate for Q1 this year—the proverbial “double-whammy” of tax season.   

   
HOW DO MOST PRACTICE OWNERS DEAL WITH TAX SURPRISES?  

Many dentists deal and accept poor tax planning, but don’t realize how it keeps them from consistently saving enough money for retirement.  

  • In a desperate attempt to cover tax surprises, many owners hoard cash in advance as they prepare for the worst.  

  • Others just ride the peaks and valleys of thick and thin monthly income waves. They’ll cut THEIR OWN PAY to cover expenses or run the practice accounts thin and this is damaging to everyone. These are cashflow rollercoasters you, your employees and your family should not be subjected to. 
     

HOW CAN FOUR QUADRANTS HELP?  

At Four Quadrants Advisory, we plan to avoid tax surprises and calm tumultuous cashflow waves.   

  • No matter who you are or what you produce, your focus should be to build long-term wealth.  
  • Our goal for every client is to help them save $100,000 or more each year for retirement by stabilizing their practice income and getting in front of any major expense—like tax surprises.   

 
Interested in learning more? Book your free 30-minute strategy session

Read More

Topics: dental accounting, dental CPA, Tax Advisory, tax time, IRS, tax surprise, tax refund

VIDEO: 3 Questions We Ask Every Prospective Client

Posted by Kathy Collins on Fri, Jun 12, 2015

Every important relationship starts with a conversation.

We like to start a conversation by asking questions that allow both a prospect and Four Quadrants determine where they are in their dental practice.

The dentist discusses the issues they’re facing, how they’ve tried to solve them, and what has or hasn’t worked. We use that to determine whether or not the practice is ready for our brand of help. If so, we move on to the next step together. 

If not, we offer baseline materials to help get the practice to the right starting point.

Click the play button on the video below to discover the Three Questions We Ask Every Prospective Client. . .  

Read More

Topics: dental accounting, dental CPA, Tax Advisory, tax time, IRS, tax surprise, tax refund

5 Things You Can Do Right Now to Get Your Taxes In Shape for NEXT Year

Posted by Kathy Collins on Wed, Apr 29, 2015

By Kathy Collins, CPA,
Four Quadrants Advisory

yikescalc

April 15 was only two weeks ago. And let me guess . . . it wasn’t the highlight of your Spring?

If you run a dental practice, preparing for this day always seems to be crammed with equal parts uncertainty and anxiety.

But Tax Time is no longer a day our clients fear. We customize an actual plan for each of them so they can avoid an unexpected tax bill or tax refund that wreaks havoc on bank account stability and retirement savings balances.

Read the Guide: Financial Planning for Dentists

So let’s get your retirement back on track by implementing 5 proven strategies to make 2015 your smoothest - and most predictable - year ever.

1. Convert your company to an S-Corporation - 

This structure will allow for better cash flow and more predictability (no more bank account roller coaster games) when a compensation structure is planned properly.

WHY DO THIS? — Although taxes still need to be managed in an S-Corp., this is a huge step toward reducing the dreary year-end tax surprises because more taxes are spread throughout the year with a consistent paycheck. 


2. Hire a dental-specific accountant 
This is not a CPA that has “some” dental clients, this is a CPA that has “exclusively” dental clients. By being a specialist, and knowing dental terminology, they can develop a dental-specific chart of accounts (i.e. list of expenses) and be aware of financial issues that are unique to dentistry.  
WHY DO THIS? — The frequent, consistent numbers will allow your CPA to communicate great ideas and proactive advice.

3. Develop an appropriate safety net -
Having the money to pay a tax surprise makes the sting of the surprise slightly less painful, but having structures in place to ensure this happens is harder than you think. You need to be disciplined and be a numbers-hawk consistently. We show you the calculations that go into establishing your minimum practice cash reserve.
WHY DO THIS? — This balance will float up and down against the ideal as overhead fluctuates, so be sure to take your income in a predictable manner. This makes it easier on the cash flow and bank balances and is more predictable to manage.

4. Devise a more cash flow-friendly income structure - 
Most tax advisors suggest you take home most of the cash reserve or stab in the dark at where you should set income. Structuring income this way often results in huge quarterly tax payments or sporadic, lumpy distributions—neither of which are friendly on your personal or business bank account.
WHY DO THIS? — It may not be sexy, but boring, predictable bank accounts are where it’s at folks. And we hear more sleep at night from less stress does wonders for the complexion!

