What Dental Practice Owners Need to Know About New Federal Payment Changes

Big changes are coming to how the federal government issues payments, and dental practice owners need to be prepared. The White House has announced it will eliminate paper checks for nearly all government payments by September 30, 2025, so the U.S. Treasury has approximately six months to make the necessary adjustments. If you or your practice currently receive any federal payments by check, including tax refunds, Medicare reimbursements, or other government-related funds, it’s time to get ready for a full transition to electronic payments.

Why the Change?

The move to eliminate paper checks is part of a broader effort to improve efficiency, reduce fraud, and save taxpayer dollars. Electronic payments are faster, more secure, and more cost-effective than mailing paper checks. The Treasury estimates that moving to digital payments could save hundreds of millions of dollars annually.

How It Could Affect Dental Practice Owners

If your practice is owed a federal refund or receives any kind of government reimbursement, the payment will now be issued via direct deposit or a similar electronic method. That means:

  • No more waiting on the mail. Payments will arrive more quickly.
  • Reduced risk of lost or stolen checks. Electronic transfers are generally safer.
  • Streamlined bookkeeping. Digital payments are easier to track and reconcile.

For dental practices that rely on timely cash flow to cover payroll, supplies, or operating costs, faster access to funds can make a significant difference.

What You Should Do Now

If you haven’t already made the switch, now’s the time to update your payment preferences:

  • Set up direct deposit for IRS payments. Make sure your practice provides its correct banking information each time you file a return so you can receive any IRS refunds electronically. 
  • Check Medicare provider information. If you participate in Medicare, confirm your electronic payment enrollment is up to date.
  • Talk to your vendors. Many private insurers and suppliers are also pushing for digital payments. Updating your systems now will set you up for a smoother future.
  • Review your accounting systems. Ensure your bookkeeping processes are ready to handle incoming electronic payments efficiently.

What Happens If You Do Nothing?

If you don’t update your information, you could experience delays in receiving payments. In some cases, the government may issue payments via a prepaid debit card if no direct deposit information is available, which could add cost and complications to your accounting and cash management processes. Additionally, prepaid debit cards pose increased risk due to loss, misuse, or internal theft.

How We Can Help

At Edwards & Associates, we specialize in helping dental practice owners navigate financial changes like this one. If you need assistance updating your information with the IRS or Medicare, reconciling digital payments, or ensuring your cash flow remains strong during the transition, we’re here to help.

BOI Filing for Dental Practice Owners: Our Attempt to Make Messy Timeline More Clear

If you’ve been trying to keep up with the Beneficial Ownership Information (BOI) reporting requirement, you’re not alone in feeling like it’s turned into a legal ping-pong match. Created to crack down on financial crimes, this new rule has become confusing, controversial, and as of now, unenforceable.

Here’s what dental practice owners need to know and what to do (or not do) next.

BOI Requirements: The Timeline That Just Won’t Quit

The Corporate Transparency Act (CTA) was passed in 2021, and it included new reporting requirements for small businesses, including most dental practices. But since then? It’s been chaos. Here’s a blow-by-blow:

  • January 1, 2024 – BOI reporting officially takes effect. New companies must file within 90 days of formation, and existing companies had to file by January 1, 2025.
  • December 3, 2024 – A Texas court issues a preliminary injunction, halting BOI enforcement nationwide and raising constitutional concerns.
  • December 5, 2024 – The federal government appeals the injunction, attempting to reinstate the rule.
  • December 23, 2024 – The Fifth Circuit Court briefly lifts the injunction, reinstating the January 1 deadline. FinCEN (the Treasury’s enforcement arm) responds by extending the filing deadline to January 13, 2025.
  • December 26, 2024 – The appeals court changes its mind again and reimposes the injunction, stopping enforcement once more. Oral arguments are scheduled for March 25, 2025.
  • January 4, 2025 – The Department of Justice files an emergency motion with the U.S. Supreme Court, asking it to lift the injunction and allow enforcement to resume. We now await the Court’s decision.
  • March 1, 2025 – A separate federal court rules the Corporate Transparency Act unconstitutional in National Small Business United v. Yellen. FinCEN announces it will not enforce BOI reporting against the plaintiffs in that case but keeps requirements in place for everyone else.
  • March 25, 2025 – IRS issues a memorandum clarifying that, due to legal uncertainty, BOI enforcement is paused pending further resolution. 

So, What Does This Mean for Dental Practice Owners?

The short version: You don’t have to file right now.

If you’ve already filed? No harm done, just sit tight.

