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starting your dental career
Articles
Peter Locke

Starting your Dental Career

How can you get to the point where you’re ready to own your own dentist practice and begin starting your dental career. You’re a freshly minted DDS or DMD and you’re feeling great. Finally you can start making some money and living your best life. You have plenty of options from an employer standpoint but you also have a dream of owning your own dental practice. This crossroad is a pivotal one. One that can shape what the next handful of years look like. The idea of taking on more debt makes you sick but so does working for someone else that doesn’t share your vision.  As a young dentist you’re just trying to pay their bills and be in a more stable environment so you can provide yourself a reasonable lifestyle. If you live in a place you anticipate being for more than 3-5 years then you may even be considering purchasing a home. But regardless of your short term desires for the type of lifestyle you want your next decision is crucial to starting your dental career. Let’s consider the pros and cons of both working for a well established dental practice and owning your own.  When you graduate the first thing you want to do is get an income, a place, and a car. You may want to go out to more dinners and drinks with friends because you’re finally free. You’ve worked incredibly hard and dedicated yourself to studying and working for a number of years and it’s time to enjoy some financial freedom. Joining a well established practice is a great decision for those that dont have the entrepreneurial mindset and want to be great dentists without the added responsibilities of owning something. You can collect a nice income almost immediately and start doing the things you’ve always wanted to do. With a great starting income and benefits this path is actually a great place to be. For a lot of dentists, you can pick your own hours, not work 40 hours, and have no responsibilities outside of continuing education and being a great employee. In fact, for the majority of people, this is the path to choose. Starting salaries for an associate dentist is usually between $100,000-$150,000 which is a very comfortable lifestyle. If you’re a diligent saver and frugal spender, in the long run you may be financially better off as you know how to live within your means.  For those that went through school and thought that working for someone else wasn’t for them and owning a practice was the way to go, the decision to start your own practice and starting your dental career is both easy and daunting.  If your goal is to build a lot of wealth and be your own boss then you should consider owning your own practice. However, this decision should not be taken lightly. The biggest mistake I see small business owners make is the decision to branch off on your own because they’re simply good at what they do. Unfortunately, being good at something doesn’t make you a CEO. Every year, over 1 million individuals in the U.S. start a business and at the end of the year at least 40% of them have failed, and if that’s not already bad, 80% within 5 years fail. If you think the odds aren’t too bad, of that remaining bunch, over the next five years 80% of them fail.  Running a business takes a lot of effort but when done correctly offer some of the greatest benefits the business world has to offer. There is a reason that the wealthiest people in the world are business owners that took a big risk but took the right steps along the way to be successful. So, if your mindset isn’t a growth mindset with a long term goal to become wealthy personally or financially or both then making this leap might not be for you. The average dentist start-up losses $5,000 in the first year.  Graduating dentists are typically focused on getting rid of debt due to a lack of information and the group think mentality. This unfortunately leads a large number of people that are highly skilled and creative to not start their own business. Professors and parents throughout your life tell you to get a good education so you can get a good job. For leaders, this can be some of the best and worst advice you can get. Getting a job and making a career are different. My advice is to not let debt drive your decision.  *Read our article or listen to our podcast on debt and the difference between accretive and erosive debt. Graduating dentists have the option with how they pay their debt off when they graduate. Taking the time to run an analysis is imperative before making this decision and a financial planner can help with this decision. Just because you don’t have assets does not mean you should not hire a planner. In fact, it’s probably the best decision you can make as the long term effects it can have can define the type of life you live later in life. Although we understand that it’s extremely difficult to think about retirement when you’re 21 years old.  Most graduates will choose an income based repayment plan. This means you will pay 10-15% of current income towards your debt. So for those entrepreneurs who chose starting your dental career and run their own business practice, you essentially have permission to pause those payments if you make little to no money. Easiest way to deal with student loans is to make a lot of money. If a dentist is really driven, productive, patients say yes to them, they’re ready to take responsibility, then they can do just that. To start your own practice you’ll need roughly $500,000. This is the daunting part but if you don’t make a couple of bad decisions right out of school then you can set yourself up

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December 11, 2020 No Comments
boulder colorado financial planners
Articles
Kevin Taylor

How to “use” Amortization and why it’s in your K-1?

