When Benjamin Franklin said that the only things certain in life were “death and taxes” most people didn’t consider that they may be closely linked. But problems with taxes can lead to the death of your dental practice unless you take steps to keep the IRS and local taxing authorities off your back… and with 87,000 newly IRS agents hitting the streets, now is the time to make sure you have your house in order!
With staffing, salaries, cashflow issues, billing and collections, paying your suppliers, and a whole string of other things for practice owners to worry about, there’s no need to add the taxman to the list!
So where do you start? A robust financial system that keeps the tax authorities happy should be the foundation that underpins your practice – allowing you to focus on the multitude of other issues that require your attention.
Specific requirements set out by your tax authority will differ by location but many of the basics remain the same wherever you are.
Eight of the most important general guidelines are detailed below: wherever you’re located and whatever your practice size, these will help you identify red flags in your tax setup:
1. Understand all the tax requirements – or find someone who does
Do you think your tax affairs are simple? They’re probably not. Ninety-nine percent of small business owners don’t fully understand tax legislation – so it’s important to seek specialist help. The temptation of many practice owners is to try to look after everything themselves. With tax, this can be a false economy: not only can it take ages to get to grips with what you need to do; it’s likely that you’ll miss something important.
2. File returns on time
The general rule is to file tax returns within twelve months of the end of your accounting period, but this may vary with location. Good planning in your business will ensure that you’re ready for the process; you know when it’s coming, have scheduled time to do it each year, and don’t end up scrambling around at the last minute to avoid penalties.
3. Keep consistent & accurate records
You should already understand the importance of accuracy and consistency: quite apart from generating the management reports to make good business decisions, the tax authorities love you for it too. Being consistent and accurate will help you flag any changes that affect your tax liability and explain any changes that raise questions from the tax authorities.
If you have some bookkeeping experience, you may be able to manage this yourself with user-friendly cloud software like Xero and QuickBooks Online. Otherwise, it’s best to have a certified bookkeeper keep your accounting records up to date.
4. Keep the ‘evidence’ together
Keep the receipts and invoices for your practice’s expenses together. Most practice owners know they should do this but it’s surprising how many find themselves scrambling around looking for receipts when the time comes to do tax returns. And even when they do find the receipts, they don’t know what they relate to.
Keep it organized. All tax authorities want to know that there is sufficient documentation to justify business expenses. Receipts don’t have legs. Your own inefficient system is responsible for losing them or causing confusion about their origin.
One of the benefits of using a cloud computing app such as QuickBooks Online is the ability to take a photo of a receipt with your smartphone to ‘scan in’ an expense receipt straight into QuickBooks Online; or you can use specialist apps that integrate with Xero such as Dext.
5. File business & personal expenditures separately
It’s easy to confuse business and personal expenditures. Unfortunately, it’s one of the quickest ways to get offside with the tax authorities. By keeping them separate, you can see at a glance what you can deduct and what you can’t: that means two separate (probably electronic) filing systems. Don’t be tempted to think “I’ll sort them out when the time comes for my tax return”. You’ll forget or cause delays.
6. Create a clear policy for employee reimbursement
Tax auditors want to know that you’re following the regulations with regards to employee reimbursement for travel, mileage, personal expenses, etc. They also want to know that expenses are appropriately signed off within the business to indicate that the business accepts liability. Document a clear policy that determines what employees can claim for and how they go about claiming it. Make sure that this is clearly communicated to all employees.
7. Plan for your tax bill
There’s no room for surprise tax bills on the path to success. Tax is generally predictable and consistent. This means that you can – and should – plan for it in advance. Sit down with your tax professional, understand what’s coming and when, and create a fund that can be used to pay the bill when it arrives. Maybe lock away a set sum every month. That way there are no nasty surprises ahead.
8. Never avoid the letters
Just because your tax authority writes to you asking questions or requesting records, it doesn’t necessarily mean the worst. Never avoid or delay answering these questions, as they don’t go away. Answer in a timely fashion – there will normally be an expected response date detailed on the letter. Don’t go beyond this. Seek some tax advice and answer the questions to the best of your abilities. Most tax issues can be solved relatively easily if they are dealt with before they spiral out of hand.
To wrap things up, adhering to sound tax management best practices can be the key to avoiding substantial headaches in the long term. Effective tax management involves careful planning, documentation, and compliance to minimize tax liabilities legally and efficiently. By staying organized and keeping meticulous financial records, dental practice owners can take advantage of various tax deductions and credits. This includes deductions related to equipment purchases, office improvements, and employee benefits.
Furthermore, strategic tax planning can help smooth out your cash flow throughout the year, preventing unexpected financial crunches during tax season. It also ensures that tax payments are accurate and timely, reducing the risk of costly penalties and audits.
Ultimately, embracing tax management best practices allows dental practice owners to allocate more resources to growing and improving their businesses. It’s a proactive approach that not only safeguards against future tax-related issues but also promotes financial stability and long-term success.
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7 Key Financial Practices That Separate Thriving, Growing Practices From The Rest.
There’s no denying it. Creating a thriving practice is about much more than practicing medicine!
Topping the list of “other” priorities is your practice’s financial management. In this short guide, the experts at STAC Bizness Solutions outline 7 financial best practices that differentiate struggling practices from those which are highly profitable and experiencing healthy levels of growth.