In addition to providing for your own retirement needs, a qualified retirement plan also offers valuable tax savings for the dental practice, and can help attract and retain quality employees. The good news is that you don’t need to invest in a complicated plan. There are several retirement plans that actually look, act and feel like a traditional 401(k) plan —without the cost and complexity. This is not an all-inclusive list, but is intended to discuss a couple of the more popular plans for dental practices. 


A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a good start-up plan for small dental practices that do not currently sponsor a retirement plan. You agree to match up to 3 percent of an employee’s salary dollar-for-dollar or make a 2 percent non-elective contribution for each eligible employee. If the employee contributes 2 percent of salary, the practice matches that 2 percent. If an employee contributes 10 percent, the practice is only on the hook for the 3 percent match. 
Affordable to set up and maintain — Just use the forms provided by the IRS, set up the plan and notify your employees. You may be eligible for a tax credit of up to $500 per year for each of the first three years for the cost of starting the plan.  Administrative costs are minimal, and no annual IRS reporting is required. 
Matching contributions are deductible — Money you put in for employees is deductible as a business expense. 
Employees have control of their retirement savings — Employees can terminate their salary reduction contributions, and may roll over their funds to a traditional IRA or another employer’s retirement plan at any time. 
Contributions are mandatory — As the employer, you are required to make contributions to your employee’s accounts each year — even if the practice is having a lean year. You can choose whether to make a matching contribution up to 3 percent of salary or a 2 percent non-elective contribution for each eligible employee. You must give written notice of the funding percentage annually to each participant no later than 120 days after the plan year ends. You can also reduce the matching percentage, but not below 1 percent, and not for greater than 2 out of every 5 years. 
Employer contribution limits  could be lower — The maximum contribution amount for an employee is $12,500 for 2016  — quite a bit lower than other retirement plans. Employees older than 50, can make an additional $3,000 catch-up contribution each year Employers are limited to the amount of contributions discussed above. 
There is a deadline for opening — SIMPLE IRA accounts must be opened by October 1 in order to make contributions for that tax year.


A Simplified Employee Pension (SEP) IRA is a good choice for solo practitioners or those with just a few employees. Contributions are paid directly into an IRA created for each employee, and the same investment, distribution and rollover rules as a traditional IRA apply. Contributions to a SEP are tax deductible, and the practice pays no taxes on the earnings on the investments. The employee is also free to supplement the SEP-IRA with another retirement plan. 
Easy set-up and maintenance — Just like a SIMPLE IRA, set up is simple and fees are minimal. In addition, there are no annual filing requirements with the IRS.
Larger employer contributions are possible — The practice may contribute up to the lesser of $53,000 (2015-2016) or 25 percent of compensation for each  participant. 
You don’t have to contribute every year — You are not locked into making annual contributions. In fact, you decide each year whether, and how much, to contribute to your employees’ SEP-IRAs. 
The employer makes all of the contributions — Unlike a SIMPLE IRA, where part of the contribution can be taken out of employees’ salary, a SEP IRA requires the employer to make 100 percent of the contributions.
Contribution percentage must be the same for everyone — You cannot pay yourself a higher contribution percentage than your employees.
All employees must be included if they meet minimum requirements — This can be expensive as the practice grows and you start adding employees. 
Dental professionals often neglect retirement savings while building their practice. Yet, building a nest egg for yourself and your employees doesn’t have to be complicated or expensive. 
We can help recommend, based on your retirement goals and other factors, what type of plan would be best suited for your practice.

The reporting of employer expense reimbursements by employees will vary based on whether the employer reimburses under an accountable or nonaccountable plan. This article will briefly discuss the two types of expense reimbursement plans and what the tax consequences are for the employee. 

The Basics

To qualify as an accountable plan, the employer’s reimbursement arrangement must require all of the following:

  1. The employee’s expenses must be connected to the business. This means that the employee must have paid or incurred deductible expenses while performing services as an employee. 
  2. The employee must adequately account to the employer for the expenses within a reasonable period of time.
  3. Any excess reimbursement must be returned to the employer within a reasonable period of time. 

