President’s Message

Happy Holidays to all of our friends from PracticeCFO. It’s been an eventful year. We’ve seen so many of you grow your practice, live on a budget, pay down debt, get properly insured, and set aside money in a tax-deductible retirement plan. Such disciplined financial behavior is the path to financial independence…, and that is why we exist at PracticeCFO. Your financial security is our highest priority and what we aspire to. It’s not preparing accounting reports or filing tax returns that gets us excited (well that does too a little), rather it’s accelerating the day of your financial freedom. For this reason, our meetings are devoted to your business and personal financial planning goals, balancing consumption today with consumption needs in the future, and making decisions according to a deliberate plan. We look forward to continuing these planning meetings with you in 2018! Let me kick off this newsletter by sharing my thoughts on the hottest subject around town right now: the new tax bill. The Tax Cuts and Jobs Act (“The Trump Tax Cuts”) With the new tax bill you’re probably asking yourself (and us) what does it mean for you. Check out the article in this newsletter by David Knittel, our Tax Director, on this question. In his article he explains the key provisions that might affect you as a practice owner and taxpayer. Suffice it to say there is some give and take, and at this point we believe there will be some tax reduction for most of our clients. That reduction will have less of an impact for those living in high tax states (i.e. us Californians) and particularly those that own a home in those states. But I’d like to step back from the specifics of the tax bill and speak about you and taxes generally for a moment. Even with the potential reduction to your tax bill, for most of you, taxes will continue to be your second biggest enemy to wealth accumulation (the first being over consumption). In a broader sense, nothing really changes! Taxes remain a significant friction to financial independence. So how do you confront that friction? The most effective way to confront it is by having a tax plan that is rooted in a business and personal financial plan. Most practice owners have a bookkeeper (which may be a front office staff), and a tax preparer. The bookkeeper prepares an occasional generic profit and loss statement, and gives little regards to taxes. The tax preparer in turn simply remits the final numbers to the tax agencies, with perhaps some last-minute advice. Where is the treatment planning in that? No goal setting. No budgeting. No strategy. No planning! When you’re paying up to 40% of your income in taxes, no planning can have devastating effects, and it’s a key reason for these self-generated questions: 1. Why am I not getting ahead? and 2. Where is all my money going? One of the smartest decisions a profitable practice owner can do is enlist a CFO Advisor and be responsive to that advisor’s planning efforts and communication. A CFO Advisor, preferably one that understands the nature of your dental or medical practice, will integrated your practice collections, overhead, debt, and taxes with your personal budget and financial planning goals. With that context, they will establish a plan during the year (as opposed to after the year!). That plan will result in the most optimal outcome of your finances, including your tax liability. By planning ahead, the CFO advisor can help you: 1. Determine early in the year what your projected taxes are, and what you need to do to reduce that tax liability. 2. Determine the most effective use of depreciation, managed in concert with the terms of your equipment loans. 3. Determine how to use your surplus dollar most effectively based on your goals (i.e. hire new staff, buildout an operatory, buy your building, fund your 401K, contribute to education accounts for your kids, etc.). 4. Help you live within your means. 5. Establish a system of consistent, disciplined tax payments throughout the year so you don’t get behind. 6. Determine the proper allocation of your tax payments between W2 withholdings (for corporations) and estimated tax payments. 7. Design and fund the most optimal tax-deductible retirement plan, such as a 401K Safe Harbor plan with a Profit Share provision, or for the slightly older doctors, a Defined Benefit Plan. 8. Plan to maximize your Health Savings Account, if you’re eligible 9. Fund your Roth IRAs via a Roth Conversion Strategy 10. Maximize overall legitimate tax deductions 11. Eliminate cancerous debt 12. Use all of this to then complete a realistic long-term plan for retirement. PracticeCFO is here to help! This is what we do. We tax plan, but do so the right way: within the context of a planning-ahead, comprehensive framework. This is why we come to work each day. Our CFO Advisors are meeting with clients everyday to design a plan for business and personal financial success. That’s what we care about. And that’s what we love doing. Together, let’s make 2018 a hallmark year for building financial security in your life. Here’s to a happy holiday season and the start of a new year with new opportunities! I hope you enjoy this newsletter.   Wes Read, President, PracticeCFO
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