If you haven’t? That’s fine too. The rule still exists on paper, but it’s tangled in legal challenges and is not being enforced at the moment.

But Will I Have to File Later?

Possibly. The Supreme Court could lift the injunction, or Congress could revise the law. But for now:

  • There are no penalties for not filing.
  • FinCEN cannot enforce the rule due to the ongoing legal battles.
  • Filing is on pause, not eliminated.

What Should You Do Right Now?

  • Don’t panic. No action is required at the moment.
  • Stay informed. This could change with little notice, and we will do our best to keep you informed.
  • Keep records ready. If enforcement resumes, filings may need to happen quickly.

Final Thought

We wish this were clearer, but welcome to regulatory whiplash. BOI reporting is either something you don’t have to do – or something you’ll need to do soon, once the courts make up their minds.

We’re watching this closely, and as soon as there’s a final answer, you’ll be the first to know.

Have questions about your practice structure or potential filing obligations? Reach out. We’re here to help you stay out of trouble and focused on your patients, not paperwork.

Podcast Recap: Tax Season Survival Guide – Expert Tips from a Tax Manager

Tax season can be overwhelming for dental professionals juggling practice management, patient care, and financial planning. But with the right strategies in place, you can avoid common pitfalls, reduce stress, and keep more of what you earn. In this episode of Beyond Bitewings, Edwards & Associates’ Tax Manager, Lorraine Kent, shares her best tax season survival tips, covering everything from deductions to tax planning strategies.

What’s Deductible (and What’s Not)?

One of the most frequently asked questions during tax season is, “What can I deduct?” While deductions can reduce taxable income, not everything qualifies.

For example, if you own rental property, expenses become deductible once the property is listed for rent – not before. Mortgage interest, property taxes, insurance, and routine maintenance are deductible, but major improvements must be capitalized and depreciated over time.

For dentists, business deductions include necessary expenses like equipment purchases, supplies, and professional development costs. However, personal expenses, like that daily coffee run, aren’t deductible just because you own a business. If you’re unsure, consult with your CPA before claiming a deduction.

Depreciation and Tax Planning for Asset Sales

Many dental professionals invest in real estate as a wealth-building strategy. However, Lorraine warns that depreciation can create tax liabilities when you sell an asset. Depreciation recapture means you could owe ordinary income tax on the portion of the gain attributed to depreciation deductions.

To minimize this impact, tax planning is essential. Strategies like timing asset sales, offsetting gains with losses, or utilizing a 1031 exchange can help reduce your tax burden. Before selling a rental property or dental equipment, talk to your accountant to ensure you understand the tax implications.

Avoiding Common Tax Filing Mistakes

The IRS uses electronic matching to compare reported income against W-2s, 1099s, and other tax documents. If something doesn’t match, expect a notice. One of the biggest mistakes taxpayers make is forgetting to report investment income.

For example, if you had a brokerage account that was closed mid-year, you still need to report income or gains from that account. Missing even one 1099 can lead to unnecessary penalties and interest.

Lorraine’s advice? Keep track of all tax documents, check for missing forms before filing, and review prior-year returns to ensure nothing is overlooked.

Tax Strategies for Smarter Planning

Tax planning isn’t just about what happened last year; it’s about looking ahead. Loss harvesting is one strategy that can help reduce taxable gains. If you have stocks with unrealized losses, selling them strategically can offset taxable gains from other investments, including real estate sales.

However, be mindful of the wash sale rule, which disallows a deduction if you repurchase the same stock within 30 days. Proper tax planning allows you to maximize benefits while staying compliant.

Red Flags That Can Trigger IRS Scrutiny

Certain deductions attract more attention than others. Lorraine highlights three areas where taxpayers often make mistakes:

  • Meals & Entertainment: Business meals must involve a client or work-related discussion to qualify. That solo coffee run? Not deductible.
  • Travel: Deducting a vacation as a ‘business trip’ without clear business purposes can raise red flags.
  • Auto Expenses: Claiming 100% business use of a personal vehicle is rarely justifiable unless you have multiple business locations.

Proper documentation is key. Keep detailed records and receipts to support deductions if audited.

Texas Business Property Tax: What Dentists Need to Know

For Texas dentists, business property tax (BPP) is an additional annual tax assessed by the county. This tax applies to tangible assets like dental equipment and furniture. If you’re a new practice owner, expect to pay BPP based on the initial purchase price of your equipment. However, over time, you may be able to adjust valuations to reflect depreciation.

