Archives for January 2023

Forms W-2 And 1099-NEC Are Due To Be Filed Soon

Ken Botwinick, CPA | 01/24/2023

With the 2023 filing season deadline drawing near, be aware that the deadline for businesses to file information returns for hired workers is even closer. By January 31, 2023, employers must file these forms:

Form W-2, Wage and Tax Statement. W-2 forms show the wages paid and taxes withheld for the year for each employee. They must be provided to employees and filed with the Social Security Administration (SSA). The IRS notes that “because employees’ Social Security and Medicare benefits are computed based on information on Form W-2, it’s very important to prepare Form W-2 correctly and timely.”

Form W-3, Transmittal of Wage and Tax Statements. Anyone required to file Form W-2 must also file Form W-3 to transmit Copy A of Form W-2 to the SSA. The totals for amounts reported on related employment tax forms (Form 941, Form 943, Form 944 or Schedule H for the year) should agree with the amounts reported on Form W-3.

Failing to timely file or include the correct information on either the information return or statement may result in penalties.

Independent contractors

The January 31 deadline also applies to Form 1099-NEC, Nonemployee Compensation. These forms are provided to recipients and filed with the IRS to report non-employee compensation to independent contractors.

Payers must complete Form 1099-NEC to report any payment of $600 or more to a recipient.

If the following four conditions are met, you must generally report payments as nonemployee compensation:

You made a payment to someone who isn’t your employee,
You made a payment for services in the course of your trade or business,
You made a payment to an individual, partnership, estate, or, in some cases, a corporation, and
You made payments to a recipient of at least $600 during the year.
Your business may also have to file a Form 1099-MISC for each person to whom you made certain payments for rent, medical expenses, prizes and awards, attorney’s services and more.

We can help

If you have questions about filing Form W-2, Form 1099-NEC or any tax forms, contact us. We can assist you in staying in compliance with all rules.

Dental Practice Acquisition – Financial Due Dilligence

Ken Botwinick, CPA | 01/16/2023

Are You Ready To Buy A Dental Practice?

You’ve taken the time to refine your clinical skills since dental school graduation. You’ve registered with the top regional dental practice brokers. You’ve asked for help from anyone who might be able to help you locate an existing practice to buy, including practice brokers, dental equipment sales and repair representatives and your peers.

Now, what appears to be the ideal dental practice to buy presents itself. But is it an ideal practice? Most importantly, is it an ideal practice for you? Is it a growing practice or one on the decline?

Before you throw up your arms and scream for help, here are some steps to take to ensure success.

The First Thing To Do Is To Build Your Advisory Team Quickly.

An even better idea is to compile a team of dental-specific professionals even before you find that ideal practice to be better prepared to outpace a competing suitor. Having a dental-specific CPA and a dental-specific attorney is half the battle of completing a successful practice acquisition. In addition, securing a dental-specific loan specialist at a bank will also give you an advantage.

The Most Vital Step In A Dental Practice Acquisition Is The Due Diligence Process.

Verifying the accuracy of the representations of the practice seller and the broker and evaluating the true value of the practice to you as the buyer is crucial. A CPA specializing in dental practices can be a huge asset in evaluating the merits of the contemplated practice and forecasting your success in that office as its new practice owner.

Though the merits of the practice can and should be discussed with the Dental CPA prior to making an offer, we recommend that you begin the due diligence step once a Non-Binding Letter of Intent is signed. By this time, you should have already visited the office, met with the practice owner, and arrived at the basic terms of the sale, including the purchase price and a mutually workable closing date timeframe. Often, the office staff is unaware that the dental practice is for sale, so confidentiality and discretion in discussions with third parties are imperative.

When performing due diligence on a dental practice acquisition, what top items do we look at?

Practice Collections

Show me the money!

Some due diligence procedures should include reviewing dental practice tax returns filed for the last three to four years. Additional steps should also include reviewing bank statements and comparing deposits for the year to the tax returns and financial statements provided, keeping an eye out for unusual non-recurring deposits and items.

Practice Expenses

Mind the store!

What does this practice cost to operate, and what can you reasonably expect to earn? Certain costs are variable, and certain expenses are fixed. Focus on analyzing the costs that will be difficult to manage. An expensive lease can hinder profitability, locking the practice for a fixed term. A bad lease might be a non-starter and kill the deal before further acquisition efforts are made. Employee costs can easily become overwhelming in a long-held practice. Be mindful of hourly wages or salaries and employee benefits. What the seller might be able to afford to pay staff may not be what a new practice owner can afford, along with a bank note to pay. Employees do not take kindly to a reduction of pay or benefits in a transition. You’re not looking for a mutiny on Day One!

Remaining Terms of The Office Lease

Pack your bags!

How many years remain on the lease? Do you feel like moving next year? If there are less than three years remaining on the lease or a new lease can’t be negotiated prior to closing, you may need to pass on this practice. Typically, the banks will not lend with insufficient lease terms. Check all terms of the lease and the afforded rights for it to be

assigned to an acquiring practice owner.

