Authored by Evan Reynolds, President of Dental Space Advisors
How To $AVE BIG DOLLARS When You Renew Your Office Lease
Most dental professionals are searching for ways to cut their overhead cost, however, many largely ignore the valuable opportunity to materially reduce one of their largest operational costs. This opportunity comes in the form of an office lease renewal which usually only comes around every five or ten years. Most dentists wait until there are only a few months or even weeks left on their lease to start discussions regarding lease renewal terms. This procrastination results in the landlord possessing all of the advantage as they know you have no intention of going anywhere else. The building owner will usually offer the busy dentist a “preferred renewal rate” and that generally ends the negotiations. The dentist never really had a chance in this one-sided scenario however it is very common for the vast majority of dental tenants. The biggest problem is that most dentists do exactly the opposite of what they should do when they are renewing their lease and in the process forego significant savings. A dentist that leases 2,000 square feet can easily forfeit $20,000 to $40,000 over the term of a typical dental lease by failing to effectively negotiate their lease renewal.
The key objective for a building owner is to maximize rental income and your goal is to minimize rental cost as much as reasonably possible. So how do you go about effectively negotiating your lease renewal? The short answer is that you approach it as if you were absolutely going to move your practice to a new location. It is important that you convince the landlord that you have serious, viable relocation alternatives and that there is a real possibility that you will move. Every communication with the landlord must reinforce the premise that you are diligently evaluating the alternatives in the market. This may include relocating to a new lease space or perhaps purchasing an office condominium. The landlord needs to know as early as possible that you are considering other options and that they have something to lose. It is often costly for a landlord to re-lease a space as it much more preferable to renew an existing tenant. They will have a vacancy for a period of time after you leave and will have to spend money on refurbishment and leasing commissions.
The objective is to maximize your negotiating leverage and this can be a challenge for most dental tenants. Dentists are at a huge disadvantage in the world of commercial real estate. They often have to sink large dollars into their space for build-out and are usually hesitant to move due to potential patient confusion (not to mention the hassle of moving itself). The building owner views a dental tenant as being largely captive. They are aware of the tendency for dentists to stay where they are for long periods of time. The average dental tenant stays in one location for about 18 years.
You may think that this strategy requires too much time and effort, however, you should hire a commercial real estate broker (at least nine months prior to lease expiration) that specializes in working with dental tenants to manage the process and lead negotiations. Very little of your time is required if the process is managed appropriately by an experienced broker. The best part is that the broker exclusively represents your interests and is paid by the building owner. Landlords much prefer to negotiate directly with the tenant and might discourage you from having representation. The fact is that your broker’s commission is a small fraction of the overall savings that can be generated by effective representation (the landlord’s broker typically gets a greater fee if the tenant does not haverepresentation). Hiring a broker also reinforces the idea to the building owner that you are serious about evaluating other alternatives.
In addition to the cost savings that can be captured during a lease renewal, there are other aspects of your lease that can be improved. You can potentially eliminate a personal guarantee that was required in the original lease (important when selling a practice), get your security deposit refunded or change other terms of the lease that need improvement.
Effectively negotiating the renewal of your lease can save you significant dollars and the opportunity only comes around a few times during your career. Make sure that you take advantage of this opportunity and put more money in your pocket instead of the building owner.
Disaster Relief for Hurricanes Irma, Harvey and Maria Victims
Hurricane season has hopefully seen its climax in the Northern Hemisphere for 2017. The IRS is offering tax relief for victims of Hurricanes Harvey and Irma, and has extended that relief to victims of Hurricane Maria. In general, the IRS said it is now providing relief to individuals and businesses anywhere in Florida, Georgia, Puerto Rico and the Virgin Islands, along with parts of Texas. The relief postpones various tax deadlines, giving individual and business taxpayers until January 31, 2018 to file any returns and pay any taxes due.
Those eligible for the extra time include:
Individual filers whose tax-filing extension runs out on October 16, 2017. Because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.
Business filers, such as calendar-year partnerships, whose extensions ran out on September 15, 2017.
Quarterly estimated tax payments due on September 15, 2017 and January 16, 2018.
Quarterly payroll and excise tax returns due on October 31, 2017.
Calendar-year tax-exempt organizations whose 2016 extensions run out on November 15, 2017.
See the disaster relief page on the IRS website (https://www.irs.gov/newsroom/tax-relief-in-disaster-situations) for details about the other kinds of tax relief furnished by the IRS in response to the recent hurricanes. The IRS said it is continuing to closely monitor the aftermath of the various storms, and more updates for taxpayers and tax professionals will be posted to IRS.gov.
Besides additional time to file and pay, the IRS provides other special assistance to disaster-area taxpayers, including:
Special relief helps employer-sponsored leave-based donation programs that aid hurricane victims. Under these programs, employees can decide to forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before January 1, 2019, to charities offering relief. Donated leave isn’t included in the employee’s income, and employers can deduct these cash payments to charity as a business expense.
