Never too late for good advice

May 2010 | Dental Products Report

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Never too late for good advice

The right advisor may be able to help with the future as well as correct past financial mistakes.

by Bruce Bryen, CPA

Good advisors hear praise about the initiation of ideas that assist in the financial planning and well being of dentists. They are able to resolve issues that may seem impossible to overcome because of the dentist’s neglect in addressing them, or, in some cases, because of the dentist’s lack of knowing of their existence.

Sometimes the discovery of the problem takes place because of a large income tax bill presented by an advisor at its due date or shortly before it is due. What to do for a satisfactory resolution means a probable analysis and some type of overhaul of a dental practice’s tax and financial reporting and more input from a more observant advisor. This will be time consuming but most likely, very profitable for the dentist. An issue that will be addressed by a knowledgeable advisor will be the questioning of what happened in the past and a plan to make sure that it does not happen again. It will also include a format where the dentist agrees to spend the time necessary to develop a strategy for an ongoing review and detailed meetings on a current basis with an advisor. There is also the possible recovery of amounts paid for those old missteps and lack of sound advice.

Correcting the past 

The following is an example of getting good advice for current financial and tax difficulties and for correcting problems from the past because of the lack of sound advice and planning.
 
At this time of year, around income tax time, a dentist may eventually hear from the dental practice accountant. The news is typically not good. In this scenario, the dentist has been told that $50,000 is due for income taxes for 2009. It is of course too late to do anything at this point about the payment that is due for 2009 because that year has ended. In this case, there were probably no scheduled meetings with an advisor to plan for the potential tax or for advice about how to defer or eliminate the tax. If there were meetings, then this issue was not addressed. It is not too late to do something about planning for 2010 and while the planning is taking place, the new advisor will let the dentist know that there is a possibility to recover what was paid for the old tax bill by taking steps to assist with planning for 2010 and beyond. The key words that many dentists have never heard are “carry back.” What is it and how does it work?

What is a carry back?

A good starting point to define what a carry back consists of is to consider that your dental practice may operate at a loss for income tax purposes but not for financial purposes. One may wonder how that is possible. No one wants his or her dental practice to operate at a loss.

There is always the emphasis on producing more income, reducing overhead and increasing the bottom line. There are tools used for sound financial planning whereby a loss is generated because an expense has occurred that is really for the benefit of the owner and key staff members of the dental practice. Where does the loss come from and how does the practice sustain its existence if there is a loss? A loss can be created by installing a sophisticated retirement plan that benefits the owner and selected key people and assists in creating a current operating loss for the dental practice that is then available to use retroactively against past income and tax that was generated when the dental practice reported substantial taxable income and the dentist paid a substantial income tax and effective planning tools were not being considered.

The law allows these losses to be carried back against past income and to have the tax that was paid during some of those years refunded. In the above example with the $50,000 tax that was paid, it is very realistic to think that the entire amount can be recovered by using a particular type of retirement plan that calls for high deductions within a very short time frame.

How to get started

The retirement plan is created for the dental practice after consultation with a CPA knowledgeable in the workings of dental practices and with a good understanding of the use of retirement plan concepts for the benefit of the owner. The dental practice owner should understand that much effort is needed and a lot of time must be dedicated to good advisors so that the retirement plan can be formulated and continued year after year.

Planning for future revenue deferral is a criterion needed to be discussed and where the contribution to this type of plan will come from is essential for its continuance. Overall planning involving the dental practice revenue, expenses, assets and liabilities are needed as well as a thorough investigation into the dentist’s personal affairs so that the good advisor knows the total picture and can give advice based on an understanding of what exists. Once that knowledge is gained, advice can be given that will assist in not just the creation of the retirement plan, but also in advising in other areas of financial endeavor that will enhance the dentist’s financial position. The cost for the initiation of a sophisticated plan geared towards the dentist and key office people will be in the range of $7,500 to $10,000 the first year. After that, the annual administrative cost will probably be in the area of $3,000.

It is never too late

Get a good advisor and the return on investment will be enormous on a current basis as you spend the time needed to learn and use that information for your financial advancement. You will discover opportunities for income and asset accumulation that you never knew existed. You will learn about recovering from past mistakes and using that knowledge to enhance the future. It is never too late to increase asset accumulation and to defer taxes through innovative planning.

Bruce Bryen is a partner in The Snyder Group and managing partner for Bryen & Bryen LLP, Certified Public Accountants. Based in New Jersey, Mr. Bryen specializes in deferred compensation such as retirement plans, income and estate tax planning, the determination of the proper organizational format, asset protection and structuring loan packages for presentation to financial institutions. Bruce is also experienced in providing litigation support services and has testified on numerous occasions as an expert witness. Contact him at 800-988-5674, ext. 112.

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