How to “use” Amortization: Basic Definition: Amortization is a process of spreading out a cost or payment over a period of time. It’s a bit like depreciation, but while depreciation typically refers to spreading out the cost of tangible assets (like machines or buildings) over their useful lives, amortization usually refers to intangible assets like patents, trademarks, or certain loans. Simple Analogy: Imagine you buy a yearly pass to a theme park for $120. Instead of thinking about the cost as $120 all at once, you decide to think about it as $10 per month (since there are 12 months in a year). This monthly perspective helps you understand the cost over time. That’s a very basic idea of how amortization works, though in business, the calculations can be more complex. Amortization in your K-1: What’s a K-1?: Schedule K-1 is a tax form used in the U.S. It represents an individual’s share of income, deductions, credits, etc., from partnerships, S corporations, or certain trusts. If you invest in one of these entities, you receive a K-1 showing your portion of the income or loss. Why Amortization is Relevant: When a partnership (or similar entity) owns intangible assets, those assets may be amortized. This amortization can create a tax deduction for the entity, reducing its taxable income. If you’re an investor in that entity, your share of that deduction would appear on your K-1. This could affect your personal tax return, potentially reducing your taxable income based on your share of the amortized expense. In simple terms, amortization on a K-1 represents your share of a tax benefit from the spreading out of certain costs by the entity you’ve invested in. These are Typical Sources of Amortization in the expenses of an investment: Organization Costs Definition: These are costs associated with forming a corporation, partnership, or limited liability company (LLC). They can include legal fees, state incorporation fees, and costs for organizational meetings. Amortization: These costs are typically amortized (spread out) over a period of 180 months (15 years) starting from the month the business begins operations. Start-up Costs Definition: These are expenses incurred before a business actually begins its main operations. They might include market research, training, advertising, and other pre-opening costs. Amortization: Similar to organization costs, start-up costs are generally amortized over a 15-year period beginning from the month the business officially opens its doors. Loan Fees Definition: These are costs or fees associated with obtaining a loan. Examples include origination fees, processing fees, and underwriting fees. Amortization: Instead of deducting these costs in the year they are incurred, businesses often amortize them over the life of the loan. So, if you paid a fee to obtain a 5-year loan, you’d spread out (amortize) that fee over the 5-year term. Permanent Loan Definition: This typically refers to a long-term loan, often used in real estate to replace a short-term construction loan. A permanent loan can last for decades. Amortization in this context: It often refers to the process of paying off the loan in regular installments over a set period. This is different from the amortization of loan fees. The principal and interest payments on a permanent loan gradually pay down the balance over time. Tax Credit Fees Definition: These fees might be associated with the process of obtaining tax credits for a business. For instance, in some cases, businesses might pay fees to consultants or brokers to secure certain tax credits or incentives. Amortization: The method and period over which these fees are amortized can vary based on specifics, but like loan fees, they’re often spread out over the period in which the associated tax credits are recognized or utilized.  

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March 8, 2021 No Comments
Articles
Kevin Taylor

Tax Mitigation Playbook: Allowable closing expenses in 1031 Exchanges

Selling and buying a home is full of fees, expenses, and individual line items that can confuse the process and generate much of the closing paperwork. When selling or purchasing an investment property in a 1031 exchange process, certain selling expenses paid out of the sales or 1031 exchange proceeds will result in a taxable event for the exchanger. The IRS is very clear about many of these costs of selling a property, for example, routine selling expenses such as broker commissions or title closing fees will not create a tax liability.  Inversely most operating expenses paid at closing from 1031 proceeds will create a tax liability for the exchanger. The IRS, over time and in several notes, instructions and guidelines has made the following clear: Allowable closing expenses for IRS 1031 exchange purposes are: Real estate broker’s commissions, finder or referral fees Owner’s title insurance premiums Closing agent fees (title, escrow, or attorney closing fees) Attorney or tax advisor fees related to the sale or the purchase of the property Recording and filing fees, documentary or transfer tax fees Closing expenses that result in a taxable event are: Pro-rated rents Security deposits Utility payments Property taxes and insurance Associations dues Repairs and maintenance costs Insurance premiums Loan acquisition fees: points, appraisals, mortgage insurance, lenders title insurance, inspections, and other loan processing fees and costs To reduce the taxable consequences of these operating, financing, and other closing fees, try to: Pay security deposits, pro-rated rents, and any repair or maintenance costs outside of closing, or deposit these amounts in escrow with the closing agent. Treat accrued interest, prorated property tax payments, or security deposits as non-recourse debt that the exchanger is relieved of on the sale of their old property, which could be offset against the debt assumed on the replacement property. Note: this would only work if mortgage debt is obtained on the replacement property purchase that exceeds the mortgage debt paid off on the sale of the relinquished property. Match any prepaid taxes or association dues credited to the investor against the unallowable closing expenses listed on the settlement statement. Check with your tax advisor prior to the closing to review the closing settlement statements to determine if there is an opportunity to avoid a taxable transaction in your 1031 exchange. It’s possible that an exchanger has a long-term loss carry forward or non-recognized passive operating losses that could offset the taxable amount. Please note that all material provided in this newsletter is for informational purposes only and the author is not providing legal, tax accounting, or other professional services. The accuracy of the information provided as it pertains to your situation is not guaranteed. Please seek professional consultation if legal, tax accounting, or other expert assistance is required.

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July 18, 2022 No Comments

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