401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to hurricane victims and members of their families. Under this broad-based relief, a retirement plan can allow a hurricane victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or dependent who lived or worked in the disaster area. Hardship withdrawals must be made by January 31, 2018.
The IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period. See the disaster relief page for the time periods that apply to each jurisdiction.
Individuals and businesses who have suffered uninsured or unreimbursed disaster-related losses can opt to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year), or the return for the prior year (2016).
The IRS is waiving the typical fees and expediting requests for copies of previously filed tax returns for disaster area taxpayers. The relief can be particularly helpful to anyone whose copies of these documents were lost or destroyed by the hurricane.
If disaster-area taxpayers are contacted by the IRS on a collection or examination matter, they should be sure to explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case. ~ Jennifer Johnson
Identity Theft protection is a hot topic in today’s world. Here are a few tips to help protect yourself and your identity.
Keep your personal information secure at home and in the workplace. Best practice is to shred documents that contain personal information before disposal.
Protect your computer with firewalls and antivirus software. Check out www.onguardonline.gov for tips on Internet fraud prevention.
Create strong passwords. This is no fun for anyone due to the need for so many passwords these days. So best practice is that you do not store your passwords on a shared computer.
Set online account setting to send a text or email to alert you if an attempt is made to log in to your account from an unrecognized computer or change a password.
When processing a financial transaction online check the beginning of the web address for “https” (Hypertext Transfer Protocol Secure). An “https” address versus just an “http” address verifies the website and means that nearly all information is encrypted between the website and the user.
Check your credit reports annually. A free annual credit reports is available from each of the three major credit reporting agencies from a jointly operated site at AnnualCreditReport.com. A fourth agency, Innovis, also offers a free report every 12 months.
KEY Filing Requirement Changes and Contribution Limit Updates for 2017:
The list below describes changes to tax rules for 2017 that you will find important, so read and enjoy……
Filing Deadline Changes for Partnership Returns – Partnership returns are now due 2 ½ months after year-end, which is March 15th, for calendar year firms. A six-month extension can be requested for those needing more time. If you were a client on 3/15/17, we have automatically filed an extension or prepared a tax return for filing on your behalf.
Filing Deadline Changes for Regular Corporations – Regular corporation returns are now due 3 ½ months after year-end, which is April 15th, for calendar year firms. A five-month extension can be requested for those needing more time. The deadline for S corporations has not changed.
Filing Deadline Changes for Owners of Foreign Accounts – Returns for owners of foreign accounts are now due April 15th, up from the prior deadline of June 30th. A six-month extension can be requested for those needing more time.
2017 Standard Mileage Rate – The standard mileage rate for business driving is 53 ½ cents per mile.
2017 Depreciation Limit – For 2017, $510,000 of business assets can be expensed. This amount phases out dollar for dollar once over $2,030,000 of assets are put into service during the year.
2017 Social Security Amounts to Note – The Social Security wage base is $127,200 in 2017. The amount needed to qualify for coverage is $1,300 per quarter or $5,200 for the year.
2017 HSA Contribution Limit – The limit on deductible HSA contributions in 2017 is $3,400 for self-only coverage & $6,750 for family coverage. Individuals born before 1963 can contribute an additional $1,000. Minimum policy deductibles stay the same at $1,300 for singles & $2,600 for families. Taxpayers age 50 & older can make catch-up contributions of $1,000.
2017 Retirement Plan Contribution Limits – The 401(k) contribution limit is $18,000. Taxpayers born before 1968 can contribute an additional $6,000. These amounts apply to 403(b) & 457 plans as well. The contribution limit for SIMPLE plans is $12,500 & taxpayers age 50 or older can contribute an additional $3,000. The limit for defined contribution plans is $54,000. Retirement plan contributions can be based on up to $270,000 of salary.
2017 Gift Tax Amount to Note – The gift tax exclusion amount is $14,000 per done.
At our Fall ADCPA (Academy of Dental CPAs) meeting we learned of the wonders of a new cavity treatment called silver diamine fluoride…SDF from one of our knowledgeable members. If you are a pediatric dentist you may already be in the know as this is touted as the latest and greatest thing for treating cavities in baby teeth. No drilling, no anesthesia, no pain. Just a drop is needed for the treatment, so although the service will not be a big ticket item, the margins are fabulous. Not to mention, parents will be ecstatic and tell their friends. But the uses could extend beyond children to the elderly and others, and even to adult molars hidden from view. Do your research. There are pros and cons. But definitely check it out!
“Now, personally, I like a car with some sort of character.” Richard Hammond
In any profession, it’s best to lead by example. If the car that you’ve had for years (you know – the trusty one that got you through dental school and has seen better days) is making you cringe instead of smile, it may be time to consider purchasing a new vehicle. If this sounds like you, and you are in the market for a new car, below are a few general tips and notes to help out.
