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Why do dentists need tax planning so badly?

Experience shows that most dentists overpay in taxes and sometimes they pay in excess of $125 for every $100 they were required to pay according to the law. While analyzing the tax returns of dentists, it becomes obvious that the reason they overpay to Uncle Sam, their state, and their local jurisdictions, is lack of proactive tax planning on their part. By not taking advantage of all the nuances of the tax law and missing tax saving opportunities, these dentists are basically handicapping their financial future. A vast majority of them appears to be unaware of the existence of proactive tax planning. They take higher taxes as a fait accompli and simply complain among themselves while paying more and more.

Proactive tax planning is the process of creating a personalized tax strategy with the ultimate goal of minimizing the tax burden and then implementing it throughout the year. Tax planning is aimed at tax management based on a thorough understanding of the tax code. The United States Supreme Court has held that tax planning to reduce ones taxes is perfectly legal.  “There is nothing wrong with a strategy to avoid the payment of taxes. The Internal Revenue Code doesn’t prevent that,” former Chief Justice, William H. Rehnquist wrote.

The key here to understand is that proactive tax planning and its implementation needs to be done during the year. Once a tax year is over, there is basically not much that can be done to reduce taxes. At that point, it becomes a matter of recording history and paying the piper. Most of the accountants used by dental practices are very good at the recording history part of the process. They collect the raw data (all the income and expenses of the practice) from the practice after the year has ended. These accountants then clean up this data and put the right numbers in the right boxes on the right forms and hence complete the preparation of the tax return and file it in timely fashion. They are very efficient and knowledgeable at this and do a good job of what is called compliance work.

However, the accountants most dentists use are not focused on planning the affairs of the practice to structure them in such a way that a significant amount of tax is saved. Both the dentists and their accountants share the blame for this situation. The accountants for not getting trained in tax planning and the dentist for not seeking out the experts who are involved in the business of tax planning. The result is a huge benefit for Uncle Sam at the cost of the poor dentists.

What happens most of the time with the dentist accountant relationship is also a reason for this waste of money. Typically, when a dentist starts his practice or purchases one, he is not left with a lot of extra cash flow so he looks for the cheapest accountant he can find to do his tax returns. His goal is to find someone who will just fill out the forms and file them to keep the dentist out of trouble. Soon enough he finds this cheap, low charging accountant, who does what’s needed at a low prices. However, as the practice grows, the needs of the practice expand but our low charging accountant does not have time and resources to get trained in the latest techniques of tax planning. He charges less and hence cannot afford the training and time needed to develop individualized tax saving strategies for his clients. The end result is our dentist paying more and more dollars to IRS which he should have kept in his pocket.

Nearly 75% of all dentists own small practices. The process of them losing money to the government unnecessarily starts even before they buy their practice from a retiring dentist, or when they become associates or partners in a practice with the intention of ultimately buying it. The brokers and attorneys involved in these transactions are very good at what they do. The brokers find dental practices which need to be sold or partnered with and market them quite effectively to find suitable buyers. The lawyers draft the legal documentation quite well to ensure that the interests of their clients are well protected in these transactions. Neither the brokers, nor the lawyers are experts in tax law and hence they simply don’t know the tax implications of practice transitions. The purchase agreements are full of fatal tax mistakes. Both the buyer dentist and the seller dentist end up paying taxes which they did not have to if they had used proper tax planning techniques.

Interestingly, owning and managing one’s business is arguably the best tax shelter plan left for an average American. Since a vast majority of all dentists own and manage their practices they have a great opportunity to intelligently use this “tax shelter” to save money on taxes by using proper planning techniques like using multiple entities, structuring fringe benefits programs, and taking advantage of little used business deductions.

Albert Einstein once said “the hardest thing in the world to understand is the income tax.” His statement is more true today than it was in Einstein’s time. But it is also true that those who make it their business to understand the tax system and use it to their advantage reap huge dividends.