If you receive a BPP notice, don’t ignore it. Review it with your CPA to ensure accuracy and identify opportunities to lower your assessment.

Final Thoughts: Communication Is Key

The biggest tax mistakes often stem from a lack of communication. Major financial decisions like buying new equipment, selling property, setting up a trust, can all have tax implications. Yet, CPAs aren’t mind readers.

Before making big moves, check with your accountant. A quick conversation can help you avoid unnecessary tax bills and set you up for long-term financial success.

Want more expert insights? Subscribe to Beyond Bitewings and stay ahead of the game this tax season! For personalized tax guidance, contact the Edwards & Associates team today.

​Busting Common Tax Myths for Dentists

Taxes can be confusing, especially when so much misinformation is floating around online. Whether you’re scrolling through social media, chatting with colleagues, or just assuming something sounds right, it’s easy to fall for common tax myths – some of which could leave you with a hefty bill from the IRS.

As a dental professional, understanding tax laws is crucial to protecting your practice’s bottom line. From home office deductions to retirement withdrawals, we’re breaking down some of the biggest tax myths that could trip you up. Here, we separate fact from fiction and make sure you’re not caught off guard.

Myth #1: Retirement money is tax-free.

Many people assume that once they retire, their money is theirs to spend tax-free. Unfortunately, that’s not the case – most withdrawals from traditional 401(k)s and IRAs are taxed as ordinary income. If you take out too much in a single year, you could even push yourself into a higher tax bracket. The only exception? Roth IRAs and Roth 401(k)s,which allow for tax-free withdrawals after age 59½, as long as the account has been open for at least five years.

Myth #2: Reporting dental supplies and lab fees under Cost of Goods Sold (COGS) reduces audit risk.

It’s a common misconception that classifying dental supplies and lab fees as COGS can lower the chances of an audit by reducing gross profit. However, misclassifying expenses can raise red flags with the IRS and lead to potential issues. ​ 

Myth #3: Large equipment purchases should be deferred until the fourth quarter for maximum tax benefits.

Many dental professionals believe that postponing significant equipment investments until year end maximizes tax deductions. In reality, the timing of such purchases should align with the practice’s operational needs rather than solely focusing on tax implications. 

Myth #4: Home office deductions are a red flag for audits.

There’s a lingering belief that claiming a home office deduction increases the likelihood of an audit. While this was a concern in the past, legitimate home office deductions, when properly documented, are acceptable and do not inherently trigger audits. However, keep in mind that you can only claim a home office deduction if you own a business. If you are an employee, this deduction is no longer available. 

Myth #5: Personal dental expenses are fully deductible.

Some assume that all personal dental expenses can be deducted from their taxes. However, only unreimbursed medical and dental expenses exceeding a certain percentage of adjusted gross income (AGI) are deductible. It’s crucial to understand these thresholds to avoid disallowed deductions. ​ 

Myth #6: Income from side gigs or online sales isn’t taxable.

Some people mistakenly believe that earnings from side jobs, freelance work, or online sales are tax-free. In reality, all income, regardless of the source, must be reported and is subject to taxation. Overlooking this can lead to underreporting and potential penalties. ​

Myth #7: Selling a dental practice is tax-free if reinvested.

Some dentists believe that proceeds from selling their practice are tax-free if reinvested into another venture. However, such sales are typically subject to capital gains tax, and proper planning is essential to manage the tax implications effectively. 

Myth #8: Casual labor payments don’t require tax reporting.

There’s a misconception that payments to temporary or casual workers don’t need to be reported. However, businesses are required to report payments to all workers on a Form 1099 if they total more than $600. ​

Myth #9: Government benefits like social security and unemployment are tax-free.

Many believe that Social Security and unemployment benefits come tax-free, but that’s not entirely true. Unemployment benefits are taxed at your normal income tax rate at the federal level and in most states, meaning you could owe taxes when filing if you don’t have them withheld upfront. Social Security benefits are taxed based on your total income – if you earn above a certain threshold from other sources (like retirement savings or part-time work), up to 85% of your benefits could be subject to income tax.

Tax laws are intricate and continually evolving. We can help ensure compliance and optimize you tax position, so reach out to us today for help. Relying on myths or outdated information can lead to unintended tax liabilities.​

Protecting Your Dental Practice from 2025 Tax Scams

In 2025, IRS-related scams are becoming increasingly sophisticated, requiring vigilance and proactive measures to safeguard your practice and personal finances. Even the savviest of professionals can fall prey to tax scams, so here is the latest information about how these scams work so you (and your family and friends) can avoid becoming a victim.