Purchase or lease the vehicle under your personal name
Get the car insured in your personal name
Make the car payments with business funds
Pay for any auto-related expenses with business funds. This includes:
Maintenance & repairs
Gas & oil
Tolls & Parking
Keep a mileage log; this is the most accurate way to give your accountant the information needed to split the expenses into business-use miles and personal-use miles. Keeping track of actual miles is also an important way to provide hard evidence to the IRS in the case of an audit. Automobile expense is one of the items that the IRS is extremely particular about, so it is important to have this information available.
The good news regarding mileage is that the days of keeping a paper mileage log are long gone. There are several great apps available to help you easily keep track of miles, and are worth checking out. Here are a few suggestions.
Whether it’s your first employee or the addition of staff to facilitate the needs of your growing practice, you want to make sure that you have your new hire complete the correct documents that you are required to keep on file.
Each employee you hire is required to fill out these important government documents for you. To ensure completion of these documents, provide the forms to the new hire at the very start of employment and have them fill out the forms before they begin any work.
Form W-4 (Employee’s Withholding Certificate) – gathers basis payroll tax information and asks the employee how much federal income tax to withhold from their pay. https://www.irs.gov/pub/irs-pdf/fw4.pdf
Interesting items to note regarding Temporary Employees and the infamous “Working Interview”:
Temporary Employees that are hired directly by your practice are considered employees of the practice for all intents and purposes and are able to file unemployment claims once the work relationship has ended.
Consider hiring Temporary Employees through a temporary service. By doing so, the temporary service is the employer and they will handle any unemployment claims filed by these employees.
A “Working Interview” is considered to be an “interview” where the worker performs actual work for the company. This form of work for the company IS deemed “on the job” training or part of orientation to the company and IS viewed as work time. The worker expects to be compensated for this time and the company is expected to pay the worker at least a minimum wage for this time, obtain the required new-hire government documents (as listed above-Form I-9, Form W-4, etc.) and report the wages paid to the IRS and applicable State entities. The short story to this is….Working Interviews should be given a paycheck which is run through the company’s payroll system and has the appropriate payroll taxes withheld from it.
With elections around the corner, paying attention to the candidates’ tax plans is crucial. Clinton wants upper-income Americans to pay more, while Trump seeks across-the-board tax cuts. Per The Kiplinger Tax Letter, some highlights of both candidates’ plans are:
Raise in capital gains rates for individuals in the 39.6% bracket who sell assets they have owned for six years or less. Taking into account the 3.8% surtax on net investment income, these folks would pay tax at a 43.4% rate on gains from assets held two years or less. The rate would drop incrementally to 23.8% (the rate currently) for assets held more than six years.
Surcharge on taxpayers with AGIs over $5 million.
Payroll tax hikes by increasing the wage ceiling on the 6.2% Social Security tax.
Cap of 28% on the value of itemized deductions (except charitable contributions).
30% minimum tax on millionaires.
Restrictions on those taxpayers with large balances in their retirement plans or IRAs.
Doubling of the child tax credit to $2,000 for each child up to age four.
New caregiver credit of up to $1,200 to provide relief to people who help care for elderly parents or grandparents.
Reduce individual tax rates into three tax brackets: 12%, 25%, and 33%. For married couples, the 12% rate runs to $75,000, the 25% one tops out at $225,000 and the 33% rate kicks in after that. These thresholds are cut in half for single filers.
15% business rate.
Standard deductions would go up to $30,000 for joint filers and $15,000 for singles.
No more personal exemptions or head-of-household filing status.
Capital gains tax would stay as is.
Elimination of the 0.9% and 3.8% Affordable Care Act surtaxes.
Elimination of alternate minimum tax, as well as estate and gift tax.
Expansion of dependent care breaks for working and stay-at-home parents and creation of tax-favored savings accounts for child development and elder care expenses.
Itemization would be capped at $200,000 for couples and $100,000 for singles.
The most noticeable disagreement between the two candidates is over the Affordable Care Act (aka Obamacare):
Increase premium tax credits.
Refundable tax credit up to $2,500 to insured individuals, $5,000 for families for individuals whose out-of-pockets expenses exceed 5% of income.
Ditch the plan completely.
Give individuals an above-the-line deduction for premiums that they pay and not subjecting the write-offs to an adjusted-gross-income threshold.
Rely more on HSAs to help individuals pay for coverage
In the spirit of giving during the holiday season, Edwards & Associates, PC will be donating to charities that are important to us and to our valued clients. Won’t you join us and experience the gift of giving by donating to one of the following worthy causes:
During this Season of Thanksgiving, we at Edwards & Associates, PC want to acknowledge our clients for their patronage and referrals. We are sincerely appreciative and would like to take this opportunity to also wish all of you a wonderful, warm and Happy Thanksgiving with your families and loved ones.