Insurance Plans are Accepted, and Office Fee Schedules

$50 cleaning? I don’t think so!

Don’t laugh. We have seen it. It is very important to review the insurance plans accepted. When a hygienist can cost more than $60 per hour with payroll taxes and benefits, make sure you’re not losing money with every patient you see. A careful review of the fee schedules for the accepted top three plans should be performed. Many older dentists fear dropping certain underpaying plans and have continued to build a larger patient base on sub-par paying plans, even as other local providers have dropped the plans.

Associate Contracts

Whose goodwill are you buying?

When a practice employs a dental associate, the patient-doctor relationship sometimes transfers to the dental associate. A review of the associate’s employment contract is vital to protect the asset you are purchasing. Be aware that in the absence of a non-compete agreement between the associate and the practice, nothing can prevent the associate from opening nearby and taking the patients from the practice you want to purchase.

Procedures Currently Performed In-Office and Procedures Referred Out

Opportunities lost or found?

A careful review of the production report by the procedure is crucial in determining if you have discovered a huge opportunity or are purchasing a practice you can’t or choose not to replicate. In other words, if you are not comfortable placing implants and the practice’s collections include a large percentage of implant placement cases, this may not be the practice for you. Immediately, there will be a reduction in collections. Conversely, if the practice is not currently placing implants or refers out all endodontic work and you are skilled at such procedures, you have just discovered a huge opportunity to grow the practice.

As a CPA firm specializing in the dental industry, our dental accountants are skilled at guiding our clients to successful practice acquisitions. Equally as important, we continue to provide industry-specific accounting guidance post-transaction to set our clients up for a rewarding ownership experience. Often referred to as “New Jersey’s most trusted dental accountants,” we strive and succeed to live up to our stellar reputation continuously.

Employers Should Be Wary Of ERC Claims That Are Too Good To Be True

Ken Botwinick, CPA | 01/11/2023

The Employee Retention Credit (ERC) was a valuable tax credit that helped employers that kept workers on staff during the height of the COVID-19 pandemic. While the credit is no longer available, eligible employers that haven’t yet claimed it might still be able to do so by filing amended payroll returns for tax years 2020 and 2021.

However, the IRS is warning employers to beware of third parties that may be advising them to claim the ERC when they don’t qualify. Some third-party “ERC mills” are promising that they can get businesses a refund without knowing anything about the employers’ situations. They’re sending emails, letters and voice mails as well as advertising on television. When businesses respond, these ERC mills are claiming many improper write-offs related to taxpayer eligibility for — and computation of — the credit.

These third parties often charge large upfront fees or a fee that’s contingent on the amount of the refund. They may not inform taxpayers that wage deductions claimed on the companies’ federal income tax returns must be reduced by the amount of the credit.

According to the IRS, if a business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction. Your tax advisor can assist with this.

Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.

ERC Basics

The ERC is a refundable tax credit designed for businesses that:

Continued paying employees while they were shut down due to the COVID-19 pandemic, or
Had significant declines in gross receipts from March 13, 2020, to September 30, 2021 (or December 31, 2021 for certain startup businesses).

Eligible taxpayers could have claimed the ERC on an original employment tax return or they can claim it on an amended return.

To be eligible for the ERC, employers must have:

Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021,
Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
Qualified as a recovery startup business for the third or fourth quarters of 2021.

As a reminder, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining Paycheck Protection Program (PPP) loan forgiveness or that were used to claim certain other tax credits.

How to Proceed

If you didn’t claim the ERC, and believe you’re eligible, contact us. We can advise you on how to proceed.

The Standard Business Mileage Rate Is Going Up In 2023

Ken Botwinick, CPA | 01/03/2023

Although the national price of gas is a bit lower than it was a year ago, the optional standard mileage rate used to calculate the deductible cost of operating an automobile for business will be going up in 2023. The IRS recently announced that the 2023 cents-per-mile rate for the business use of a car, van, pickup or panel truck is 65.5 cents. These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.

In 2022, the business cents-per-mile rate for the second half of the year (July 1 – December 31) was 62.5 cents per mile, and for the first half of the year (January 1 – June 30), it was 58.5 cents per mile.

How rate calculations are done

The 3-cent increase from the 2022 midyear rate is somewhat surprising because gas prices are currently lower than they have been. On December 29, 2022, the national average price of a gallon of regular gas was $3.15, compared with $3.52 a month earlier and $3.28 a year earlier, according to AAA Gas Prices. However, the standard mileage rate is calculated based on all the costs involved in driving a vehicle — not just the price of gas.

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, including gas, maintenance, repair and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear, as it did in 2022.

Standard rate versus actual expenses

Businesses can generally deduct the actual expenses attributable to business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.

The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. With this method, you don’t have to account for all your actual expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.

Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you do use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.

The standard rate can’t always be used

There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2023 — or claiming 2022 expenses on your 2022 income tax return.