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Buying a Dental Practice Checklist: Do Your Financial Due Diligence with X-Ray Vision

Posted by Admin Posted on May 31 2017

Dentist looks at dental x-ray

Dental school equipped you with the tools to be a dentist, but if you’re considering buying a dental practice, now is the time to equip yourself with the right financial analysis tools.  

You don’t want to begin understanding the value (or lack thereof) of your practice after you’ve purchased it. Use this checklist to position and prepare yourself to make a solid financial investment.

  1. Assemble a trusted team. Would you ask an accountant or attorney to perform a tooth filling? You can not expect yourself to have the knowledge and experience of a broker, accountant, consultant, banker and attorney. Hire a trusted advisory team. It’s a short-term expense that will protect your long-term investment.
  2. What will a dental accountant look for? Reviewing basic financial information is a necessity and should include an analysis of:
    • Balance sheet and income statements
    • Comparative statements to industry standards
    • Three years of tax returns
    • Production/collection reports from the practice management system
  3. Information is only as good as its source. Determine and confirm the source of the financial information provided. If you leave something to chance, you’re taking a chance. Even if buying a practice from an individual or group that you know or trust, it is too easy for mistakes to be made. Ideally, the financial statements you are provided are produced by a reputable accountant or CPA.
  4. Is this practice the right one for you? Envision the practice you want in five to ten years. Don’t look for potential, look for performance. Potential is nice but if unrealized could lead to financial instability. Does a pattern exist of this being a high-performing practice?
  5. How do you assess the value of a practice? “The ADA Practical Guide to Valuing a Practice: A Manual for Dentists” spells out the valuation process and dispels valuation myths, such as the commonly used "gross revenue" method of determining practice value. The ADA book also covers:
    • Choosing the right valuation method for you.
    • Explanations of valuation concepts, such as the capitalized earnings, discounted cash flow and net asset methods.
    • Legal and tax issues.
    • Guidance on buying an entire practice or portion of a practice and planning a future buy-in or buy-out.

Why do you use X-rays before diagnosing and treating? An X-ray allows you to gauge factors you can't see with the naked eye. Likewise, there is often more than meets the eye when buying a dental practice. Doing your financial due diligence with X-ray vision is guaranteed to give you a brighter smile.

For questions about financial analysis and practice valuation, contact Donovan & Limroth for assistance.

Three Ways to Compete with DSO Practices and Win

Posted by Admin Posted on May 25 2017

Silver trophy

As a practice model, Dental Service Organizations (DSOs) have pros and cons. The same applies to private and alternative practice models. After you have read, researched and determined the right fit for you, maximize your practice’s return on investments.

According to an article in the Journal of Dental Education, “dental graduates report having strong intentions for the independence of private practice.” To satisfy dentists’ goals, provide quality patient care, be responsive to different urban and rural locations and be competitive in the marketplace, private and alternative practices need to know their competitors and their patients.

“In the midst of chaos, there is also opportunity.” Sun Tzu, The Art of War

Dentists have the opportunity for a lucrative, fulfilling career in spite of practice model shifts taking place. If you select a private practice or alternative model, however, you may be asking how best to compete and position your practice in the marketplace. In the midst of the chaos of industry and model shifts, look for the opportunities.

First, study and understand DSOs, what they offer patients and what their strengths and weaknesses are. From this, determine your practice’s strengths, weaknesses, opportunities and threats. The next step is to organize this information into a strategy.

A strategy is a set of ideas that can help you achieve your goals. To develop a strategy, you arrange those ideas into a plan. This helps you identify how you can reach your practice revenue goals and create a plan to help you stay focused on the goals, tactics and actions needed.

Succeed in planning, and you plan to succeed. With the aid of foresight, you have greater opportunity for a lucrative practice. Knowing your competition allows you to be better prepared to compete with DSOs and win.

Below are some alternatives to DSOs and traditional private practices:

1. Location is imperative. If opening a new practice or expanding your existing practice, study your demographics. Selecting a market and location where there is high demand and low supply of dental services positions you to gain access to greater patients. Moving or expanding into a strategic location gives you first opportunity to build patient relationships, loyalty and retention.

