Last week's Republican tax plan appears to have the support of the President, but passing a bill through the Senate will be a more difficult task as the GOP holds a slim majority in the House. The plan will likely go through some changes before becoming law - if it becomes a law at all. Here are some of the key current provisions impacting our clients Corporate Tax Rate The current corporate tax rate of 35% would be lowered to 20% and there would be a one-time tax break allowing corporations to repatriate overseas profits to the United States. Very few of our clients are C-Corporations and most are “pass-through” corporations. There may be relief as the proposal would allow 30% of a pass-through entity’s profits to be taxed at a preferred rate of 25%. Unfortunately, it appears that companies that perform services like medical, dental, legal, accounting etc., will not be eligible for these rates. More than any other provision in this plan we feel that this one will need further clarification of how exactly it will work. Individual Tax Changes Tax Brackets The proposed plan reduced the current 7 brackets down to 4. In a surprising move, the [...]

The Downside of Controversial Tax Strategies As a CPA firm, we often get suggestions from clients on tax deductions they feel eligible for based on articles read or seminars attended. There exists a cottage industry of consultants who promise to lower your taxes if you engage them, but, oddly, these consultants will typically avoid actually preparing returns. Why? Signing a tax return as a preparer puts the CPA at risk too. If an audit were to be done, the preparer must provide the support documents and rationale for all deductions applied. If deductions were wrongly applied, yes, the taxpayer will owe taxes, penalties, etc but the preparer will suffer too. Penalties, and even loss of licensure, can reign down. This is why we find it ironic that the consultants will call your CPA “timid,” but then will sit on the sideline when it comes to tax preparation. Below are some of the most common "strategies" from consultants along with our take on the applicability and legality: STRATEGY: Create a Management Company to Leverage C-Corporation Tax Rates Their Recommendation: If you have a small business, you can create an additional management company and register it as a C-Corp. Your small business [...]

Curious as to what some of the recent tax terms and proposed changes actually are? Below is a quick guide to the terms and concepts you'll be hearing over the next couple months as our country looks to understand and ratify some changes to the tax code. "Knowledge is power; information is liberating; education is the premise of progress." Kofi Annan Corporate Tax RateThe corporate tax is levied on the profits of C-Corporations and is essentially a 35% flat rate. The corporate tax rate in the United States is among the highest in the world and it is believed that companies are keeping profits overseas to avoid this tax. C-Corporations are non-pass-through entities which means they are subject to double-taxation. First, taxes are paid by the C-Corp at the corporate tax rate on profits. Second, shareholders and owners are taxed as they take those profits out as dividends. The Standard DeductionIf you do not itemize your tax deductions, you automatically receive what is referred to as the Standard Deduction. It reduces your taxable income without forcing you to list your individual deductions. The current proposal would raise the standard deduction to $24,000 for a married couple. If beneficial, you could [...]

President Trump recently unveiled some details of his tax plan and with this will come many articles purporting this solely as a plan with “tax cuts for the rich”. The problem with this view is that it over-simplifies a complex tax system and distracts from the true debate. Take, for example, Bruce Murphy's recent piece Tax Handout For Rich Kids where he focuses on the tax deduction students at University School (the wealthiest school in our area) receive. Never mind that the deduction has been around for over 3 years or that it applies to all private school tuition, a writer needed some page views on a current issue, so he took the low hanging fruit. I mean, very few are sympathetic to those taxpayers who can afford in excess of $20,000/year, right? Easy target. Unfortunately, Mr. Murphy relies on a "focus on the exception" strategy to gain eyeballs and clicks. He coupled it with an inaccurate headline (kids don't receive the deduction, their parents do) in an attempt to infuriate the reader (those damn rich kids get everything!). However, the article fails to mention some important points which may change minds on the value of the deduction. For instance: [...]

Most of our clients fear an audit by the Internal Revenue Service and wonder what “red flags” they may be raising on their personal tax returns. In reality, there is a higher chance of receiving a sales and use tax audit from the State, than a visit from the IRS. Sales tax is generally charged on revenue from the sale of tangible property (items you can touch and see) and service revenues are (typically) exempt. As with most laws, the exceptions to these general rules provide confusion and often times lead to violations - albeit unintentional. For example, repair services are generally taxable (even though it’s a service) whereas construction of a home or building is generally exempt (even though the end result is tangible property). Many of our clients provide a service and thus, sales tax is not a big issue. However, the Use tax can trip them up. Use tax is supposed to be submitted on any purchase you make where sales tax is not charged at least at the rate of your local municipality. For example, if you purchase supplies for your office and live in Milwaukee County, you must make sure that you paid at least [...]

I recently listened to a Dentaltown podcast that featured Bill Rossi of Advanced Practice Management in the Twin Cities. Mr. Rossi is a well-known practice consultant with a great reputation and the podcast highlighted the common traits he saw in successful practices. He provided his professional opinion, but also employed a statistician to review his clients’ numbers and back-up his assertions. I agreed with many of his points, but also found a few other similarities between our highly successful dental clients - that is, practices that collect at least $1,000,000 per full-time doctor and have overhead of no more than 60%. Of course, there are many ways to define success, and I won't claim that revenue and take-home pay are the only measures. However, if you want to create a high-volume, high-profit practice here is what I believe needs to be done. They Use ConsultantsI am generally pre-disposed to dislike consultants. The old saying old of “those who can do, do, and those can’t consult” would seem appropriate, however, I can’t deny that our best practices rely on a consultant at some point during their career. There are a variety of reasons why consultants are valuable to a private practice [...]