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Dental Tech Predictions for 2012

I humbly report that my 2011 predictions regarding dentistry and high tech, which can be found here, all proved to be 100% accurate. Knowing it is not possible to improve on that record I am submitting predictions for 2012 that I expect to be 100% wrong.

Knowing these predictions will never come to pass makes them not really predictions but more like hopes or ideals. Like ending the scourge of periodontal disease or peace on earth, we’d all like to see these things happen in 2012 but know they never will.

  1. All the major creators and sellers of dental software agree to industry standards that allow a dentist in Cleveland using dental software Softrix to send a complete chart including all the notes, x-rays and medical history digitally to a dentist in Spokane using dental software Eagleworks. The Spokane dentist can simply import the complete chart and use it all with a single click. Heck it would be a big improvement if the Softrix user could just send a dental chart across town to another Softrix user.
  2. Using film x-rays becomes the social equivalent of smoking in public. Sure people still do it but they are made to feel that they are low status and unclean. After all the film developing chemicals are stinky and who knows they might even cause cancer. Of course for a dental office to stop using film they first have to really want to change.
  3. Digital impressions become main stream as dental labs start charging half price for digital impression cases. Simple business accounting demonstrates that when the lab eliminates the cost of pick up, pouring models, trimming dies and remakes for distorted, dried out bubbly impressions the lab can make a lot more profit and charge less if they can get rid of those pesky impressions. .
  4. E-Services will become so fast, so good and so cheap that dentists will finally get it. They will look back on the primitive days of 2011 and wonder how any intelligent professional could ever have sent bills by mail, sorted charts by hand to find non responsive patients, made phone calls to confirm patients or waited on hold to establish insurance eligibility.
  5. Suddenly realizing that “Google it” is now a well-established part of the American lexicon dentists will scramble to get an office web page. A few idealistic hold outs will mutter I don’t need a web page my practice is 100% referral. Of course in 2012 even the best personal referral will still Google the dental office just to find the address and phone number.
  6. Finally dental insurance companies will start to use online systems to accept dental claims, review them and transfer payments to the dental office account instantly. Seriously, it could happen.

The future is coming and it will be Amazing!

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Top 5 HR Mistakes Dentists Make

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Not knowing why “A” players should come work for you.

Start at the beginning. Why should “A” players, quality employees, come work for you? Believe me “A” players have choices. The problem now is not finding warm bodies but quality people. Write down 4 reasons why the best people in each job description should come work for you. What separates you from the dentist down the street? My dentist went through an entire re-branding process that involved outsiders including patients; giving feedback on what was working and what needed improvement. It was a good experience before and now it’s even better. He has surrounded himself with great people and as a patient I feel the difference every time I walk in. (This is no small endorsement…when asked about my biggest fear associated with going to the dentist I answered “DEATH”) Don’t waste your time and money trying to hire “A” players if your not an “A” place to work.

Hiring based on qualifications rather than behavior.

It is much easier to fix a performance problem than it is a behavior problem. Nobody has a good or bad “attitude.” Substitute the word “behavior” for “attitude” and interview for specific behavior standards proven successful in your practice. Situational questions are best…”Describe a situation when…” “Give an example of…” If applicants are grumpy or miserable in the interview just wait until you put them on payroll!

Thinking it’s going to be easy to find quality employees in this economy.

At a 9% unemployment rate you can certainly generate applicant traffic into your practice. But don’t think this will make the hiring process easier. Good people are still hard to find. Make sure you focus on those qualifications and behaviors proven successful in your practice. You will have to sort through a lot of “volume” to find that diamond in the rough.

Asking risky questions.

Do not ask questions pertaining to age, sex, race, religion, national origin or disability. Focus on behavior!

Forgetting that you hired someone.

As dumb as this sounds, it is amazing to me how many employers put so much energy in hiring and then act like it’s a surprise when they show up. “Sit with Martha, she will teach you everything she knows, takes about 5 minutes. Got any questions come see me.” Run away! Run away! Why wouldn’t the new employee start looking for another employer immediately? Make sure they have a good first day. Have the party on the first day, not the last day!
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Hunter Lott is an HR consultant dedicated to the rights of management. Check him out at www.PleaseSueMe.com or contact him directly at HRHunterLott@gmail.com and mention Net32.