2. Services meet patients’ needs. How can you add value to your practice, strengthen your competitive position, maximize profits and attract more business from current or new patients through expanded services? Be balanced in your approach to services, making sure that you offer services that meet your community’s needs and that are state-of-the-art but that you can deliver with quality.

3. Differentiators are what make you unique. What sets you apart? Identify these, ask your team and survey patients to learn their perspective. Utilize this information to communicate those differentiators in your marketing, advertising and communications. These can include:

  • Credentials and performance of you and your clinical staff
  • Insurance acceptance, financing services offered and payment options
  • Location, office setting, amenities, hours, parking, cleanliness and appearance
  • Service, friendliness and ability of administrative staff
  • Relationships with patients, including communication, time spent and treatment quality
  • Clinical technology used by your practice
  • Variety of services available

If competing against DSOs, they may have lower overhead and be able to charge less for services than your practices. If you do charge more for treatments and procedures, demonstrate the value and quality patients receive in exchange. If you want your practice to profit, communicate to patients how they will profit in choosing you as their dental care partner.

Get to know your competition, your practice and your patients.

“Know the enemy and know yourself; in a hundred battles you will never be in peril,” Sun Tzu, The Art of War

DSO and Private Practice Alternative Models

Posted by Admin Posted on May 19 2017

Dental team joining puzzle pieces in a huddle

In this series about Dental Service Organizations, also known as Dental Support Organizations (DSOs), we previously analyzed the benefits and drawbacks of DSOs. Your options, however, are not mutually exclusive — a DSO or private practice.

There are alternative practice models emerging in the market. To choose the best course of action, consider how your professional goals, stage of your dental career, size, number, and geographic locations of your practice align with these alternative practice models.

Dentists, for example, who are newly graduated and have dental school debt, may prefer to temporarily practice as an employee. According to an article in the Journal of Dental Education, when school debt is decreased or paid off and clinical proficiency is achieved “dental graduates report having strong intentions for the independence of private practice.”

Below are some alternatives to DSOs and traditional private practices:

1. DSO-Managed Private Practices allow for a traditional practice to function with centralized outsourcing of some practice management, which can include services such as technology and supply purchasing, HIPPA compliance, insurance processing, revenue analytics and marketing.

2. Independent Practice Associations (IPAs) are made up of private practitioners that organize to form a self-directed group. IPAs allow dentists to maintain the independence of their traditional practice while providing cost savings through association-negotiated services, including office management, purchasing, HIPPA compliance, coordinated care systems, case management systems, IT, marketing, billing and collection.

3. Automated Dental Micropractices are “a high-tech, low overhead practice concept that automates many business-related tasks.” It outsources most non-clinical, business-related tasks to a network of expert dental service providers, who are off-site and on-demand.” This model provides automated services, such as a patient call center, patient communications, appointment scheduling and registration.

4. Multispecialty Practices include general dentistry services of a traditional practice plus specialists, who can be full-time or part-time. This diversifies the service offerings of a practice. It also offers convenience to patients with a variety of care at one location. Dentists and specialists benefit by sharing expenses and resources, such as non-clinical staff, appointment scheduling, registration, billing and collections, IT and facility/operations costs.

The ADA Health Policy Institute has proposed additional classifications of dental group practices. Some of these group practice models include large group practices, insurer-provider, not-for-profit, government agency and hybrid practices.

Because practicing as an employee is not a preferred, permanent choice for a majority of dental school graduates, alternative models will continue to emerge and evolve. These models will need to satisfy dentists’ goals, provide quality patient care, be responsive to different urban and rural locations and be competitive in the marketplace.

Corporate Dentistry vs. Private Practice: The Pros and Cons of DSOs

Posted by Admin Posted on May 11 2017

Business men shaking hands in dental office

In last week’s blog (below), we explored the benefits of dental service organizations (DSOs). To offer a balanced perspective, this week we look at the drawbacks of DSOs.

According to an article in the Journal of Dental Education, it was forecasted that “large DSO-managed group practices will be the setting in which the majority of oral health care is delivered by 2025.” This viewpoint, however, was also countered.