Key Tax Scams Targeting Professionals in 2025

  1. Phishing Emails and Texts: Scammers impersonate the IRS via email or text, urging you to click malicious links or provide sensitive information.
    • The IRS never initiates contact this way. Exercise extreme caution with unsolicited digital communications.
  2. Phone Scams: Fraudulent callers posing as IRS agents threaten legal action or demand immediate payment, often via unconventional methods like gift cards or wire transfers.
    • The IRS will never demand immediate payment over the phone or resort to threats.
  3. Fake Tax Preparers (“Ghost Preparers”): Unqualified individuals offer tax preparation services but refuse to sign the return. This leaves you liable for any errors or fraud.
    • Always verify your preparer’s credentials and ensure they will sign your return.
  4. Identity Theft: Criminals use stolen personal information to file fraudulent tax returns and claim refunds in your name.
    • Filing early is a proactive defense.
  5. Social Media Scams: Misinformation about tax credits or refunds spreads rapidly on social media, enticing individuals to share personal data.
    • Always verify information through official IRS sources or a trusted professional, like us.

Who Is At Risk?

While anyone can be targeted by tax scams, certain groups are particularly vulnerable:

  • Elderly Taxpayers: Seniors are often targeted because they may be less familiar with digital threats and more likely to trust official-sounding communications.
  • New Taxpayers: Young adults or those filing taxes for the first time may be unaware of IRS procedures and more susceptible to scams that appear legitimate.
  • Small Business Owners: Juggling multiple financial responsibilities may make them more likely to fall for scams, especially those targeting payroll or W-2 information.
  • Non-English Speakers: Individuals with limited English proficiency may be more vulnerable to scams due to language barriers.
  • High-Income Earners: They may be targeted with aggressive tax shelter schemes or promises of unrealistic refunds.
  • Taxpayers Expecting Refunds or Credits: Those anticipating Economic Impact Payments or Recovery Rebate Credits may be more susceptible to scams promising these benefits.
  • Social Media Users: Active social media users may encounter scams spreading misinformation about tax credits or refunds.
  • Victims of Data Breaches: Individuals whose personal information has been compromised in data breaches are at higher risk of identity theft and fraudulent tax return filings.

Essential Protective Measures

It is often those that think they can’t be fooled by a scam like this that fall for them, so don’t think you are immune.

  • Verify All Communications: The IRS primarily initiates contact via mail. Be highly suspicious of unsolicited emails, texts, or calls.
  • Choose a Reputable Tax Professional: Work with a reputable CPA firm (like Edwards & Associates, of course) with specific expertise in serving dental practices.
  • Protect Personal Information: Shred sensitive documents, use strong passwords, and monitor your financial accounts regularly.
  • Report Suspicious Activity: Report any scam calls or phishing emails to the IRS immediately by emailing phishing@irs.gov.

Key Tax Considerations for Dental Practices

While safeguarding against scams is important, remember to optimize your legitimate tax planning too. We can help you:

  • Identify Practice-Specific Deductions: Understand deductions unique to dental practices, such as those related to equipment, continuing education, and professional liability insurance.
  • Plan for Retirement: Implement robust retirement planning strategies to minimize your long-term tax burden.
  • Choose the Best Business Structure: Ensure your practice is structured in the most tax-advantageous way.

Staying informed and proactive is essential to protect your financial interests. We are dedicated to providing expert tax and accounting services tailored specifically to the needs of dental professionals, so contact us today to discuss how we can help you safeguard your practice and optimize your financial strategies.

2025 IRS Rules for Vehicle Depreciation

If your dental practice uses business vehicles, a recent IRS update could affect your tax deductions. For the first time in three years, the IRS has lowered depreciation limits for 2025. These changes, tied to inflation and market trends, impact how dental professionals claim vehicle-related expenses. Here’s a simple breakdown.

Lower Depreciation Limits for Business Vehicles

Each year, the IRS adjusts vehicle depreciation limits. For vehicles placed into service in 2025, the new limits are:

  • With First-Year Bonus Depreciation:
    • Year 1: $20,200 ($200 lower than 2024)
    • Year 2: $19,600 ($200 lower than 2024)
    • Year 3: $11,800 ($100 lower than 2024)
    • Each following year: $7,060 ($100 lower than 2024)
  • Without First-Year Bonus Depreciation:
    • Year 1: $12,200 ($200 lower than 2024)
    • Later years: Same as above

For dental professionals deducting vehicle expenses, this marks a shift after several years of increases.

What About Leased Vehicles?