On the other hand, nonaccountable plans are reimbursement arrangements that do not meet one or more of the requirements listed above.  For example, an employee who is reimbursed under an accountable plan, but fails to return, within a reasonable time, excess reimbursements. In this example, the excess reimbursements would be treated as if paid under a nonaccountable plan. In addition, if an employee is repaid for business expenses by reducing the amount reported as wages, it will be considered a nonaccountable plan. 

What is a Reasonable Period of Time? 

The IRS states that a reasonable period of time depends on the facts and circumstances of each situation. However, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time:

What is Adequate Accounting?

The second requirement for an accountable plan says that the employee must adequately account to the employer for expenses. Examples of adequate accounting by the employee include providing the employer a statement of expense, account book, diary, or similar record in which the expense is entered at or near the time it was paid. The employee also must provide documentary evidence, like receipts, of travel, mileage, and other business expenses. 

It’s important to note that the employee must provide the employer with the same type of records and supporting information that would have to be provided to the IRS if the IRS questioned a deduction on the tax return. 

Tax Reporting

So why does it matter if your employer uses an accountable or nonaccountable plan? It matters because it affects how you will report the reimbursements and expenses for tax purposes. Expense reimbursements under accountable plans should not be included in box 1 wages on the employee’s Form W-2. In addition, as long as the expenses equal the reimbursements, the employee should not file Form 2106 to report employee business expenses nor claim a deduction. 

In the case of reimbursements under a nonaccountable plan, the employer will include the amount of reimbursements in box 1 wages on Form W-2. The employee must complete Form 2106 and itemize deductions to deduct business expenses. Only the business expenses greater than 2% of adjusted gross income will qualify for a deduction on Schedule A of Form 1040. 


Whether a reimbursement arrangement is an accountable or nonaccountable plan is determined based on whether the plan meets all three requirements of an accountable plan. While accountable plans have requirements that must be met, they could be viewed as more favorable to employees for tax reporting purposes. 

If you have questions about your expense reimbursement plan – as an employer or an employee – please contact us to discuss.

Make no mistake; dentistry is one of the most overhead-intensive professions. According to Dental Economics Magazine, overhead as a percentage of practice revenue runs upwards of 73 percent for the average American dentist. 

Untamed, this “cost of doing business” can take a big bite out of net profits, making practice owners feel they are not earning enough for their efforts.

Of course, you could ramp up production. But that requires working harder. 

Or, you could take steps to tame your overhead. Here, the idea is that a dollar saved in practice expenses is a dollar earned. With that in mind, consider how you can reduce costs in these key expense categories:

Supplies – If you look, you’ll probably find the overhead beast lurking in your supply room. Are you using disposable safety glasses and bite blocks for X-rays? Supplies that can be sterilized and reused might be a more cost-effective alternative. At the same time, review supply costs in terms of a desired percentage of production. For example, if you want to keep dental-supply costs within a range of 4 to 5 percent — and you produced $30,000 last month — your cost of supplies should not have exceeded $1,200. Use $1,200 as your target amount for the next month, and track your progress.

Lab Costs – Cost isn’t the only factor in working with a dental lab. The critical question really is whether the lab provides quality products that you don’t have to send back for adjustment again and again. Likewise, are the lab fees reasonable in terms of the revenue you generate for the procedure?

Staffing – Nothing drains overhead like poorly performing staff. Make sure you’re getting value for the salaries you pay. That starts with investing time and money in the training your staff needs to perform at the top of their game. You can also look at shifting some portion of salary (which is a fixed overhead expense) and making it a variable, performance-based expense. With a production-based bonus system, for example, salaries increase only when staff members work harder and more efficiently.

Occupancy — Are you paying rent at a reasonable rate for your location? With communities and demographics changing so rapidly, it might be smart to only commit to a lease for 5 years or less — and negotiate for extension options. At the end of the lease you could determine if the location of the office is still attractive. 

The bottom line is that when you cut overhead, you increase your take-home profit — day after day, year after year. Take the time to review your financial statements and analyze overhead costs at least quarterly and annually. 

Contact our office today for help in getting a handle on your current practice overhead, as well as establishing target overhead percentages. 

Determining how much a business should pay its owners is never easy. You’ve got to consider a variety of factors, including just what form (salaries, benefits, stock) that compensation will take. You also need to ensure your approach will hold up under IRS scrutiny.