Due to the disadvantages of DSOs, one counter argument predicts, instead, that alternative practice models will evolve. It is imperative that you research and educate yourself on the benefits of DSOs, disadvantages and models that may evolve in the future. This will equip you with information needed to choose the best course of action for your practice, career, personal fulfillment and patient care.

What are the most significant disadvantages of DSOs? As you study the practice landscape, consider these:

1. Traditional Practice Appeal

The fulfillment of being your own boss, being an entrepreneur and experiencing true dental practice ownership is lost.

2. Time

You have less flexibility and freedom with your own schedule and time.

3. Practice Structure

The structure and staff are not yours to create to the same extent as in a private practice, and you have less control over hiring and firing.

4. Patient Care and Services

There are limitations on your treatment and referral decisions and control over the services your practice will offer, potentially leading to a less broad-based practice.

5. New Practice Offerings

Similarly, the ability to test new services, techniques and materials may not be as easy to achieve without clinical autonomy.

6. Learning the Dentistry Business

When focused on patient care, you have less opportunity to learn and develop your business/practice management skills. 

7. Financial Rewards

A DSO may not be as financially and professionally rewarding as private practice ownership, where you are in charge of how much you work, how smart you work and the leadership you provide to your practice

Keep in mind that DSOs vary widely. Their services, size, investment ability, negotiation options may provide some relief to the limitations and restrictions listed. Also, you have a unique set of goals and reasons for being a dentist. One dentist’s limitation may represent another dentist’s freedom. For example, some dentists want to focus solely on patient care and do not want the responsibility of practice management and leadership.

With corporate dentistry on the rise, be aware and be smart about your values and what you want to achieve long-term. If you choose the private practice model or one of the alternative evolving models, be savvy and strategic. To compete against corporate dentistry, the same points that sold you on private practice need to be communicated to your patients. Plan to sell those points to your patients and target markets as strengths and differentiators that set you apart.

What are the Benefits of Dental Service Organizations (DSOs)?

Posted by Admin Posted on May 03 2017

Portrait of a dentist

What are the top challenges for dentists today? For starters, dentists have to wear many hats in order to keep up with practice management.

With more expenses, government regulation, legal issues and technology, dentists are not able to focus on dentistry and patient care. Instead, practice management, including tasks from HR and supply purchasing to HIPPA compliance and technology, require time and money.

DSOs are providing ways to address these challenges, which may be a solution for some practices. In this two-part series, this blog looks at the benefits of DSOs, and next week’s will look at DSO drawbacks.

What is a DSO? It can be any size — two practices or hundreds. And services to member practices can vary widely. The Association of Dental Support Organizations states that:

Dental Service Organizations (DSOs) contract with dental practices to provide critical business management and support including non-clinical operations. The creation of DSOs has allowed dentists to maximize their practice with the support of professional office management. The DSO model enables dentists to focus on the patient while delivering excellent dental care.  

As businesses in almost every industry have changed models over the years, dentistry is no different. How, specifically, can DSOs help you keep up with the administrative work of running a practice? Listed below are services commonly provided to DSO members, although they do vary widely by DSO. Because they are organization-wide services, they are usually more affordable and the services specialized for dental practices.

1. Technology

Quality dentistry is driven by technology. DSOs help make technology affordable and accessible, resulting in higher quality patient care. On behalf of its members, DSOs invest in cutting-edge technologies, including software and systems for online record keeping and scheduling, radiography, intraoral cameras, 3D imaging, oral cancer screening and more.

2. Insurance

From practices to patients, not wanting to handle the burden of insurance is universal. DSOs pave a smoother road for all parties with software tools that verify insurance and co-pays at the time of appointment and with better rates from insurance companies based on the economies of scale of a DSO network.

3. Compliance

As government regulations change, practices struggle to stay abreast of changes and implement them in a timely manner. DSOs can help make the process easier and smoother. From HIPPA compliance to AED training, their services provide automatic reminders, support, tools and training for your staff.

4. Community

Having a professional community can mean you have coverage while taking time off or going on a vacation. It can also mean more experienced dentists being able to provide mentorship and leadership to others. Camaraderie, networking and ongoing educational opportunities help members invest in themselves, their organization and, ultimately, in their patients’ care.

