Bruce Bryen, CPA. Managing Partner The Snyder Group, LLC Printer Friendly Version

A Significant Year End Tax Planning Tip

As we approach the end of the year, many dentists look for ideas to reduce their tax burdens. One significant idea is for the dental practice to implement an employer sponsored qualified retirement plan. It is not too late for some creative design features to be used to secure a large contribution for the dentist and key employees that he or she wish to participate in the plan. The planning can feature concepts to keep employee contributions not critical to the vitality of the dental practice at lower levels than key people. So how much can be deducted?

The deductions for 2009, based on variables in a specific practice, can approach $150,000. When considerations are given to minimal deductions and the amount of time and effort needed to achieve those, the amount of $150,000 should seem staggering. Time should be taken to absorb this. In a state with a high income tax rate, the top federal tax rate, the Medicare rate and the amount attributed to social security, when combined, will near or exceed 50% of your income. That means that a deduction for $150,000 will create a tax savings of $75,000 for 2009.

Where will the funds come from to pay this? Remember that the deduction will reduce your taxes. Part of the funds will come from your tax savings. The need for $150,000 is immediately reduced by half because of your tax rate. After that calculation, the balance needed is about $75,000. Did you know that the payment is not due until your tax return filing date, including extensions? If you have an “s” corporation or an llp or llc, with an extension until September 15, 2010 for your 2009 return, you can take the deduction on your tax return for 2009 for the entire $150,000 and not have to fund that amount until September 15, 2010. Half of the contribution can come from estimated tax payments, and the other half from income in the succeeding year. This does not even take into account borrowing strategies and other ideas that your personal advisors are probably already discussing with you.

Hopefully, you are already working with a CPA who has a lot of experience working with dentists. He or she will know a lot about the formation of this type of retirement plan, or multiple plans if needed to secure the amount of contribution level to fit your goals. The CPA will know your ability on a personal level to be comfortable with the planning and costs and documentation needed to begin.It is important for your advisor, or a new advisor if yours is not proficient in this area of expertise, to have your personal financial information and that of your dental practice available. This will allow the study necessary to complete the analysis to be done with full knowledge of all the financial data that will assist in the ability to design the most appropriate employer qualified retirement plan for you.

How much will this cost? The initial plan design, including meetings with the CPA and the review of all of the relevant financial data and the coordination with actuaries who understand the goal, will probably cost about $7500 to $10,000. This will probably include the submission of the plan for approval to the IRS. The experience and expertise of those retained to implement the goal of the large deduction and the ability to pay for the deduction is crucial to the successful outcome of the exercise to accomplish this. After the first year, the annual charges for the administration of the plan, or plans if need be, will cost about $3000. Be careful not to have someone who agrees to administer and design a plan for a low or no cost, based on the investments that will come to them or based on the insurance policy that you will buy, be the one who is in charge of its implementation.  Those who work with these theories are not really interested in the proper design or the annual administration of the plan. They want to manage your investments and are “selling” the design and administrative services cheaply to get in your door. The plan must be customized to fit your needs. Only someone with the expertise to do so will be able to support the deductions in the event of a tax audit.

It’s not too late to get a significant tax deduction for 2009. You should speak to an advisor very soon to start the process.

Bruce Bryen, CPA has successfully assisted dentists with their personal and financial matters for more than thirty years. As a partner in The Snyder Group, he delivers creative and prudent financial strategies to help dentists build and protect wealth at every stage of their careers. His extensive expertise includes financing, debt restructuring, retirement planning and tax advising to help dentists keep more of what they earn. Bruce is also experienced in providing litigation support services and has testified on numerous occasions as an expert witness.

If you would like additional help or are interested in having Bruce Bryen speak to your dental society or study club, he can be reached at bruce@thedentistsnetwork.net or at 1-800-988-5674.

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