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Tablets in the Dental Office

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Tablets were big news at CES last year. They are still big news. Tablets are becoming thinner, lighter, more powerful, and more affordable than ever. However the fact we are still talking about them as a future technology indicates we still haven’t really incorporated them into everyday work.

In dentistry I see tablets as a valuable extra but not as a replacement for desktops in the treatment rooms. A tablet will be the computer each team member caries with them from room to room to read and write notes view images and communicate with the rest of the office. However we will still need a treatment room computer to capture and process diagnostics such as x-ray images.

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REAL Recall – Recall Systems For The Modern Practice

REAL Recall – Matching Advancements in Practice Management and Clinical Dentistry

Dentistry has been practiced since 7,000 BC and “Modern” dentistry began with the establishment of the first dental school, Baltimore College of Dental Surgery, in 1840.  Since that time, now nearly 170 years later, clinical knowledge and technology have advanced considerably.

Today’s dental office is far more effective and efficient than its counterpart from one hundred years ago. Yet, many office’s business systems appear to have never evolved with their clinic. Modern dentistry is performed using drill technology that has advanced light years from its initial implementation. A dentists now also utilize air abrasion and lasers! Clinical dentistry has come “a long way baby….” as Livvie Matthews points out in her great article. And yet, the average business office that supports them still tries to operate out of a shoe box to mail announcements, reminders, and notices to patients (AND will rationalize and justify why this is a “good” thing!).

Does Patient Perception Matter?

Patient perception of how “modern” an office is – while seemingly intangible – is far more valuable than almost any other aspect of marketing and management. It directly impacts case acceptance, appointment compliance, referrals to other friends and family, and overall practice production.  Handing a person a blank card for them to hand-write their own appointment reminder TODAY is the equivalent of inviting them into a dental practice that still uses a stone-aged bow-drill….it does not inspire confidence or provide anything to brag about.

Since the clinical team has the technology chair-side to impress the patient with Jedi skills (which, unfortunately, most patients often fail to notice), should not the main stage also be set with identical capabilities?  Luke Skywalker did not ONLY have a light saber that was rarely used…..he had both C-3PO and R2-D2 beside him providing him with information AND doing a great deal of work autonomously!   Every modern dental office today can and should have the same level of artificial intelligence working in the office – 24 x 7 – 365 days a year

Get Ready, Here Comes the Future of Dental Recall Systems!

Each patient is unique in their dental needs and challenges. While the advertising industry has imprinted everyone with the concept “Visit your dentist twice a year”, we all know that patients may actually require a different visit frequency. This schedule is normally determined and documented in the practice management system (PMS) used by your clinical team.  This key information, along with the date of last cleaning (not to be confused with the date of  last visit) is vital to know when a patient is “due” to visit the office again – for an actual cleaning.  At each patient’s visit, they may choose to commit to a future appointment (that they may or may not keep…) or they may choose to wait to make an appointment until the time gets nearer.   Either decision creates a bunch of “future work” for the office, that either can be handled as best as possible (i.e. inefficiently with all of the normal day to day transactions), or can be given to the artificial intelligence to handle flawlessly.

For the patient that DID make an appointment 6 months from now:

Manual Approach: The current manual challenge is to correctly write up and hand patients a little appointment card (that will be lost somewhere between the front desk and the parking lot…) and then wait.   Hopefully, anywhere between 4 to 6 months from now, a staff member will have the time to generate printed reminder cards (if the office is semi-modern) or alternatively pull hand written cards (of which many no longer are relevant) and get them into the mail with the hope that the patient will arrive at the appointment made 6 months ago.

