Gather the Troops, continued

Reason #2... If you bring in a CPA too late, it can become a bookkeeping nightmare! Here's why...

Let's say you've just purchased a healthy dental practice. You found the practice through a broker, and went for it, without the help of a CPA or dental consultant. This is because you felt comfortable with your industry knowledge, and felt the price the practice broker put on the practice was fair.

You open a checking account for your new practice, start incurring some expenses, etc. You've even got some collections. So, now you've got a checking account with some activity. After operating this way for a while, you decide you need a CPA. Your new CPA suggests that it would be advisable to operate your practice as a corporation. After he/she explains why this is a good idea, you agree and you incorporate. This involves an attorney, articles of incorporation, stock certificates, etc. Meanwhile, you're still trying to run your practice.

Now, because you didn't talk to a CPA before, you need to open a different checking account for your new corporation, send new W-9's to all of your insurance companies, etc. You also need to start a new company file in Quicken. Then your CPA needs to straighten out two sets of books, decide where to draw the line on collections, expenses, etc. This is a huge hassle and involves a lot of $$ billable hours $$ for your new CPA.

So, again, if you're buying a dental or medical practice, or starting one from scratch, please get an attorney and a CPA involved early! They like billable hours, sure... but they would rather spend that time helping strengthen your practice, rather than cleaning up bookkeeping messes.

Double Tax on "Auto Deduction"

Most doctors love to have an automobile in their corporation or as part of their sole proprietorship. That's fine, but don't get too excited! It's not as easy as paying for gas, insurance, maintenance, repairs, etc. with your business checking account and writing the whole thing off. That wouldn't be right!

You can only deduct the business use of your auto. This doesn't mean you get to pick a number out of the air, like 80% or something. This means you are supposed to keep track of your business mileage versus personal use. You need to keep an AUTO LOG! While it may seem tedious to do so, it is one of the only sure fire ways to actually keep your auto expense deduction.

If the IRS decides to audit you, one of the easiest things to get you on is your auto expense... mostly because not very many people are able to substantiate the deductions they take.

If you are operating as a corporation, the non-business use of the auto should be included on your W-2 as taxable income! Don't like the idea of that? Try not putting any on your W-2. If the IRS comes in and finds you've got a corporate auto, using it personally, they will most likely reverse your entire auto deduction AND recognize the full amount as personal use and make you pay taxes on that amount. That sounds just about as good as double taxation.

If you are a dental or medical specialist, you may be able to justify more business use than a general practitioner. The more you use your auto to run business errands, do continuing education, travel from office to office, etc. the better off you are.

One thing that people always get wrong is commuting... this is NOT BUSINESS USE!

Well, that's enough doom and gloom for one day... Just be happy that you get to deduct any auto expense... most people don't! Have fun keeping track of those miles!

Gather the Troops

I've been working lately with a lot of dentists and physicians who are either purchasing a practice, or starting a scratch practice. I'm also working with some doctors who are combining their practices into one.

One crucial thing I've picked up from this is the need to "gather the troops" early. I realize that most doctors are aware that they need a good CPA, attorney, consultant, etc. to help them in a practice transition or start-up. The part they miss sometimes is the timing.

Bringing the CPA into the picture one week before opening the doors is not good practice. I'll give one good reason today, and fill you in on some more next time...

Reason #1. One important decision you will make in starting your practice is operating entity selection. Will you incorporate, or not (another hot topic for another day)? If so, will you be an S corporation, or a C corporation? This is an important decision that you should consult with your CPA and attorney about before diving in.

If your colleagues have already convinced you that you must be incorporated, you'll need to talk to your attorney about getting the articles of incorporation, etc. You'll need to talk to your CPA about making the S corporation election. This needs to be done within two and a half months of incorporating. Please don't make your CPA write an embarrassing letter to the IRS about how the client didn't know they only had 75 days, and there was a miscommunication, etc. Just the thought makes the hair on my neck stand on end!

Tune in next time for more reasons to gather the troops early...