If you lease a vehicle for your practice, the IRS requires an income inclusion adjustment to ensure fair tax treatment between leased and owned vehicles. The amount varies based on the vehicle’s market value and lease duration. If you’re leasing, talk to your accountant to see how this affects your tax planning.

Why Did the Limits Change?

The IRS adjusts depreciation limits based on market trends. Recent Bureau of Labor Statistics data shows:

  • Used car prices increased by 1% in the past year.
  • New car prices dropped by 0.3% in the same period.

These shifts influenced the IRS’s decision to reduce depreciation limits.

How Does This Affect Your Dental Practice?

  • Tax Planning – Thinking of buying or leasing a vehicle? These updates may impact your tax benefits. Check with your accountant for the best approach.
  • Compliance – If you lease, be sure you’re calculating required income inclusions to stay IRS-compliant.
  • Budgeting – Since depreciation affects cash flow and tax deductions, plan accordingly to avoid surprises.

What Should You Do Next?

If you’re considering purchasing or leasing a business vehicle in 2025, understanding these IRS updates is key to maximizing deductions and avoiding tax pitfalls. Need help? Contact us today for advice on tax strategies and vehicle deductions for your practice.

2025 Mileage Rate Changes: New Rate Puts More Money Back in Your Pocket

While most dentists don’t spend their day on the road, there is often some moving from place to place required for your job. Starting January 1, 2025, the IRS is making a change that could impact the way you track and claim those travel expenses. The standard mileage rate for business use will increase to 70 cents per mile, up from 67 cents in 2024. While it may sound small, this increase could lead to bigger tax savings for practice owners who frequently log business miles.

What’s New for 2025?

Here’s a quick look at the updated rates for various types of mileage:

  • Business travel: 70 cents per mile (up from 67 cents in 2024)
  • Medical and moving mileage (for qualified active-duty military): 21 cents per mile (unchanged)
  • Charitable driving: 14 cents per mile (unchanged, as set by federal law)

These rates apply to gas, diesel, electric, and hybrid vehicles, so no matter what you drive, you’re covered.

How Vehicle Depreciation Affects Your Deductions

When you use your vehicle for business, part of the standard mileage rate covers depreciation — the natural loss in value of the vehicle over time. For 2025, the IRS has set the depreciation portion at 33 cents per mile. This matters if you plan to sell or trade in your vehicle down the line since this depreciation affects how much of its value you can claim as an expense.

Two Ways to Calculate Your Deduction

There are two ways to claim a vehicle expense deduction:

  1. Standard mileage rate: The simpler option, where you track your total business miles and apply the IRS-approved rate per mile to calculate your deduction.
  2. Actual expense method: This method requires you to track every expense tied to the vehicle (like gas, insurance, maintenance, and depreciation) and deduct a percentage based on business use.

If you’re unsure which method works best for your dental practice, our team can help you run the numbers and identify which option gives you the biggest benefit.

Changes to FAVR Plans for Employers

If you’re a dental practice owner reimbursing employees for driving their personal vehicles for business purposes, you should know about the IRS changes to Fixed and Variable Rate (FAVR) plans. For 2025, the IRS set the maximum standard automobile cost at $61,200, which is $800 lower than in 2024. This cap applies to the fleet-average valuation rule and the vehicle cents-per-mile rule as well. If you’re managing reimbursements for your team, it’s important to stay on top of these changes to ensure you’re compliant with IRS rules.

What Should You Do to Stay on Track?

Here are a few simple steps to make sure you’re maximizing every available deduction:

  • Track Your Mileage: Use an app or software to log every business-related trip, ensuring you capture every deductible mile.
  • Choose the Best Deduction Method: The standard mileage rate is simple, but the actual expense method may save you more, especially if you’re driving a lot. We can help you determine which option is right for you.
  • Check Your Reimbursement Practices: If you’re reimbursing employees for business travel, make sure you’re following updated FAVR rules to avoid IRS penalties.

If you’d like to discuss how these changes impact your 2025 taxes, reach out to our team today. We’re here to help you make every mile count.

Source: IRS Notice 2025-5

How Potential 2025 Tax Changes Could Impact Your Dental Practice and Personal Finances

With Trump’s proposed 2025 tax law changes on the horizon, it’s crucial for dental practice owners and their families to stay informed about how these updates might shape their financial strategies. While we can’t know if the proposals discussed during the campaign will pan out in the end, it is still important to understand what they are and how they can impact your dental practice and personal financial planning. 