Automated Approach: If an “artificial intelligence” is given the job, the dedication to detail is far greater and provides the patient with a “wow” factor that they will share with their friends.   As the patient is checking out from the current cleaning appointment, and commits to that time 6 months in the future – they will receive a “Save the Date” email that will meet them when they get to their office / home where it will have a much greater probability of being added to their “official” calendar and remembered. As the actual appointment draws nearer, the computer (with no need for human intervention to run reports, start tasks, etc) will know when to start “reminding” patients that they have an appointment – and will do this using a variety of tools  including e-mail, text-messaging, automated phone call, and yes – even a postcard (you want to have a 100% solution).    On the day of the appointment, the computer can (and will) send reminder text messages to make sure that last minute distractions do not result in an idle chair, a bored hygienist, and a frantic conversation with the patient 10 minutes after their appointment start time.

For the patient that did NOT make an appointment for 6 months from now:

Yes, I am one of those (And yes there are many more like me. How do I know what will happen six months from now?)  who checkout and will “call back” to make an appointment 6 months from now. Better yet, I’ll just “wait for the notice” to arrive in the mail?

Manual approach: The current manual challenge is to keep up with all of these “patients of record – but not on the book” people to try to get them converted back to actual made appointments (which then must be cared for in the same manner above!).  Hopefully with the help of a practice management system – some team member, when they have the time, will run the necessary reports on a regular enough schedule to identify a bunch of patients that need to be “worked on”.  This work would be phone calling or loading cards into a printer to print / stamp / mail. The importance of this task is critical, yet it relies on many faulty components – starting with the practice management system (of which many do NOT accurately identify patients that need to be contacted), the knowledge of the tasks and systems by ever changing staff members, and the actual time available to DO the work.

Automated Approach: When an “artificial intelligence” (Again, think R2D2 and C3PO here) takes on this critical job in real time, it is analyzing every patient and appointment to know WHO is on recall but not currently scheduled for a recall appointment.  The computer will then use all of the tools mentioned above to insure the correct message is sent at the correct time resulting in an appointment being made (and then doing everything mentioned above to make sure the appointment is kept).   If the patient is non-responsive to every “touch” (e-mail, text, postcard, etc.) the computer will NOT allow the patient to fall through the crack and will continue to contact patients that are past-due AND will send notices to the office staff for occasional assistance (so a person can talk to them when it is actually needed).   This will provide the office with the double benefit of KNOWING a critical aspect of the office is covered (no vacations, no sick days, no holidays) and more “found time” is now  available for staff members to focus on items that require a personal touch.

Once the artificial intelligence is turned on in the office and the key tasks are taken care of, there are many other items that can be added to the chore list:

–        Chart Audit / Reactivation (done daily instead whenever….)
–        Morning Huddle Report (review of yesterday, today and tomorrow)
–        Remote Access to office from smart phones and other devices
–        Confirmation calling and texting (what more people are expecting)
–        Statistical analysis and review of office activities and status

Most modern practices today can enable these automated systems for pennies a day. This addition to your practice management system will help your practice be perceived as a  modern, “leading edge” healthcare provider. Just as Luke Skywalker had his choice of robots, you have a variety of choices for automated practice management services.  A dental appointment book and dental patients is very special and has many subtle nuances (like differentiating between a cleaning visit versus a restorative visit or knowing the cleaning interval of each specific patient) that you want to make sure the artificial intelligence you “hire” (they are just a robot applying for a job) is aware of.    Lastly, which ever artificial intelligence you hire should be expected to show up and work each day – with no contract required.   As long as they are meeting your needs, you will continue to use them for everyone’s benefit.   If they cannot perform the job as you expect – or someone better comes along – you should NOT be forced to continue doing business with them because of a contract……unless you are getting the same contractual commitment from your patients?

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Allen Jorgensen is a front office manager for his wife’s practice started from scratch in 1994 as an all digital and chartless practice.   Over the years he has applied his 30+ years of commercial data processing experience to automate every aspect of a traditional dental office.    North Gwinnett Dental Care is located in Sugar Hill Georgia and continues to host office tours for anyone interested in seeing how a 15+ year digital office operates.   Allen is also the CFO of Lighthouse Practice Management Group which provides automation solutions to dental offices around the world.   For more information visit www.lpmg360.com or call 888-427-5454 x 88

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