5. Entry and Exit Strategy

As newly-graduating dentists begin their careers, they are starting with school loan debt, averaging $300,000. This makes the dream of owning or starting a practice less realistic. Likewise, dentists who are approaching retirement or are ready to retire may be considering selling their practices. A DSO makes owning a practice more affordable and offers options to dentists who want to sell and retire or want to sell and continue working for a period of time without the stress of practice management.

Dental School Debt Repayment and Refinancing 101

Posted by Admin Posted on Apr 17 2017

Dental student

Like refinancing a mortgage or doing the “credit card shuffle” to move debt to lower interest rate accounts, dental school loan borrowers are considering the money-saving options for loan repayment and refinancing.

Repayment and loan forgiveness programs and resources are available to newly practicing dentists. The American Dental Association (ADA) has compiled a list of these resources nationwide and by state. With the student loan refinancing market booming, borrowers can also explore refinancing high-rate student debt.

According to the American Dental Education Association, graduates in 2016 left school with an average of $261,149 in debt. When refinancing, a vital step is to research carefully and perform a long-term and short-term analysis, including tax implications, in order to make the best choices.

Donovan & Limroth recommends that you:

  • Review loan documents for interest rates, repayment terms, penalties, and other important information.
  • Research repayment options, which can include standard, graduated, extended and income-based repayments.
  • Calculate the advantages and disadvantages of loan consolidation.
  • Be aware that public service loan forgiveness and special protections, such as forbearance and income based repayment plans, which apply to federal loans, disappear when you refinance.
  • Consider a cosigner to help secure refinancing approval and lower your interest rate.

In an ADA interview with Baltimore dentist Dr. Edgar Radjabli about debt repayment strategies, Radjabli said he graduated having eight loans from six lenders. They totaled about $265,000. By consolidating, he now has one bill to pay and estimates that he will save almost $75,000 in interest over 15 years.

To calculate your potential savings through refinancing or consolidating high-rate loans, use a student loan refinance calculator. Companies such as LendEDU also provide online refinancing tools and a quick and easy way to compare rates, terms and qualification requirements for various lenders.

While in dental school, students are learning patient care, performing procedures and preparing for license exams — not focusing on finance planning and management. To assist students and newly practicing dentists, the American Dental Education Association (ADEA) offers a variety of educational debt management materials, including this video with additional student loan refinancing tips.

For more ADEA debt management materials, visit And for questions about financial planning and student loan refinancing, contact Donovan & Limroth for assistance.

Is an IRA the Best Way to Save for Retirement?

Posted by Admin Posted on Mar 31 2017

Man managing his retirement plan on computer

The answer to this question is individual. Before making a decision, closely examine your financial situation.

A trusted advisor or accountant, such as Donovan & Limroth, can help guide you and analyze the short-term and long-term impact of your options. When considering an IRA, here is an overview to get you ready for these conversations and, ultimately, decisions.


  • Open an IRA as soon as you qualify. This gets you started as early as possible, saving and growing for your retirement.
  • Contribute more early on. Opening your IRA is the first step. The more you contribute early on, the longer time period it has to grow. Postponing contributions now will leave you short later.    
  • Understand the difference between a traditional and Roth IRA.  Wages earned and contributed to a Traditional IRA are not taxable at the time they are deposited. When distributions or withdrawals are made, however, these amounts are then taxed. A Roth IRA works the opposite. No tax relief is received at the time of contribution. Instead, a Roth IRA provides for tax relief upon the distribution of funds.
  • Aim to save 15% of pre-tax income each year. This is a good rule of thumb. The percentage should vary depending upon the age you begin saving, age you want to retire and your income. You can use a retirement calculator to help you determine your exact percentage.


  • Choose a Traditional IRA for immediate tax relief. Is deferring taxes on a smaller amount contributed today and paying taxes later on a greater amount after your investment has grown the best choice for you? Possibly, because you will be in a lower tax bracket at retirement, but be sure to consider all these things when making your investment decisions.
  • Not opening an IRA because you have a 401(k). If your employer offers a 401K and matches your contributions, contribute the maximum that your employer will match. If you are saving at a rate of 15% and the maximum contribution does not meet your 15% goal, then contribute the remainder to an IRA or Roth IRA 
  • Cash out your 401(k) when you leave a job. Doing so causes you to pay Federal Income Tax on the distribution and an early distribution penalty of 10%. Instead, roll the amount over into your IRA or Roth IRA. It will add up and keep those dollars growing for retirement.
  • Use your Roth IRA before retirement if not necessary. The contribution amounts to a Roth IRA can be withdrawn tax and penalty-free at any time for any reason (this is not the case with a traditional IRA or 401(k)). This may create a temptation when you go to buy a house or want to help put your child through college. Think twice!