Below, we’ve summarized some of the the proposals, focusing first on business-related changes and then on those that could affect your personal finances.

Potential Tax Changes Impacting Dental Practices 

1. Restoring TCJA Business Tax Provisions

  • What It Is: A proposal to reinstate business-friendly provisions from the Tax Cuts and Jobs Act (TCJA), such as 100% bonus depreciation, research and development expensing, and interest deduction limitations.
  • Government Impact: This is expected to increase gross national product (GNP) by 0.5% and add 119,000 jobs but reduce tax revenue by $643 billion over 10 years.
  • What It Means for You: These changes would allow your dental practice to benefit from significant deductions on investments like new equipment or technology. This could free up cash flow for reinvestment in your business.

2. Encouraging Domestic Production

  • What It Is: A deduction of 28.5% for domestic production activities, effectively reducing corporate tax rates on qualifying activities to 15%.
  • Government Impact: Expected to increase GNP by 0.2% and add 38,000 jobs, but it could reduce tax revenue by $361.4 billion over 10 years.
  • What It Means for You: Dental practices that rely on domestically manufactured supplies or equipment could see lower costs and additional tax savings, making it easier to invest in your practice.

3. Extending the Opportunity Zone (OZ) Program

  • What It Is: Extending the OZ program, which provides tax benefits for investments in underserved communities.
  • Government Impact: Stimulates community development by encouraging housing, infrastructure, and business growth in underserved areas.
  • What It Means for You: If you’re considering opening a new location in an underserved area, the OZ program could offer tax deferrals or exemptions, making expansion more financially viable.

Potential Tax Changes Impacting Individuals

1. Permanent Gift and Estate Tax Exemptions

  • What It Is: Maintaining the current lifetime gift and estate tax exemption of $13.99 million per spouse.
  • Government Impact: Expected to reduce tax revenue by $205.6 billion over 10 years with minimal economic effects.
  • What It Means for You: This simplifies estate planning and makes it easier for high-net-worth families to pass on wealth to future generations.

2. No Tax on Tips

  • What It Is: A proposal to exempt tips from income taxes, though employment taxes would still apply.
  • Government Impact: This would have a negligible effect on GNP but would reduce tax revenue by $118 billion over 10 years.
  • What It Means for Your Practice: While it won’t directly impact dentists, exempting tips from taxes could benefit service industry employees, potentially easing wage pressures.

3. Exempting Overtime Pay from Federal Income Tax

  • What It Is: A proposal to exempt overtime pay from federal income taxes.
  • Government Impact: Expected to increase GNP by 0.3%, create 405,000 jobs, and reduce tax revenue by $747.6 billion over 10 years.
  • What It Means for You: If your practice employs hourly staff, this could make overtime work more appealing, helping you retain staff and cover busy periods more effectively.

4. Federal Income Tax Exemption for Social Security Benefits

  • What It Is: Eliminating federal income taxes on Social Security benefits.
  • Government Impact: Projected to increase GNP by 0.1%, add 55,000 jobs, and reduce tax revenue by $1.2 trillion over 10 years.
  • What It Means for You: Retirees, particularly those in higher tax brackets, could see significant savings, making this a boost for retirement planning.

Looking Ahead

These potential changes highlight the importance of staying proactive with your financial and tax strategies. While some updates offer new opportunities for growth and savings, others may introduce challenges that require careful planning.

By working closely with us, you can position your dental practice and personal finances to accommodate these changes successfully. Reach out to our team today to discuss how these proposals might impact your future.

Understanding Changes in Digital Asset Reporting for Dental Practices

With the rise of cryptocurrencies and other digital assets, the IRS has been expanding its focus on ensuring proper tax compliance in this evolving space. Significant changes to digital asset reporting will affect businesses, including dental practices. These changes primarily center around reporting obligations and the expiration of safe harbor provisions. 

What is the Digital Asset Reporting Rule?

Digital asset reporting refers to the requirement that businesses and individuals disclose their holdings and transactions involving cryptocurrencies or other digital assets. This mandate was first introduced as part of the Infrastructure Investment and Jobs Act (IIJA) signed into law in 2021. The law requires brokers to report cryptocurrency transactions to the IRS and provide information to the account holder, similar to how traditional financial institutions report stock or bond sales.

The IRS expanded its definition of brokers to include entities facilitating cryptocurrency exchanges and transactions, meaning that dental practices may now have more stringent reporting obligations if they handle digital assets.

What Does the Expiration of the Safe Harbor Mean?

