Ten Common Mistakes Young Dentists Make and What They Can Do to Avoid Them

10. Trying to pay off student loans or other debt too fast.

  • Goal should be creating savings, not “getting out of debt.”
  • Taxes higher if no debt.
  • Principal reduction of debt is not deductible.

9. Doing their own accounting.

  • Spend your “free” time doing things you enjoy, not learning accounting.
  • Makes income tax preparation easier and less expensive because records are more reliable.
  • Cost is less than half the fee for a crown.

8. Not keeping business and personal financial transactions separate.

  • Makes income tax preparation more difficult.
  • Exposure to potential IRS adjustments in the event of an audit.

7. Doing their own payroll, including making payroll tax deposits.

  • Mistakes are costly.
  • Penalties can run 15% of taxes deposited late.
  • Outside services specialize in payroll and are not expensive.

6. Hiring friends or family or other inexperienced people to work in the dental practice.

  • Hurts practice to have inexperienced staff dealing with patients, especially front desk.
  • Hurts practice to have inexperienced staff dealing with filing insurance claims for patients.

5. Putting off setting up a retirement plan until out of debt.

  • Review different types of plans and establish one as soon as you start working.
  • Can retire in 20 years if save consistently.

4. Focusing too much on interest rates and not monthly payment when borrowing money.

  • Focus should be on cash flow, monthly payment.
  • Longer term loans are better for creating savings and lowering taxes

3. Not setting up the proper type of business entity.

  • Partially depends on ownership of real estate.

2. Not setting up their business entity early enough.

  • Why incorporate? And when?
  • Current school of thought is to set up a business entity as soon as you start working.
  • Can begin funding a retirement plan.
  • Can deduct certain costs against the income generated from dentistry services.

1. Not setting up your “team” soon enough.

  • Attorney to review office lease, contracts, employment agreements, entity formation, etc.
  • CPA financial advisor to advise on setting up business entities, retirement plans, arrange financing and to review contracts from a tax perspective.