Do you feel ready to talk about your retirement savings? You can also review the top picks for 2017 of the Best IRA Accounts and the Best Roth IRA Accounts. If you have questions about retirement planning and IRA or Roth IRA account providers, contact Donovan & Limroth, and we will be happy to assist you.

Five Best Ways to Keep Passwords Safe

Posted by Admin Posted on Mar 22 2017

Criminal on computer

Ever logged into your banking or credit card account and found that something has gone wrong?

It’s a sickening feeling. Your financial security can be impacted by the security of your personal information, including your account passwords.

When you read about user accounts for websites, such as Yahoo, Netflix, Twitter, Amazon and The New York Times, being breached, you immediately think of your own security. Every day, companies and individuals face these types of cybersecurity attacks. Effective password management can be your first line of defense against these threats and against identity theft.

Donovan & Limroth reminds clients of the demand for businesses and consumers to educate themselves and be proactive. To protect yourself, take action and follow these steps. 

  1. Change Passwords For private networks, hackers can steal a password and install backdoor access to an account. Also, hacker hardware and software is more advanced and can crack passwords faster. Regularly changing your passwords isn’t always a safeguard, but there are exceptions, especially with social media and email accounts, where hackers may “listen in” to your activity for weeks before you realize it.    
  2. Use Different Passwords Remembering and keeping track of numerous passwords can be tricky. But if your account on one website is breached, would that password give someone the keys to your other accounts also?
  3. Create Unpredictable Passwords Advanced hacker hardware and software is fast and smart. It can detect patterns you may use in setting up your passwords. That means variations don’t stand a chance. Tips include making passwords long and using a mix of character types.
  4. Two-Factor Authentication It’s available on accounts, such as Google, Gmail, Apple, Facebook, Twitter, Dropbox, PayPal, Microsoft and others. It requires more than just your password and is a two-step process. For example, you could be asked to enter a password and then enter a code that your receive by phone.
  5. Use a Password Generator and Manager These tools can help you generate unique, unpredictable passwords and manage them for long-term security. LastPass is one company that provides these tools, and you can read PC Magazine article “The Best Password Managers of 2017” to learn about these providers and reviews of their services.

With the evolution of hardware, software, technology and the increased use of smartphones and mobile devices, your passwords have more exposure than ever. Think about these tips, but don’t think for long. Take action.

Should I Refinance Student Loans?

Posted by Admin Posted on Mar 16 2017

Dollars and graduation cap

If you’re considering refinancing, learn the right questions to ask and options to consider.

The American Institute of CPAs (AICPA) conducted a survey in 2016 of those with student debt which revealed:

  • 46% are working second jobs
  • 37% are cutting living expenses by moving in with family members
  • 40% are living with roommates
  • 71% said they would reconsider their higher education decisions
  • 36% said they wished they’d attended community college for their first two years
  • 34% said they wished they’d chosen a public versus a private school

This paints a grim picture. Student loans are impacting lifestyles. A majority of adults with student loans report making personal and financial sacrifices in order to meet their loan payments.

To best help you, Donovan & Limroth takes the time to learn about you and your individual challenges. This is the best way to help you customize your financial and tax planning. And with higher education costs rising and student loans shaping people’s lives, these are crucial conversations.

If you are saving for future expenses, we can provide information and tools about paying for higher education. Your research should include federal loan programs and the pros and cons of federal versus private loans from commerical lenders.

If you currently have student loans and are thinking about refinancing, it’s important to look at the long-term financial impact of your refinance options. The size of student loan debt in the U.S. exceeds $1.3 trillion. Even more staggering is that this debt, according to the Federal Reserve, increases at about $2,700 per second.