Since the IIJA passed, a transitional safe harbor has been in place to provide taxpayers some flexibility in adjusting to the new reporting rules. Under this safe harbor, taxpayers were not penalized for underreporting or failing to report certain digital assets if they made a good faith effort to comply.

However, this safe harbor expires on January 1, 2025. This means that starting in 2025, dental practices and other businesses that deal with digital assets will be fully accountable for meeting the reporting requirements. Failure to comply could lead to penalties, audits, or other tax-related consequences.

Key Changes and What to Expect 

Several changes in the IRS’s approach to digital asset reporting will take effect in 2025, which dental practice owners should be aware of:

  1. Broader Reporting Requirements: Businesses will need to report all cryptocurrency transactions to the IRS, including those made on behalf of patients or as part of payment for services. This also applies to indirect exchanges and sales through third-party platforms.
  2. New Reporting Forms: The IRS will require businesses to use new reporting forms, such as the Form 1099-DA, which will document transactions related to digital assets, similar to the traditional Form 1099-B for securities.
  3. Penalties for Non-Compliance: Once the safe harbor ends, failure to comply with the new digital asset reporting requirements can result in significant penalties. Businesses may face audits or fines for underreporting or failing to report cryptocurrency transactions.
  4. Clarification on Digital Asset Definitions: The IRS has expanded the definition of “digital assets” to include not only cryptocurrencies but also NFTs and other digital tokens. Practices that accept any form of these digital assets will need to ensure proper documentation and reporting.

What Dental Practices Should Do to Prepare

With the expiration of the safe harbor fast approaching, dental practices should take the following steps to ensure they remain compliant with IRS rules:

  • Review Existing Digital Asset Policies: Practices that accept cryptocurrency or other digital assets as payment should assess their current practices for recording and reporting these transactions.
  • Consult with E&A: Given the complexities surrounding digital asset taxation, consulting with tax professionals who understands the specific requirements for digital assets is crucial. 
  • Upgrade Financial Tracking Systems: If your practice deals with digital assets, make sure your accounting and payment systems are equipped to properly track these transactions for IRS reporting.
  • Educate Staff: Ensure that your practice managers and financial staff are up to speed on the new reporting obligations. Having clear processes for handling cryptocurrency payments and other digital assets will be critical for compliance in 2025 and beyond.

As the IRS continues to increase its focus on digital assets, it is vital for dental practices to stay proactive and compliant. With the expiration of the safe harbor, proper reporting is no longer optional, and penalties for failing to meet IRS standards can be significant. Now is the time to review your practice’s digital asset policies and ensure you are prepared for the changes that will come into effect in 2025.

For more detailed guidance, dental practice owners should reach out to us to help them navigate these updates and avoid costly mistakes.

Understanding What you Can (and Can’t) Write-Off for Your Dental Practice

On a recent episode of Beyond Bitewings, we tackled some of the most common—and occasionally amusing—questions we receive from dental practice owners. The main focus is on a hot topic: vehicle write-offs. Let’s break down the conversation and explore what you need to know before deciding to write off that new ride.

Can I Deduct My New Car Purchase?

One of the most frequently asked questions we get from dental practice owners is whether they can write off a newly purchased vehicle. The answer, as with many things in tax law, is “it depends.”

  • Business Use Matters: For a vehicle to qualify for a deduction, it must be used primarily for business purposes—at least 50% of the time. This usage ratio is crucial. If your dental practice requires you to travel between multiple locations or regularly transport supplies, you might be in luck. However, if your business use is less than 50%, you may only be able to deduct a portion of the expenses, such as through the mileage rate.
  • Vehicle Type Counts: The type of vehicle also influences how much you can deduct. Heavier vehicles, those weighing more than 6,000 pounds, may qualify for more significant deductions under the Section 179 rule, but again, their primary use must be business-related. Your typical compact car used mainly for commuting? Not so much.
  • Beware the Sales Pitch: One of the most significant points raised was a caution against taking tax advice from your car salesperson. While they may claim that you can write off your new car purchase, the reality is more nuanced. Factors such as income limitations, vehicle weight, and business use percentage all play a role in what can actually be deducted. In other words, don’t let a good sales pitch lead you to believe you’ll get a tax break that doesn’t really apply to your situation.

The Changing Landscape of Business Travel

Another interesting takeaway from the episode is how the traditional use of vehicles for business purposes has shifted. Gone are the days when dental practice owners would need to drive to the bank, post office, or even Continuing Education (CE) events. With everything now accessible online or delivered to your doorstep, justifying business mileage for these activities is much harder.

What About the EV Credit?