5. Re-evaluate your retirement plan -  
Not all 401Ks are created equal, and you should learn how to identify whether yours is outstanding or mediocre. We recommend a fee-only investment environment, free of commissions that can penalize a proactive involvement.

WHY DO THIS? — By adding a generous match and allowing a profit share component you’ll be shocked at how much retirement savings can accumulate without the complication and expense of other “sophisticated” retirement plans. Additionally, you’ll get the benefit of being able to shelter money from Uncle Sam via tax savings with a great retirement plan structure.
 


Ultimately it’s our goal for all of our clients to stabilize their practice income so they can save $100,000 or more each year for retirement. 
For more information, download our success kit or contact us today by filling out the form below!


 

Read More

Topics: dental tax, dental accounting, dental CPA, Tax Advisory, IRS, tax surprise, S-Corporation, cash flow, fee-only investing, cash reserve

Embezzlement Strikes 3 out of 5 Dentists - & It Can Happen To Any Dentist

Posted by Four Quadrants Advisory on Thu, Dec 19, 2013

cashThis guest blog post was written by David Harris of Prosperident, an expert in fighting embezzlement and fraud in dentistry.

Published statistics suggest that three out of five dentists will be victims of embezzlement in their careers. Embezzlement knows no boundaries – it strikes general dentists and specialists, solo practitioners, group practices, dentists in small towns and those practicing in urban areas. It is carried out by long-time, trusted employees and carries high financial and emotional costs. I’d like to share some of the things I have learned in the course of investigating many dental embezzlement files.

How is embezzlement normally uncovered?

The answer to this question might surprise you. The American Dental Association recently published the results of an extensive study on embezzlement. Among other things, the study considered how victims uncovered the embezzlement taking place in their offices.

Here’s where it gets interesting — only 19% of discovery was prompted by the planned operation of the dentist’s system of controls (day-end balancing, review of software audit logs, fraud found by the dentist’s accountant etc.). The remaining 81% was discovered by some accidental occurrence (examples include another employee reporting the theft, patients identifying billing discrepancies or an employee working unexplained extra hours).

So what can be learned from this?

There has been a lot written by advisors who suggest that the way to prevent embezzlement is to implement more (and more) controls. I’m sure you have seen articles that give frustratingly long lists of things a dentist should check weekly and monthly. In addition to the large time commitment that accompanies this internal audit process, I have always questioned its effectiveness.

Embezzlers are driven by some powerful forces, and to expect them to be discouraged by some visible and easily circumvented controls seems like a delusional exercise.

Read our guide: Dental Accounting 101

With the ADA’s survey results reinforcing my view, I hope that dentists and their advisors begin to see the futility of attempting to manage fraud through internal controls and self-directed audit.

Please don’t misunderstand me — there are lots of controls that serve purposes other than fraud detection. For example, even though day-end reviews uncover less than 8% of all embezzlements, these reviews serve other useful purposes like catching clerical errors.

There is good news. Since I’ve just turned your understanding of embezzlement upside down, at this point you are probably looking for a solution. Fortunately I have one, and it is a lot less painful than you might think.

This silver lining is that, regardless of the methodology used to steal, embezzlers behave in very predictable ways. We have developed and constantly refined a “Fraud Risk Assessment Questionnaire” that is designed to help you capture and assess these behaviors. Completion will take less than five minutes and could save you a bundle. You can request the questionnaire by sending an email to fraudnews@prosperident.com. And what if you suspect fraud? This is where it gets a bit tricky. Many of the things that instinct tells you to do in this situation (call the police, confront the subject etc.) have the potential to make your situation far worse.

If you suspect fraud, the best advice I can give you is that stealth is paramount. If someone is stealing from you and senses that you are about to uncover their stealing, they will have a very strong desire to destroy the evidence. This might be as simple as wiping your computer’s hard drive and destroying all backup media, or it might take a more sinister form (there have even been cases of thieves burning down dental offices in an attempt to hide the evidence!)

Any steps taken by the thief in this direction will compound the damage they have already inflicted on you.

If you are in this situation, it is essential that you receive knowledgeable advice – and by this I mean someone with experience in dealing with dental embezzlement investigation.