Refinancing $75,000 of student debt down from 6.8 percent to 4.82 percent could save you around $8,900 over 10 years.

And refinancing $75,000 of student debt from 10 percent to 4.82 percent could save you around $24,266 over 10 years.

Know that refinancing is possible, and with the current boom in the student debt refinancing market, it can be a reality.

With more than 44 million people paying school loans, tools such as LendEDU have become popular. LendEDU allows you to compare student loan refinancing offers from companies, including SoFi, Citizens Bank, LendKey, CommonBond, Earnest and College Ave. You can compare rates, terms, and qualification requirements, and there are no fees to refinance student loans.

NerdWallet and Credible have teamed up to offer similar services. You can learn about their process and recommendations for the “11 Best Companies to Refinance Your Student Loans in 2017”. NerdWallet also provides an easy-to-use student loan refinance calculator, allowing you to calculate and compare your savings.

Donovan & Limroth encourages clients to research carefully and make informed decisions. The National CPA Financial Literacy Commission also advises you to:

  • Read carefully any loan documents before signing them with respect to interest rates, repayment terms, penalties, and other important information.
  • Know your various repayment options such as the standard repayment plan, graduated repayment plan, extended repayment plan, income-based repayment plan and loan consolidation.
  • Be aware that student loans are hard to cancel, even in bankruptcy. Death and permanent total disability are two of the very few ways to get student loans discharged.

Before refinancing, also explore student loan forgiveness programs and qualifications. And if you have federal loans, you may be eligible to apply for Student Loan Income-Based Repayment (IBR), which is determined according to your ability to pay instead of how much you owe. For guidelines and an estimate, use an IBR calculator to help you decide if you should apply. For some, this could offer more savings than refinancing.

The goal is to be able to receive and enjoy the benefits of higher education and pursue your dreams. In a press release, Gregory Anton, CPA, chair of the AICPA’s National CPA Financial Literacy Commission said, “College is often viewed as a stepping stone to the American dream. However, the way education is funded could actually wind up delaying home ownership, getting married, and having children—hallmarks of that dream.”

If you have questions about financial planning and student loan refinancing, contact Donovan & Limroth for assistance.

Independent Contractor Definition — Caution with Classification!

Posted by Admin Posted on Mar 07 2017

Contractors, company and clients files

Are you looking to classify your workers as independent contractors?

As a follow-up to our last blog about when to obtain Form W-9, an equally important question is “who qualifies as an independent contractor?” The wrong answer can lead to a painful assessment from the IRS.

It is important you understand the independent contractor definition. An easy way to do so is to review an independent contractor test and independent contractor vs. employee checklist.

Even if an employer correctly followed the independent contractor rules and issued a 1099-MISC, that employer will face a withholding tax liability equal to 1.5% of the payments made to such employee if the employer “misclassified” the employee. Additionally, the employer will face a Social Security tax in the amount of 20% of the employee’s FICA tax liability.

If the employer did not follow all the correct reporting requirements for an independent contractor, the withholding tax doubles to 3% of the payments and the Social Security tax doubles to 40% of the employee’s share of FICA tax liability.

If the IRS disagrees with an employee’s classification, the employer must pay the tax, no matter how much effort went into determining the correct classification.

The employer may not be totally out of luck, though. Read on!

The taxpayer may subsequently bring an action to recover those taxes under Section 530 of the Revenue Act of 1978, which may provide tax relief to the employer only after it has both:

  1. established that it has filed all the required returns consistent with treating the worker as an independent contractor, and
  2. shown that it did not treat any other worker performing the same duties as an employee.

Once these two requirements are met, the employer may be entitled to relief from the federal employment tax liability under Section 530’s statutory requirements, but the employer must show it had a “reasonable basis” for not classifying the worker as an employee.

The employer must show that:

  1. a judicial precedent, published rulings, technical advice, or a letter ruling to the taxpayer (employer) exists, or
    1. the IRS previously audited the taxpayer
    2. the IRS determined that the taxpayer’s workers were independent contractors
    3. the workers, subject to the prior audit, are similar to the workers at issue, and
    4. the taxpayer treated the two groups of workers in a similar fashion, or
  3. there is a long-standing practice of a significant segment of the industry in which the individual was engaged.

