Position Yourself for 2016 Financial Success: It’s Not Too Late

By Jenny Smerud, CPA and David Strom, QKA, QPA

During the hectic holiday season, it is hard to add financial and tax planning to the list of family gatherings, office parties, and well-deserved R&R. But just because the ball has dropped in Times Square, doesn’t mean you have missed the opportunity to position yourself and your practice for financial success in the New Year!

With the excitement and busyness that comes with the new year, you might be tempted to sacrifice a face-to-face meeting with your tax professionals. Even if you missed a chance to meet before year-end, here are five good reasons to make time for your tax professional now to get your dental practice and your personal financials in the best shape possible for 2016 and beyond.

1. It’s Time to Get Your Financial House in Order
Before your tax professionals can prepare your annual tax filings, your books will be evaluated to ensure that all transactions have been posted correctly. By starting the process immediately after year-end, your tax professionals can help you tidy up your records for the prior year and institute process changes to address any systematic errors before you get months into the new year with misleading financials. Initiating contact with your advisors right after year-end ensures that you will be able to provide accurate information timely.

This quick turnaround provides multiple benefits including:

  • You’re in a position to satisfy bank covenants by supplying accurate financial statements during the first month of the new year.
  • You’ll have a solid base to make strategic, forward-looking personal and professional decisions regarding your finances.
  • You’ll get ahead of the tax compliance curve when you aren’t bumping up against a filing deadline.

In other words: since you’ll need to do it anyway, why not get a head start?

2. It’s Not Too late to Plan for Deductible Contributions to Retirement Plans
Hopefully, you were able to plan to maximize your retirement plan contributions for 2015. As an individual, your 401(k) contributions ($18,000 or $24,000 if age 50 or older) needed to be funded out of your dental practice payroll before December 31, 2015.

However, depending on your retirement plan design, matching and profit-sharing contributions may not need to be funded until 2016. It is important to plan now to ensure that you can get the best tax and retirement savings benefit possible for the year.

Are you contributing the maximum amount possible to your plans? Would you like to contribute more than you have in the past to your retirement?

Contributions for your employees ranging from 4.4% to 5% of their pay usually allows for the maximum combined 401(k) profit sharing contribution for you ($53,000 or $59,000 if over age 50). Also, dentists can often add a second plan, a cash balance pension plan, for even greater tax deductible contributions by making employer contributions between 5% and 7.5% of their employees’ compensation.

Below is a table of maximum contributions available through any company-sponsored retirement plan at different sample ages:


While your 2015 year-end census and plan design govern your contributions for 2015, your advisor can recommend plan revisions and options to put in place in 2016 that will help you maximize your retirement savings for years to come.

3. It’s Time to Leverage Your Financial Data for Business Planning
The start of a new year is the appropriate time for a retrospective look on the past year. A clean set of books and the associated management reports will transform your “gut feeling” about the health of your dental practice into concrete metrics that evaluate revenue streams, operational efficiency, and financial controls.

These reports generated from your dental practice can help you answer key questions about the business, such as:

  • Has your dental practice attracted the right clientele to reach the target reimbursement rates for services rendered?
  • Has your dental practice been successful in retaining existing clients and attracting new ones?
  • Do most of the dental practice’s clients observe semi-annual hygiene appointments?
  • Is the mix of services at your dental practice attaining target profitability?
  • Has the dental practice done a good job of keeping staff fully booked and utilized
  • Is the dental practice managing receivables to minimize late payments and delinquencies?
  • Does the dental practice have appropriate levels of inventory for dental supplies?

A dental practice with soft performance can leverage this data and associated expert advice to institute strategies, process changes, scripting changes, and/or employee development initiatives to render improvements in 2016. Even the strongest dental practice can find room for improvement.

A consultation with your tax professionals any time of year can provide information to help you make investment decisions with respect to the dental practice. There may be opportunities to update insurance coverages or plan for capital investments for your practice as well.

Any financial review feeds naturally into an assessment of your personal financial situation, including changes that have transpired in the past year or are anticipated in the year to come.

4. It’s Time to Plan For Your Upcoming Tax Liabilities
No matter what you do, taxes must be paid by March or April 15. If you did not get a chance to connect with your tax professional before year-end, you might have missed some year-end tax savings opportunities. However, especially if your practice is growing, the fact that you missed a chance at reducing tax in a lower income year might mean that you actually gained tax efficiency. Every year is an opportunity to balance your income within the effective tax rate ladder. Deductions in higher income years are worth more than deductions in lower income years.

Getting the tax compliance process started early in the new year gives you maximum time to save and plan for amounts due at filing deadlines. Part of the compliance process is always planning for the year to come. The earlier financial information from your practice is processed, the earlier you will be given accurate estimated tax payments and a “heads up” on tax savings opportunities throughout the year.

5. It’s Time to Set Your Tax Professionals’ 2016 Work Plan to Meet Your Needs
A conference with your tax professionals places you in the driver’s seat for the work you’ll do together in 2016. You can take the opportunity to outline your anticipated financial reporting requirements—e.g., tax returns for bank loans and student loans. You can schedule your collective resources when it makes the most sense for your dental practice. And you can outline your mutual obligations to ensure thorough and professional accounting services and tax filings with the least effort on both sides of the table. It’s good for your dental practice and good for the bottom line.

Working with your dental CPA any time of year is valuable. While year-end tax planning is a chance to implement changes to save on taxes, many comprehensive financial planning strategies are a year-long effort. What better way to kick off a new year than to position yourself and your practice for success in 2016?

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