While the list that follows is not a substitute for this kind of advice, it may prevent you from making some of the mistakes that others have made:

Stealth is paramount for several reasons – normally at this point, fraud is SUSPECTED but not CONFIRMED. It is not unheard of for a dentist to wrongly believe that he or she is a victim.

On the one hand, if there is no fraud, it is far better that staff members are unaware that the dentist had a “crisis in confidence” in them. However, if fraud is happening and the thief thinks that you are on to them; their normal inclination is to take steps to destroy evidence. For example, erasing data from your computer’s hard and destroying all backups. We were not involved but did observe a situation where an employee, sensing that the dentist was about to uncover her fraud, burned down the entire office to make reconstruction of her crimes almost impossible.

If a theft is taking place, the best outcome for the dentist will be achieved by preserving evidence, conducting a quiet (stealthy) investigation and confronting the thief only when fully prepared.

There are several things that must be done in order to preserve stealth:

  • The dentist must continue to act normally and avoid behaving unusually
  • Investigation must be done in a way that does not disclose the dentist’s suspicions. The easiest way to tip your hand is to have a couple of people who look like police officers or accountants) come into the practice and start poring over records or to start having a unusually large number of non-patient phone calls for the dentis
  • The dentist must be extremely guarded about discussing suspicions with colleagues, staff members etc. We were involved in a situation where a relative of the suspect worked at the vendor of the dental software used by the dentist, so great care had to be taken in communication with the software company.
  1. Obtain professional advice. Some dentists approach fraud investigation as a do-it-yourself project. Given that the dentist typically does not know what to look for (and often needs the assistance of staff to access computer information in any case), self-guided fraud investigation is likely to accomplish little other than tipping off the fraudster.
  2. Preserve evidence. Your computer’s hard drive contains a cornucopia of information that will be needed to confirm the fraud, quantify losses, prepare an insurance claim, proceed with prosecution etc. However this information is volatile and can be deliberately erased or overwritten
  3. Dental software vendors make continual improvements to their software. A common recommendation of vendors, if contacted with concerns about theft, is to upgrade your software to the latest version. This is probably not a good idea in most cases as doing this will undoubtedly be resisted by, and raise the suspicions of the thief.
  4. Do not place “bait” (e.g. put an extra $20 in the cash to see if it goes missing). This action is likely to provide a false sense of security. Employees who target their dentists often perpetrate sophisticated frauds involving tens or hundreds of thousands of dollars. If you were doing this and the dentist offered a (fairly transparent) chance to demonstrate your honesty by returning the $20, wouldn’t you give it back? This seems like a fantastic bargain.
  5. Do not change financial protocols. Looking to make changes without being able to explain the rationale will certainly be seen through by a thief.
  6. Do not report the incident to police (until you have sufficient evidence to confirm fraud). Making a police report before you have gathered all the evidence serves no purpose and may limit your options in dealing with a thief.
  7. Do not confront the suspect. There will be a time when this is appropriate – our success rate in obtaining confessions from thieves is 100%, but it requires careful preparations before the confrontation.
  8. Do not contact insurance companies. If a theft involves obtaining extra funds from insurance companies (e.g. upcoding of treatment), the insurance company may have recourse against the dentist for amounts misappropriated. Some insurance companies will provide agreement not to hold the dentist vicariously liable in situations where the dentist had no involvement in the theft, but this amnesty needs to be set up correctly, with an intermediary approaching the insurance company on behalf of an unnamed client.
  9. Whatever you do, don’t fire anyone until evidence has been gathered – the amount the employee may steal from you in the few weeks that it will take to complete an investigation pales in comparison to the cost of a wrongful termination lawsuit.

If you want to speak with me about a fraud matter, you can see my availability online and self-book an appointment using my online booking calendar at www.tungle.me/fraudguru. Or if you prefer, you can call and ask to speak with me or one of our experienced investigators at 888-398-2327.

We also have an email hotline that is checked daily (including evenings and weekends) by our on-call fraud investigator. This email address is fraud@prosperident.com

David Harris is the Chief Executive Officer of Prosperident, the world’s largest dental embezzlement investigation firm. His personal email is david@prosperident.com and he can be reached by phone at 888-398-2327.

New Call-to-action

 

Read More

Topics: dental advisor, dental accounting, Financial Planning, dental CPA