Even if a taxpayer does not meet the above statutory safe harbor categories of Section 530, courts may be willing to provide relief to employers that put in a reasonable effort to determine the proper classification of its employees.

Note: Section 530 only applies to tax relief. It does not address whether the classification of that employee is correct. Even if an employer successfully receives tax relief, it may still have to classify its workers as employees.

If you have questions about classification, contact Donovan & Limroth for assistance. And for more resources on this topic, visit the IRS website.

When do You Need to Obtain IRS Form W-9?

Posted by Admin Posted on Feb 22 2017

Hand with pen filling out Form W-9

Our recommendation? Before you make a payment to anyone outside the company.

Form W-9 is a request for Taxpayer Identification Number (TIN) and Certification and will:

  • Help you to determine who should receive a Form 1099.
  • Provide you with the necessary information to complete Form 1099, when required, such as name, address and Social Security or tax identification number.
  • Relieve you from liability if the payee does not complete the form properly.
  • Help you to avoid penalties for filing late or failing to file 1099s.

In general, your business must issue a 1099 to any person outside the company that you have paid $600 or more to during a tax year. This includes payments for rents, services (including parts and materials), prizes and awards, or other income payments. Payments to corporations are exempt from this reporting requirement, except in the case of payments made for legal services. The exemption from reporting payments made to corporations does not apply to payments made to attorneys. The 1099 requirements for payments for legal services apply regardless of how the payee’s entity is organized or what their filing status is with the IRS.

Do form W-9s need to be renewed each tax year? The short answer is that there is no requirement to do so. The payee should report to you any changes in their information. Because that may not happen, you can request that vendors complete a new form W-9 at any time.

Donovan & Limroth advises clients not to wait till year end to obtain the W-9 from payees.  This is now even more important because the IRS has moved the 1099 filing deadline up from February 28 to January 31.

The easiest strategy is to require a vendor to complete a W-9 before issuing payment. It is reasonable and customary to make this request, so don’t hesitate to make this a requirement before making payment.

To ensure that your records are properly maintained, contact Donovan & Limroth if you have questions regarding W-9 and 1099 forms. A current version of form W-9 can be found on the IRS website.

Gone! 21st Century Cures Act Impacts IRS Regulations

Posted by Admin Posted on Feb 15 2017

Doctor holding piggy bank

Now, small employers are allowed to offer health reimbursement arrangements (HRAs) to reimburse employees for health insurance and other medical expenses without penalty.

The 21st Century Cures Act, signed by President Barack Obama, took effect on January 1, 2017. It allows for Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) for reimbursing employees for health insurance premiums.

To qualify, an eligible small employer must employ less than 50 full-time employees, including full-time equivalents. The employer and arrangement must also meet the following criteria:

  • Employer must not offer group health insurance to any of its employees
  • Arrangement must be funded solely by the eligible employer; no salary reduction contributions may be made under the arrangement
  • The amount of payments and reimbursements for any year do not exceed $4,950 for individuals, $10,000 for families in the case of an arrangement that provides reimbursement for family coverage (with amounts to be adjusted for inflation)
  • Employer must offer HRA benefits on the same terms to all eligible employees, with certain exclusions (e.g., part-time and seasonal employees)

In 2013, the IRS imposed a penalty of $100 per day against employers who directly paid or reimbursed their employee’s health insurance premiums. The reason was that HRA employee reimbursement for individual health insurance policies violated the terms of the Patient Protection and Affordable Care Act (PPACA).

With this IRS regulation gone, HRAs are now an option. Small employers can create HRA health plan opportunities for their employees, creating benefits that have the potential to be a win for both.  

If you consider offering QSEHRAs to employees, they must be properly set up. Donovan & Limroth can assist you with the setup and provide you with sample plans and employee notification documents. When tax season comes around, you will avoid the worry and the rush to make sure your records are in order.

New Form I-9 Mandatory for Employers on January 22, 2017

Posted by Admin Posted on Feb 03 2017

New job hire form

If you’re an employer in the U.S., it’s mandatory to maintain a properly completed Form I-9 for every individual you hire for employment in the U.S. It’s federal immigration law.  

