John K. McGill, JD, MBA, CPA Rebecca Muse, CPA
It's difficult to find a doctor who isn't aware that his or her personal income taxes are due on April 15th. However, many doctors are less familiar with other important tax forms and returns due throughout the year, which can expose them to unwelcome tax and penalty consequences. Are any of the commonly missed tax filings listed below applicable to you and your practice?
Sales and use tax
Filing a sales and use tax return is required for practices that partake in the following transactions:
• Selling tangible personal property, such as mouthwash, toothbrushes, or whitening products to patients.
• Purchasing supplies or equipment when the vendor does not charge sales tax. The sales tax should be noted on the invoice. This is more common with online and out-of-state vendors.
Failure to report and submit a sales and use tax return to a state can result in stiff penalties and interest. This has become a hot-button issue as more audits are surfacing. Additionally, the audit period can go back as far as when you first started your dental practice.
With the rise in audits, it is imperative to diligently evaluate the invoices of purchases and make note about whether sales tax was charged. If sales tax was not charged, those invoices should be set aside for the sales and use tax return. To register for sales and use tax, go online to your state's website. Make sure to consult with a tax advisor if sales and use tax returns have not been filed in the past.
Form 1099-MISC
If your business paid $600 or more in cash or check to an individual, a sole proprietor, an LLC (not taxed as a corporation), or a partnership during the calendar year for work completed in the course of your trade or business, you are likely required to file Form 1099-MISC for those payments.
Common examples of qualifying payments are as follows:
• Fees for professional services, such as attorneys or accountants
• Rental payments (such as from your dental practice to your partnership or to others)
• Payments to janitorial staff, repairpersons, or landscapers
Form 1099-MISC is not required for payments made to S corporations, C corporations, or LLCs taxed as corporations. It is also not required for payments made via credit card.
One exception is payments of $600 or more that are made to attorneys-even if they are paid to a corporation. These payments may be reported differently on Form 1099-MISC, depending on the reason for the payment. If you are unsure about how to classify a vendor, have the vendor complete a Form W-9 (available on the IRS website) to enable you to make the appropriate classification.
Form 1099-MISC must be mailed to recipients by January 31 each year. The forms may be filed electronically or by paper. Finally, penalties may be assessed for late filing or not filing, and they may range from $30 to $100 per information return with certain limitations and without reasonable cause.
Tangible personal property return
A tangible personal property tax return is a form issued by local governing jurisdictions. Its purpose is to tax the assessed value of the tangible personal property related to your practice, rather than the real estate value.
The types of property assessed and tax rates vary by county. Certain items-such as furniture, dental and office equipment, and perhaps even leasehold improvements-typically need to be reported each year.
Dental practices should update and review depreciation schedules annually and exclude any assets that have been disposed of or removed from the business. By examining depreciation schedules, doctors should be able to guard against overpaying tangible personal property taxes. If you cannot locate the depreciation schedules, be sure to request copies from your accountant.
Tangible personal property tax return due dates vary. Some are as early as January 31, while others are as late as November 30. Filing late or not at all can result in increased assessments and increased property taxes due.
Although this is not an exhaustive treatment of all the tax regulations and requirements that could impact a dental practice, your knowledge of and attention to the points highlighted above will assist you in avoiding some unwanted tax and penalty implications or consequences.
John K. McGill, JD, MBA, CPA, provides tax and business planning exclusively for the dental profession and publishes the McGill Advisory newsletter through John K. McGill & Company Inc., a member of the McGill & Hill Group LLC.
Rebecca Muse, CPA, provides accounting and CPA services through Elliott Davis Decosimo PLLC, an affiliate of the McGill & Hill Group, a one-stop resource for tax and business planning, practice transition, legal, retirement plan administration, CPA, and investment advisory services. Visit www.mcgillhillgroup.com for more information.