Balancing act

Let’s start with the basics. Compensation is affected by the amount of cash in your company’s bank account. But just because your financial statements report a profit doesn’t necessarily mean you’ll have cash available to pay owners a salary or make annual distributions. Net income and cash on hand aren’t synonymous.
Other business objectives — for example, buying new equipment, repaying debt and sprucing up your office — will demand dollars as well. So, it’s a balancing act between owners’ compensation and dividends on the one hand, and capital expenditures, expansion plans and financing goals on the other.

Dividend double-taxation

If you operate as a C corporation, your business is taxed twice. First, business income is taxed at the corporate level. Then it’s taxed again at the personal level as you draw dividends — an obvious disadvantage to those owning C corporations.
C corporation owners might be tempted to classify all the money they take out as salaries or bonuses to avoid being double-taxed on dividends. But the IRS is wise to this strategy. It’s on the lookout for excessive compensation to owners and will reclassify above-market compensation as dividends, potentially resulting in additional income tax as well as interest and penalties.
The IRS also monitors a C corporation’s accumulated earnings. Generally similar to retained earnings on your balance sheet, accumulated earnings measure the buildup of undistributed earnings. If these earnings get too high and can’t be justified as needed for such things as a planned expansion, the IRS will assess a tax on them.

Other business structures

Perhaps your business is structured as an S corporation, limited liability company or partnership. These are all examples of flow-through entities that aren’t taxed at the entity level. Instead, income flows through to the owners’ personal tax returns, where it’s taxed at the individual level.
Dividends (typically called “distributions” for flow-through entities) are tax-free to the extent that an owner has tax basis in the business. Simply put, basis is a function of capital contributions, net income and owners’ distributions.
So, the IRS has the opposite concern with flow-through entities: Agents are watchful of dealer-owners who underpay themselves to avoid payroll taxes on owners’ compensation. If the IRS thinks you’re downplaying compensation in favor of payroll-tax-free distributions, it’ll reclassify some of your distributions as salaries. In turn, while your income taxes won’t change, you’ll owe more in payroll taxes than planned — plus, potentially, interest and penalties.

Red flags, higher taxes

Above- or below-market compensation raises a red flag with the IRS — and that’s definitely undesirable. Not only will the agency evaluate your compensation expense — possibly imposing extra taxes, penalties and interest — but a zealous IRS agent might turn up other challenges in your records, such as nonsalary compensation or benefits.
What’s more, it might cause a domino effect, drawing attention in the states where you do business. Many state and local governments face budget shortages and are hot on the trail of the owners’ compensation issue and will follow federal audits to assess additional taxes when possible.

Other interested parties

Other parties also might have a vested interest in how much you’re getting paid. Lenders, franchisors and minority shareholders, for instance, could think you’re impairing future growth by paying yourself too much.
Plus, if you or your business is involved in a lawsuit, the courts might impute reasonable (or replacement) compensation expense. This is common in divorces and minority shareholder disputes. In these situations, you’d be wise to consult an attorney early in the compensation decision-making process.

Best practice

The best practice in owners’ compensation is to see to it that you’re being fairly compensated — and that you’re in line with industry figures. Avoid red flags, and your decisions should be able to withstand outside scrutiny. 

As the calendar dates begin to move ever closer to tax filing time, the anxiety may also begin to build. Most people do not eagerly anticipate the task of gathering their information for their taxes. For that reason, we have put together some steps that many of our clients have used that not only streamline the process for your tax preparer, but more importantly increase your efficiency and reduce the amount of stress associated with tax filing season. 

Step One: Collect and Organize Tax Documents

Develop a filing system that works best for you. It could be a simple folder or a multi-file box. When you receive tax documents, place them in the filing system to keep them all in one place and avoid misplacing any of your tax information. 

Tax forms typically come through the mail. Some issuers, however, are now offering the option to access your year-end tax forms online or via email. If you receive your forms electronically, you should set up a folder on your computer to gather and organize tax documents. This creates a similar system to the one discussed above for paper documents. 