Form I-9, which verifies identity and employment authorization, has changed. As of January 22, 2017, it is mandatory to use the updated form. As of this date, all previous versions of the form are invalid.

When must Form I-9 be completed and signed? At the time of hire. You might feel relieved to have the selection of a new hire behind you, but now the onboarding process begins.

Put tools in place to ensure compliance and make the process efficient. New-hire paperwork is time-consuming and tedious. Errors, oversights and non-compliance have severe consequences and can result in costly fines.  

Payroll software is available that allows new hires to fill out Form I-9 and more online.  Donovan & Limroth recommends payroll software packages based on your needs, including GUSTO, ADP and others. GUSTO, for example, offers an employee onboarding checklist and tools to help you track and maintain critical employee information.

Our payroll software solutions allow you to keep federal and state tax documents, direct deposit forms and other company documents in your system electronically — all before your new hire’s first day on the job. This improves compliance and ensures easy maintenance for you.

These robust systems not only offer payroll solutions but benefits tools as well. You’ll save time by having one place to log in and one secure place for valuable employee data and access to updated forms.

Set yourself up for recordkeeping success and schedule an appointment with one of our payroll advisors. Now that you’re not juggling forms, there’s more time to focus on training and development to maximize the investment in your new hire.

Hold On! Update on the New FLSA Overtime Rules

Posted by Admin Posted on Jan 26 2017

Definition of overtime

The U.S. Department of Labor’s new federal overtime rule did not take effect as scheduled on December 1. A federal judge issued a temporary injunction, blocking the new rule a week before it was to be implemented.

The rule was set to change the Fair Labor Standards Act (FSLA) minimum salary threshold for exempt employees. The new threshold was to increase the minimum salary requirement for an employee to be exempt from overtime compensation from $23,660 to $47,476 annually.

What does the injunction mean to employers? The rule could still be implemented after litigation. In the meantime, it’s advisable to:

  • Continue to abide by existing overtime regulations. The current salary threshold is $23,660 annually or $455 per week.  
  • If you already made decisions or changes, such as providing salary increases to employees to maintain their exempt status, you may want to leave these in place.
  • If you have exempt employees, who were going to be reclassified to nonexempt but haven't yet, you may want to postpone those decisions.

When it comes to overtime, the FSLA states:
Covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek (any fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods) at a rate not less than one and one-half times the regular rate of pay.

There is no limit on the number of hours employees 16 years or older may work in any workweek. The FLSA does not require overtime pay for work on weekends, holidays, or regular days of rest, unless overtime is worked on such days.

For general guidance on overtime topics, including an Employment Law Guide, fact sheets, e-tools and posters, check out the U.S. Department of Labor’s resources and tools.

2017 Standard Mileage Rate for Business

Posted by Admin Posted on Jan 19 2017

Woman driving car

What is the mileage rate for 2017? The IRS standard mileage rate for business has been decreased. As of January 1, 2017, the rate is 53.5 cents per mile, which is down from 54 cents.

Are you using a mileage tracker or mobile app? If you’re tracking your miles driven with one of these tools, make sure they’re updated with the new rate. And if you’re not using one, consider it.

When you’re eligible to deduct car expenses for business, the IRS offers two choices — the standard mileage rate method or the actual expense method. If using the standard mileage method, the IRS wants accurate and timely records. Keep a daily, detailed log at the time the mileage is driven. Include the:

  • Date and time.
  • Purpose of business and client name.
  • Address of where you start and end your trip.
  • Your odometer reading at the start and end of each trip.

Recordkeeping can be tedious so consider tools that will help you. Accuracy is important to the IRS, and efficiency and time is important to you. Evaluate the method you use and consider options, such as:

  • Mileage Log: A paper log or journal can be kept in your car. Keep your log in the same place so it’s not easily lost or misplaced. Also, keep it visible so you remember to make your daily entries.

  • Apps: These track, calculate and log your mileage for each trip. There are dozens of free and inexpensive apps available. They can be used on smartphone devices, which make them easy to use and readily accessible. Apps will automate your recordkeeping and also help decrease manual calculation errors.

From meetings with clients to a trip to the business supply store, your business miles (and deductions) add up. Record these miles to meet IRS standards, and make your mileage count.