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2008 Deduction Checklist for Dentists

The 2008 Deduction Checklist for Dentists is here, and available as a free download.

PHSP - The Do It Yourself Health Plan

Medical expenses can add up quickly. Consider new glasses, contact lenses, or even Lasik surgery for your eyes. Throw in some braces for your kids, and before you know it you've accumulated over $5,000 worth of receipts.

Here's the catch: when you take these receipts to your accountant in April, he will tell you that the expenses reduced your taxes by less than $700. Hopefully he will also tell you that these expenses could have been tax deductions in your company.

Thieves You Trust - Dental Office Fraud & Internal Controls

Whether you are a young dentist purchasing a new practice, or a mature practitioner working towards retirement, establishing an appropriate system of internal controls is absolutely vital in protecting your practice cash flow. The practice is the foundation of your personal financial security, and therefor you must build a firewall around this valuable asset to protect against fraud and embezzlement.

The "Ideal" Corporate Structure

The main goals in setting up a dental corporation are income splitting and selling the shares tax free.

Consider having the shares of Dentalco owned 100% by the family trust and have the family members and Holdco as beneficiaries.

Dentalco pays dividends to the trust, which can be allocated to the family members to access the $500,000 capital gains exemption.

If you don't have eligible family members, here is a simple option.

You set up Dentalco with you owning 99 Class "A" shares and have Holdco own 1 Class "B" share. Tax-free inter-corporate dividends can be paid to Holdco, and on the sale of the shares, 99% of capital gains is allocated to you to claim the capital gain exemption.


Purchasing a Practice: Check the Internal Controls

You would never purchase a home unless you have an inspector crawling through the attic checking for leaks. Likewise, you should never purchase a practice until you thoroughly check the practice management system for financial leaks. Unfortunately, the internal control review is left out of the due diligence checklist.

For instance, the reasons for having strong financial controls in your billing/collection system are to ensure that:

  • all procedures are billed to the patients and in the correct amounts, and
  • all billings are collected promptly

Many dentists do not seem to pay much attention to these internal controls when setting up their front desk systems. A recent practice review showed a glaring absence of effective internal controls in the billings/collection function. In one situation, the front desk person could easily double her salary with a few keystrokes on her computer terminal. There is just too much money flowing through the practice to ignore the internal control system.

Put the internal control review on top of your diligence checklist. We can conduct a review of the internal control system to make sure there are no leaks. We have developed auditing tools tailored specifically to the dental office. Following such a review, we will provide you with recommendations, and help you with the implementation.


Writing Off Health Club Fees

Can your dental corporation deduct membership fees to a health club?

According to the recent CRA technical interpretation, the corporate payment for club dues or gym membership fees will result in a taxable benefit to you.

This is the general rule; however, if it is to the advantage of the dental corporation, as your employer, that you are a member of this club then you will not be charged with a taxable benefit.

As long as the main purpose for the health club membership is to give you the opportunity to mingle with current and potential patients, you can argue that the dental corporation is the primary benefactor and, therefore, no taxable benefit should apply.

On the other hand, if the main reason is for you to feel healthier, younger and slimmer, then you have to pay tax on the membership dues.


Are You Maximizing The Profitability Of Your Hygiene Department?

Other than adding some fancy toys, the way you run your hygiene department has not changed over the last 20 years. With the limit of what a hygienist can charge, and the escalating salary for qualified hygienists, the challenge is of how to maintain or even increase the profitability.

Your hygienist is the only direct income producer of your practice. Here are some tips, so that your hygienist maximizes profitability, rather than becomes another practice overhead.

Make your hygienist the top marketing person. The hygienist basically sells the treatment, so your job is to come in for the close. Give him/her the tools needed to make the selling process easier, which includes use of the intra-oral camera. Go through some formal sales training, including the script you want your hygienist to use in promoting the treatment.

Use a hygiene assistant. Maximize the hygienist time spent directly producing the revenue, while a dedicated assistant at a lower salary is performing tasks, which can be delegated.

Consider financial incentives. How about having a sliding scale for salary depending on the hourly production. Consider putting the top producers on a percentage production, most commonly 40%.

It makes business sense to have all your staff reach their fullest potential, and that certainly applies to the hygienists in your office.


Do You Have Sufficient Disability Coverage?

The chances are much greater that you will cease to practice dentistry as a result of disability than because of premature death. If you are 35 years old, there is a 30% chance that you will be disabled for more than 90 days during your lifetime. Here is what to look for in an income replacement policy.

  • Consider taking out sufficient disability coverage to replace at least 60% of your earnings, assuming that the income benefits would not be taxable. Whether or not the disability benefits are taxable will depend on whether or not the premiums for the policy are paid with after-tax dollars or written off as a business expense. I suggest you pay the premiums with after-tax dollars to ensure that the disability benefits are not taxed.
  • Find out how "disability" is defined. If the policy has an "own occupation" clause, this means that disability benefits will be paid even if you are capable of getting another job.
  • Make sure that the contract is non-cancellable. This means that the insurance company must continue to insure you as long as you pay the premiums. Your policy cannot be cancelled for any reason, nor can your premiums be increased.
  • If at all possible, extend the time between the date of the disability and the time when you first start receiving benefits. Consider choosing a 90 or 120-day waiting period, as the premium cost will drop substantially.
  • Ideally, you want the benefit period to extend to age 65 so that the disability income will look after you until your old age.
  • Consider a policy that offers "residual" benefits. If you cannot carry on your job full-time, but you could work part-time, then the insurance company will pay benefits equal to the drop in your income.
  • Make sure that the policy has a cost of living adjustment (COLA) clause. This will ensure that your purchasing power of the disability coverage is maintained and adjusted for inflation.
  • Also, check the policy with respect to "exclusions" and make sure that you are covered for all types of illnesses and injuries.

Your choice of disability insurance is limited as there are only a few insurance companies offering disability policies. Ensure the company will pay your disability benefit until age 65. Expect to pay a higher premium for coverage that will last you a lifetime. A cheap policy will probably not give you the coverage you need.