If you itemize deductions, you will need to gather additional documentation. The major categories of itemized deductions include: 

Step Two: Read and Complete/Update the Tax Organizer

Stockman Kast Ryan + Co mails tax organizers to all of our tax clients during the month of January. If you are a client and we prepare your Form 1040, but you have not received a 2015 tax organizer, please contact your tax preparer and we will make sure that you receive a copy of the tax organizer. The organizer contains questions about current year taxable events, and it also lists the detail for income and expenses from the prior year tax return. Using the prior year tax return information is a great starting point to to see if anything was overlooked while collecting tax forms. We also suggest updating any information that is no longer applicable to your particular tax situation and using the questionnaire portion of the organizer to help identify any events during the year that would have tax implications. 

Step Three: Deal with Missing Information as Soon as Possible

As you begin to collect tax documents and review the prior year information in the tax organizer, it is a good idea to develop a list of missing items. While you work on gathering the missing items, you should go ahead and schedule your tax appointment with our firm. It is better to do this early on because we can discuss any additional documentation that might be necessary for the current tax year and also determine if your tax return should be extended. Extending the tax return while waiting for missing items may provide peace of mind. 

Step Four: Send Information Securely

In today’s world, criminals are finding new ways to steal a person’s personal information and eventually their identity. Tax forms contain personal information and should be transmitted with care when sent electronically. AT our firm, we have a secure email system that allows you to send us files securely. You can access this feature directly from our website,, on the Contact tab here. Please feel free to ask your tax professional if you need help with this feature or to inquire about a client portal. 

Step Five: Relax

By following the previous four steps, gathering your tax documents and submitting them to our firm will be less of a burden. Not only will you feel more organized, but your tax preparer will appreciate your effort!

For the most part, the Affordable Care Act has flown under the radar of many dental professionals. Yet the reality is that “Obamacare” includes provisions that will impact the dental profession. Make time now to bone up on the ACA’s potential impact to your practice’s bottom line.

Anticipate More Coverage

Under the ACA, pediatric oral care benefits are considered to be “essential health benefits” that must be covered by all insurance policies, whether purchased through the insurance exchange or not.

Each state determines what will be covered as part of essential health benefits. In Colorado, for example, all children ages 0 to 18 years must have dental coverage through the purchase of a pediatric dental benefit, or by enrolling in Child Health Plan Plus (CHP+) or Medicaid. Currently, the Colorado health insurance exchange offers 14 dental plans through five carriers.

Note that dental benefits can be purchased as a “stand-alone” dental plan or through a dental plan that is “embedded” into the general medical coverage. This means that your office administrator and billing staff will need to learn how to file claims for dental coverage embedded within a general medical insurance policy.

Expect More Patients

Plain and simple, the Affordable Care Act will increase the number of patients who are eligible for dental services. According to the American Dental Association, expansion of dental benefits under the ACA (including Medicaid expansion) will generate some 11 million pediatric dental visits and 1.7 million adult dental visits.

This means you’ll need to gear up for two distinct challenges:

  1. An influx of younger patients.
  2. An influx of Medicaid patients.

Don’t fear Medicaid

Many dentists find that there are far fewer administrative issues and fewer disputes over payment when working with Medicaid than with private insurance providers. According to Colorado’s Cavity Free at Three initiative, the state is considered to be one of the best for doing business with the Medicaid population. The state is responsive to concerns, reimburses for services quickly, and doesn’t require a lot of wait time for prior authorizations.

Preparing for the Financial Impact

Dental practices would be well served to perform a financial analysis of the ACA’s impact on their bottom line. That would include determining if accepting this new crop of dental patients makes financial sense — as well as deciding how many new patients to accept if it does.

For example, dental practices that are used to collecting at the time of service will need to adjust to the often-lengthy claims process. They will also incur costs to hire or train staff who are experienced in filing medical claims. (Filing a “clean claim” can mean the difference between a profitable visit and one that drains the bottom line.)

Dentists also need to keep in mind that the new 2.3 percent medical device excise tax imposed by the ACA may well drive up their costs. The tax is imposed on the manufacturers of medical devices, yet many believe that these costs will be passed down to the dentist and eventually the patients they serve.

Hang on for the Ride

According to the ADA, the Affordable Care Act may increase dental spending by $4 billion, with the largest effect seen in the Medicaid population. Ultimately, practices that are prepared to handle these newly insured patients could benefit. Please feel free to contact our office for assistance with performing a financial forecast to understand how the Affordable Care Act could affect your practice.

