As a periodontist, you help people who have issues with the supporting structures of their teeth or who are battling with diseases that affect these structures. For you to keep your doors open, your business needs a strong financial core based on reliable medical practice accounting principles.
When creating your periodontist practice tax planning process, one of the first things you may have to decide is whether you will use a cash accounting method or accrual method for recording transactions. That decision has short-term and long-term effects on your dental practice accounting.
Understanding What It Means To Record Transactions
The accounting method you choose determines when you will record transactions. But what does it mean to record a transaction?
In periodontist practice bookkeeping, this means keeping track of your financial transactions using a ledger. This financial function may allow your business to claim the maximum tax deductions at the end of the year. Our periodontist practice CPAs advise our clients to partner with an expert in this area to help ensure you are minimizing your liabilities and maximizing your deductions. To make your tax planning simpler, you may want to have a central location to record your income and expenses. Software like QuickBooks Online can make bookkeeping easier, or you can opt for a more optimized platform for dental practices. A good periodontist practice business advisory service may be able to assist you in this choice. There are hundreds of dental practice accounting software options.
How Cash And Accrual Accounting Affects Your Bottom Line
Having a basic understanding of what differentiates accrual and cash accounting may help you save money in the future by providing a clear idea of your tax planning options. So, let's analyze each method in context.
Consider the following scenario:
1. You bill patients for $5,000 over the month.
2. You receive a bill for $1,000 from a vendor who sells you medical supplies.
3. You pay $75 for membership to a medical association.
4. Three patients who you sent an invoice to last month pay you $1,000 in total.
So, if you use the cash basis method, this month you will have made $925 in profit. You earned $1,000 and paid $75 in fees.
If you use the accrual method for your periodontist practice bookkeeping, you will have recorded $4,000 in profit this month. It would be $5,000 in income and subtracting $1,000 in vendor fees.
With this example, you can see how the appearance of income stream versus cash flow is affected based on the accounting process you use, and periodontist practice CPA may be able to help you choose the best option for your practice.
How Does Accounting Methods Affect Periodontist Practice Tax Planning?
Let's say the example that we discussed above happened between November and December of 2019. The accounting method you chose will determine when your income and expenses are recorded.
Using the above example, if you are utilizing accrual accounting, because you invoiced your client for $5,000 in December 2019, that income would be a part of your 2019 income. So, you would need to pay taxes on the amount for the 2019 year, even though you may not have the money in your hand until January 2020.
Conversely, if you used the cash method, you will not be taxed on the income until it is received. The $5,000 would be part of 2020 taxes.
A periodontist practice financial adviser may help you determine what accounting method is right for you depending on your tax planning needs. If your business is a corporation and you make more than $25 million a year, then by law, you have to use the accrual method. If not, the choice is yours.
Assistance In Maximizing Profitability While Reducing Tax Liability
We at Fusion CPA have years of experience offering profit improvement strategies, tax reduction techniques, periodontist practice CFO business advisory, and specialized accounting services for medical practices. As qualified medical CPAs, we understand current tax laws and their impact on the healthcare business.
Our effective tax strategies may help to ensure your practice is taking advantage of all available deductions to avoid overpaying taxes. As a periodontist practice financial advisers, we offer proactive financial planning and profit coaching along with other specialized medical practice accounting services aimed at helping you reach your short-term and long-term goals. So, if your organization is experiencing organizational changes or needs help in creating a growth strategy, we are here to help. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.