Stress and the Solo Dentist

This article was originally published on theprodentist.com.

Do you ever wake up at night worrying about your practice?

There are fewer new patients knocking on my door. Should I spend money on advertising?

Insurance reimbursements are going down. How do I figure out how to maintain my profit margin?

Big dental groups and corporate practices seem to be taking over the world. Should I join a group practice?

After a long day, you wake up at 3:00 a.m., worrying about the future of dentistry, your practice, your family.

I find myself worrying about clients in the wee hours of the night and can empathize with their concerns to some extent as there are similar pressures in the financial services industry.

In addition to these and other big-picture worries, there are plenty of “close to home” opportunities for dentist-clients to face significant tax and financial dilemmas.

Here are a few examples of things that I like to help clients deal with.

Incorporation of a Dental Practice

There are many benefits to establishing your practice as a corporation.

First and foremost, it helps protect your professional assets from personal liabilities.

Many dentists enjoy the convenience of drawing a salary and withholding taxes, which can reduce the burden of making quarterly estimated taxes, among other things.

The downside of having a corporation is that it requires a fair amount of compliance and record-keeping.

Corporations are separate and distinct entities from you and your fellow shareholder(s) who own them. You must follow several formal procedures accordingly.

The dentists I know and work with are very busy and corporate procedures can slip as a result.

I worry when dentists use their corporations as personal checkbooks, take unreasonably low salaries, or fail to keep corporate minutes.

These are actions that a litigant’s attorney or specious IRS agent may use to pierce your “corporate veil,” exposing your personal assets to attachment and seizure and crippling effective tax management.

Let’s address each of these in turn.

Your corporate account is not a personal checkbook.

If you need to withdraw money from your corporation, you should write yourself a paycheck, put the money in your personal account and spent it from there.

Don’t pay personal bills directly from the corporate account.

Officer’s compensation must be reasonable for the services provided.

You should not use your corporation to avoid paying reasonable Social Security and Medicare taxes. And it is the government, not you, who defines “reasonable.”

Living on shareholder loans or distributions to keep your taxable income down triggers audits (especially when officer wages drop below certain thresholds), and basis (equity) deficiencies that limit losses you or your corporation may use during tax time.

Corporate minutes matter (as do state filing requirements).

Corporate minutes are the most important and most often neglected compliance procedure.

Simply stated, they are a record of shareholder/officer meetings, held regularly to make and document decisions about officer salaries, equipment purchases, borrowing, lease renewals, pension plan management, etc.

Failure to keep corporate minutes or comply with corporate bylaws exposes you and your practice to avoidable liabilities.

Labor Laws

I’m amazed by how often labor questions come up.

Each state’s labor laws are different, plus there are Federal regulations.

I worry about dentists complying with labor laws — probably because there is no shortage of horror stories.

Despite any close-knit, family-like relationships you may have with your staff, we CPAs worry about you if you don’t take labor law and related documentation requirements seriously.

I advise clients to engage a Human Resources (HR) consultant to keep their practices’ personnel departments in full compliance with the letter of the law.

It is some of the least expensive “insurance” a dentist can buy — along with Employment Practices Liability Insurance (EPLI).

Retirement Plans

I’m a big fan of this important financial benefit – for you and your staff. But I also worry about them on a variety of levels.

Like corporations, retirement plans are separate and distinct entities, with stringent compliance requirements, including proper calculation of employee/participant contributions, timely payment of those contributions, and timely filing of required forms.

As such, they are frequent audit targets for a slew of agencies, including the IRS, your state revenue department and the Federal Department of Labor (DOL).

Because of the complicated nature of retirement plans, retirement plan auditors are typically specialized, highly trained and capable.

Use the services of a reputable pension plan administrator and follow their guidance.

The Fiduciary Role in a Well-Run Retirement Plan

Another retirement plan issue that can keep your friendly CPA up at night includes your fiduciary obligation as a retirement plan sponsor (trustee).

Bottom line: Have you taken adequate, documented steps to ensure that your retirement plan is being managed in the highest interest of its beneficiaries (your staff)?

Components in a well-managed plan include its costs, provider relationships and investment options.

According to the Prudent Investor Rule, you can (some might argue should) delegate investment option selection to a professional investment advisor who is willing and able to accept that fiduciary role. (Therein lies an article all its own!)

However, note that ensuring reasonable plan costs and appropriate provider relationships are fiduciary obligations that cannot be reassigned.

They’re all yours.

In essence, if you offer participants a portfolio of low-cost, diversified mutual funds and you carefully document the processes taken to arrive at your decisions, you should be able to avoid liability from claims that you invested employees’ money inappropriately, with resulting demands to make them whole.

But suffice it to say, with respect to fiduciary cost management, there are a ton of intricacies and gotchas.

For example, if a “cost-free” plan sounds too good to be true … guess what? It is.

“Cost-free” simply means the costs are there, but they’re buried in the underlying investments.

This means your participants end up paying these otherwise tax-deductible costs with pre-tax dollars. How’s that for insult and injury?

It may be tempting to believe that you can fulfill your duty by leaving everything up to your employees, setting them up with their own segregated accounts.

Worse yet, I’ve encountered 401(k) plan salespeople telling dentists this is the case.

Quite the contrary, segregated accounts can be a fatal move for you and your staff if they are given poor or too many investment choices and they lose money or incur significantly higher costs than you or other plan participants.

Before we leave the subject of retirement plans, I further worry with respect to your own retirement plan assets, and whether they are properly designated for your estate planning purposes.

It’s important to ensure your paperwork is properly established and free from discrepancies.

Be aware that a custodian’s documents are expected to prevail over those held by the advisor or pension plan administrator.

Estate Planning in General

One good worry begets another.

As I advise clients on their practice management, I find even dentists with well-run offices have often left their personal estate plans to languish.

Since nobody wants to see the wealth from their life’s labor lost to taxes, lawsuits or other troubles, I worry when I see estate plans in full or partial disarray.

For example, if a dentist has gone through the entire estate planning process and then failed to actually place the personal assets in the established trusts, he or she has just spent a fairly good-sized chunk of change for nothing.

Go ahead and laugh, but I see this happen far more often than you could guess.

When is the last time you’ve reviewed your own plans, to ensure that they are complete and current?