Applicable Large Employers (ALEs) must file Form 1095-C for each full-time employee and provide a copy to the employee. Although there is a transition period for determining which employers qualify as ALEs, in terms of this tax form, any employer with at least 50 full-time or full-time equivalent employees during 2015 will be required to file the form. As January 31 falls on a Sunday in 2016, a copy of the form must be provided to each full-time employee by February 1, 2016. If paper filing, a copy of Form 1095-C for each employee must be filed with the IRS by February 28, 2016. If filing electronically, a copy must be filed by March 31, 2016. Copies filed with the IRS must be accompanied by transmittal Form 1094-C. An automatic 30-day extension for filing the forms with the IRS is available by submitting Form 8809. 

Please note, small employers do NOT need to file Form 1095-C.

Health insurance providers, including employers with self-insured health plans must file Form 1095-B for each covered employee and provide a copy to the employee. It’s important to note that these forms must be completed without regard to the number of employees. As January 31 falls on a Sunday in 2016, a copy of the form must be provided to each covered employee by February 1, 2016. If paper filing, a copy of Form 1095-B for each covered employee must be filed with the IRS by February 28, 2016. If filing electronically, a copy must be filed with the IRS by March 31, 2016. Copies filed with the IRS must be accompanied by transmittal Form 1094-B. An automatic 30-day extension for filing the forms with the IRS is available by submitting Form 8809.

For additional information, please click here to see our article published June 1, 2015.

One of the main reasons cited by dentists and dental students for pursuing a career in dentistry is the potential to be their own boss. For many, that starts with the purchase of a dental practice.

Yet, many new dentists get so focused on clinical care that they ignore the business complexities of running a practice. To ensure that you are purchasing a practice that makes financial sense, consider these key areas of due diligence:

Market area — Who will be your competition within 1 mile, 5 miles and 10 miles of the practice? Just as important, are the demographics of the area appropriate for the type of dentistry you wish to practice? For example, if you are interested in emphasizing aesthetic and complex restorative dentistry, you’ll want to practice in a community where the demographics will support it. 

Patient characteristics — Are most of the patients returning patients or are there a lot of “one-offs” on the books? How about the ratio of patients with dental insurance to fee-for-service patients?

Growth potential — Assume you analyzed several years of a potential practice’s production reports and saw that the majority of perio and endo services have been referred out. Depending on your personal skill set and comfort level, offering these services in-house might create excellent growth opportunities.

Equipment — If not already in place, it could cost tens of thousands of dollars to upgrade a low-tech practice with technology such as digital radiography, a high-end intraoral camera system and a robust Electronic Dental Records System. On the other hand, if the technology is already in place, how much will it cost to maintain the equipment annually?

Current financials — Have you been able to obtain at least three years of prior tax returns and financial statements? Is the revenue and net profit trending upward or do you see a drop off? Be wary if the seller has not been completely transparent and answered all of your questions in a satisfactory manner.

Financing — In addition to borrowing for the purchase price, you might need to borrow additional funds to support cash flow needs as collections ramp up (it may take time to get revenue flowing, but expenses start immediately).

Cash flow —Your lender will want to see a forecast of cash flow for at least five years. If you can, break the numbers out on a monthly basis for at least the first two years, and then on an annual basis for years 3 – 5. Of course, one of the benefits of purchasing an established practice is that you are purchasing an established income stream.

Structure of the purchase agreement — What exactly are you buying? With an asset sale, you are purchasing the agreed-upon assets of the practice. With a  business sale, you are purchasing the owner’s equity in the practice and are, essentially, stepping into the ownership shoes of the seller — liabilities and all.  

Allocation of purchase price — Will you and the seller be able to reach an agreement on how to allocate the purchase price between goodwill and assets eligible for accelerated depreciation? This will require some negotiating between both parties.

This Won’t Hurt a Bit

Acquiring a dental practice is a major step — one that requires some guidance. Our firm can help you with the financial aspects and planning you need to start out on solid footing. We have the experience to help set up new business ventures as well as structuring the purchase of an existing business.