In recent years, many dental professionals have shown interest in electric vehicles, partly due to the potential for a federal tax credit. However, Lorraine Kent, tax manager at Edwards & Associates, points out that high-income earners—like most dentists—often don’t qualify for the electric vehicle (EV) credit due to income limitations. So, before you sign on the dotted line for that new Tesla, be sure to consult with your tax advisor to see if you’re eligible for the credit.

Gifts and Incentives: Tread Carefully

In another part of the discussion, the team addressed the issue of gifts. Say you want to reward your top-performing associate with a nice gift—perhaps a Rolex. You might think this is a great way to show appreciation, but the IRS has different ideas. Business gifts are generally limited to $25 per person per year. Anything above that has to be reported as wages, which means it’s subject to payroll taxes. So, while a luxury watch might seem like a generous gift, it could complicate your tax situation significantly.

The Bottom Line

Vehicle write-offs and other deductions can be valuable, but only if they’re handled correctly. As a dental practice owner, it’s crucial to have a trusted advisor who can guide you through these complex issues and help you make the best decisions for your practice. If you have questions or need help understanding what’s deductible and what’s not, don’t hesitate to reach out to the team at Edwards & Associates. We are here to help you navigate the financial intricacies of your dental practice with clarity and confidence.

For more information on tax strategies tailored to dental practices, check out other pages on our website and listen to the full podcast episode on Beyond Bitewings. Stay tuned for more insightful discussions on managing the business side of dentistry!

IRS Opens Second Employee Retention Credit Voluntary Disclosure Program

The Employee Retention Credit was created to provide financial relief of up to $26,000 per employee to businesses that retained employees by subsidizing wages during the pandemic. However, many businesses, including dental practices, fell prey to aggressive marketing by deceitful companies that intentionally misled people into believing they were eligible for these credits when they were not. A promise of free money is hard to turn down, so many businesses decided to take the gamble that the IRS would not catch up to them while others unknowingly claimed the credit that did not qualify.

Once the IRS started looking into these claims, they found that up to 90% of them contain some type of fraud and sent more than 25,000 disallowance letters to claimants as of early August 2024. But also knowing that many businesses were duped into filing ERC claims, they launched a voluntary repayment program that ended in March 2024. Now, the IRS has launched a second ERC voluntary disclosure program with a deadline of November 22, 2024, so businesses can correct their mistakes and avoid potential audits, fines, and requirements to repay the credit. 

Common warning signs

Dental practices that claimed ERCs should carefully reassess their claims, especially if third-party firms assisted with the filing. Common red flags that could indicate a fraudulent ERC claim include:

  1. Practices that remained fully operational and did not experience a significant decline in gross receipts may not qualify for the ERC. 
  2. Some businesses misunderstood what constitutes a full or partial suspension under a government order, and many of the ERC mills relied on this confusion. Simply facing challenges during the pandemic doesn’t qualify as a suspension. Dental practices were considered “essential businesses” in almost every location and were not subject to many of the closure mandates.  Therefore, this aspect applied for a very limited period and a few limited geographical locations during 2020 only. If your claim was based solely on a full or partial suspension, your ERC may be considered erroneous.  
  3. Claiming wages paid to family members can lead to problems, as these claims are often ineligible or calculated incorrectly.
  4. Wages that were counted towards PPP loan forgiveness cannot also be claimed for ERC. Double-dipping in this manner is a common error.

What to do now

If you are concerned that some or all of your claim may not be accurate, we encourage you to do the following:

  1. Review your claims: It’s essential to thoroughly review all ERC claims to ensure compliance with IRS rules and all claimed quarters and wages meet eligibility requirements.
  2. Reach out to us: We understand the complexities of the ERC, can provide guidance on the voluntary disclosure program, and can help you correct any errors in past claims.
  3. Participate in the disclosure program: If you suspect your practice may have claimed the ERC incorrectly, consider enrolling in the IRS’s voluntary disclosure program before the November 22, 2024, deadline. This proactive step can help you avoid future interest, penalties and even up to five years in jail.
  4. Stay updated: Tax regulations are constantly evolving. We will continue to provide you with the latest updates on ERC rules and other relevant tax credits, but if you have specific questions, don’t hesitate to call us.

Correcting ERC claims through the voluntary disclosure program can prevent more severe consequences down the line. Not only does this protect your practice’s finances, but it also maintains your credibility and trustworthiness as a business. Don’t wait until it’s too late – review your ERC claims and ensure your practice complies with IRS guidelines. If you need assistance, our team is ready to help.