By Kathy Collins
CPA, Four Quadrants Advisory 

We’ve talked a lot in this space about the good, the bad and the ugly of taxes for the Dental enterprise. But then there’s the ugliest – the one many of you have experienced in one form or another and one of the most hated experiences in Dentistry – the dreaded tax surprise.

Everyone already knew that if you owed a decent amount of money, it was a surprise, but a big refund? It’s just as much of a mistake, but certainly easier to stomach. So if either of these are happening to you, something is broken.

The way to avoid or, at least, mitigate those tax surprises is to plan for them by managing the tax liability consistently throughout the year. And unless you have an accountant versed in the nuances of Dental practice operations, change will be needed. But trust me, it won’t be as painful as getting another bill from the IRS for five figures.

Read our guide: Dental Accounting 101

Begin this journey by asking some specific questions: Is it a ‘one-timer,’ like an expensive new piece of equipment or a sharp drop in overhead that caused the surprise? Or is it a deeper, consistent problem in your accounting systems that you need to solve by coming up with specific policies and procedures?

If it’s simply from a one-time windfall, there’s a relatively easy fix with the right help. You need better communication with your accountant to make sure they know what you have coming in and going out monthly, and can more accurately assess what your tax obligations are going to be earlier as opposed to later. We suggest a minimum of four tax projections per year to stay on top of this—and that very rarely ever happens.

If the surprise is more consistently prevalent, the relationship between you, your bookkeeper, and your CPA is in bad shape and will need to change because your current system is broken. Going forward, you need to make sure your entire tax and financial team are on the same page, with the same goal – keeping your tax situation under control on a monthly basis.

If your bookkeeping and financial analysis are more than two months behind, it’s not all that helpful for you. You need to update accurate numbers on a frequent basis. They need to lead to quarterly tax estimates that are delivered promptly each quarter, not an estimate every six months or once per year.

Ideally, an estimate that takes into consideration current practice trends, past trends, and realistic expectations for the remainder of the year should yield a much more reasonable, customized estimate.

If you’ve experienced one or more of these tax surprises in the last five years, you’re not alone. Tax surprises and poor communication are the status quo for most dentists before they come to our firm. But that doesn’t mean you have to continue to accept it for your practice. Make the changes you need to make to be sure your tax bill will be regular, predictable, and easy for you to handle.

Your sanity will thank you.

If you have struggled with tax surprises, or would like insights on how you can avoid the next one, contact us directly at (877) 720-6213 or send us an e-mail so we can determine together the best place to begin.

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. 

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. . .  

By Kathy Collins, CPA,
Four Quadrants Advisory

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.

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!