Costs for medical and dental care continue to rise in the U.S. along with health insurance deductibles, which means greater out-of-pocket expenses for manMedical Expense Deductiony people. Yet the good news is there is a way to offset these costs by deducting them on your annual tax return. The IRS allows taxpayers to deduct medical and dental expenses on Schedule A of Form 1040 as an itemized deduction, provided they meet certain qualifications.


It is important to note that certain qualifications must be met before a taxpayer can deduct medical and dental expenses.

What are deductible medical and dental expenses?

Medical and dental expenses include the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the cost for treatments affecting any part or function of the body (IRS Publication 502). This includes payments for services rendered by physicians, surgeons, dentists, and other medical practitioners as well as the cost of equipment, supplies, and diagnostic devices needed for these purposes. In addition, medical and dental expenses include insurance premiums paid for medical and dental insurance.

The following are examples of qualifying medical and dental expenses:

This is not an all-inclusive list, but it should give you some idea of the type of expenses that are deductible as medical and dental expenses on Schedule A.

Non-deductible expenses

Taxpayers should not take a deduction for any insurance premiums paid by an employer-sponsored health insurance plan unless the premiums are included in your taxable wages on Form W-2. In addition, payments for medication that do not require a prescription are not deductible on Schedule A. The exception to this is for insulin used for the treatment of Diabetes. Any expenses that are reimbursed by your medical or dental insurance should also not be deducted on Schedule A.

The list of expenses that do NOT qualify as medical and dental expenses includes, but is not limited to:


Although thresholds need to be surpassed in order to deduct medical and dental expenses on your tax return, there are many categories of expenses that are overlooked by taxpayers. It may be worth taking some time to review your qualifying expenses. Because if you have enough medical and dental expenses to take a deduction, this will increase your total itemized deductions and lessen your taxable income.

We encourage you to contact one of our tax professionals should you need help determining if you can take a deduction for medical and dental expenses on your tax return.


On July 31, 2015, President Obama signed into law P.L. 114-41, the “Surface Transportation and Veterans Health Care Choice ImprovemenCalendar Circle Datet Act of 2015.” This included many updated tax provisions, including revised due dates for partnership and C corporation returns as well as revised extended due dates for several tax returns. This article includes an overview of these new tax provisions.

New Due Dates for Partnership and C Corporation Returns

Currently corporations (including S corporations) must file their returns by the 15th day of the third month after the end of their tax year. For corporations using a calendar year, the due date currently is March 15. Partnership tax returns have been due on the 15th day of the fourth month after the partnership’s tax year, or April 15 for calendar year partnerships.

Under the new law, effective generally for returns filed for tax years beginning after December 31, 2015, the new filing dates are:

These new filing dates generally will not go into effect until the 2016 returns have to be filed. There is also a special rule for certain C corporations with fiscal years ending on June 30 – the change will not apply until tax years beginning after December 31, 2025.

New Extended Due Dates for Various Returns

Effective for tax years beginning after December 31, 2015, the new law includes a longer extension period for a number of tax returns. To qualify, a taxpayer must have filed an application for an automatic extension by the original due date of the tax return.

Partnership returns (Form 1065) will have the same extended due date as under current law, or September 15. However, the new laws allows for a maximum extension of six months.  Current law only allows for a five month extension.

Trust and estates filing Form 1041 will have a maximum extension of five and a half months under the new law. Under current law these returns can only extend for five months. The extended due date will be September 30 for calendar year taxpayers.

The Form 5500 series (Annual Return/Report of Employee Benefit Plan) will have a maximum extension of three and a half months. Under current law these returns can be extended for two and a half months. The extended due date will be November 15 for calendar year filers.

New Due Date for FinCEN Report

Taxpayers with a financial interest or signature authority over certain foreign financial accounts must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Under current law, the due date is June 30 of the year immediately following the calendar year being reported, and there are no extensions allowed.

Under the new law, for returns for tax years beginning after December 31, 2015, the due date of FinCEN Report 114 will be April 15. However, taxpayers can receive an extension of up to six months. The extended due date will be October 15.


The AICPA and state CPA societies have been advocating for the new due dates included in P.L. 114-41 for several years. The idea is to create a more logical flow of information while allowing for taxpayers and tax professionals to file timely and accurate tax returns. While these due dates will not take effect for a couple of years, we feel it is important to relay this information to our clients as early as possible. Should you have any questions, please don’t hesitate to contact us.