Jacob Courtright, Author at Whalen & Company, CPAs

Update on retirement account minimum distributions : SECURE 2.0

Jacob Courtright on March 26, 2024

If you have a tax-favored retirement account, including a traditional IRA, you’ll become exposed to the federal income tax-required minimum distribution (RMD) rules after reaching a certain age. If you inherit a tax-favored retirement account, including a traditional or Roth IRA, you’ll also have to deal with these rules.

Specifically, you’ll have to: 1) take annual withdrawals from the accounts and pay the resulting income tax and/or 2) reduce the balance in your inherited Roth IRA sooner than you might like.

Let’s take a look at the current rules after some recent tax law changes.

RMD basics

The RMD rules require affected individuals to take annual withdrawals from tax-favored accounts. Except for RMDs that meet the definition of tax-free Roth IRA distributions, RMDs will generally trigger a federal income tax bill (and maybe a state tax bill).

Under a favorable exception, when you’re the original account owner of a Roth IRA, you’re exempt from the RMD rules during your lifetime. But if you inherit a Roth IRA, the RMD rules for inherited IRAs come into play.

A later starting age

The SECURE 2.0 law was enacted in 2022. Previously, you generally had to start taking RMDs for the calendar year during which you turned age 72. However, you could decide to take your initial RMD until April 1 of the year after the year you turned 72.

SECURE 2.0 raised the starting age for RMDs to 73 for account owners who turn age 72 in 2023 to 2032. So, if you attained age 72 in 2023, you’ll reach age 73 in 2024, and your initial RMD will be for calendar 2024. You must take that initial RMD by April 1, 2025, or face a penalty for failure to follow the RMD rules. The tax-smart strategy is to take your initial RMD, which will be for the calendar year 2024, before the end of 2024 instead of in 2025 (by the April 1, 2025, absolute deadline). Then, take your second RMD, which will be for the calendar year 2025, by Dec. 31, 2025. That way, you avoid having to take two RMDs in 2025 with the resulting double tax hit in that year.

A reduced penalty

If you don’t withdraw at least the RMD amount for the year, the IRS can assess an expensive penalty on the shortfall. Before SECURE 2.0, if you failed to take your RMD for the calendar year in question, the IRS could impose a 50% penalty on the shortfall. SECURE 2.0 reduced the penalty from 50% to 25%, or 10% if you withdraw the shortfall within a “correction window.”

Controversial 10-year liquidation rule

A change included in the original SECURE Act (which became law in 2019) requires most non-spouse IRA and retirement plan account beneficiaries to empty inherited accounts within 10 years after the account owner’s death. If they don’t, they face the penalty for failure to comply with the RMD rules.

According to IRS proposed regulations issued in 2022, beneficiaries who are subject to the original SECURE Act’s 10-year account liquidation rule must take annual RMDs, calculated in the usual fashion — with the resulting income tax. Then, the inherited account must be emptied at the end of the 10-year period. According to this interpretation, you can’t simply wait 10 years and then drain the inherited account.

The IRS position on having to take annual RMDs during the 10-year period is debatable. Therefore, in Notice 2023-54, the IRS stated that the penalty for failure to follow the RMD rules wouldn’t be assessed against beneficiaries who are subject to the 10-year rule who didn’t take RMDs in 2023. It also stated that IRS intends to issue new final RMD regulations that won’t take effect until sometime in 2024 at the earliest.

SECURE 2.0 includes some good RMD news. The original SECURE Act contained some bad RMD news for certain account beneficiaries in the form of the 10-year account liquidation rule. However, exactly how that rule is supposed to work is still TBD. Stay tuned for developments.

Building a Thriving Dental Associateship: A Three-Part Guide

Jacob Courtright on March 22, 2024

So, you’re considering adding an associate dentist to your practice. You’re not alone! Many dentists explore this path to expand capacity, grow their practice, or plan for succession. But how do you know if it’s the right decision, and how do you ensure a successful outcome?

This three-part blog series examined the critical considerations for building a thriving dental associateship.

Part 1: Reasons to Hire

We began by examining the common reasons dentists consider adding an associate. We also discussed evaluating your practice’s capacity before adding another provider. This evaluation involves both operational efficiency and the number of active patients you have. Industry experts suggest a dentist can typically manage 1,000-2,000 active patients.

Part 2: Timing Considerations

In Part 2, we explored the financial considerations of hiring an associate. Determining your practice’s profitability is a crucial first step for timing your hire. Your break-even point, the minimum revenue needed to cover your costs, is a key metric to master. Sufficient resources, including space, equipment, and staff, are also essential for a smooth transition.

Part 3: Finding the Right Associate

Part 3 focused on finding the perfect fit for your practice. We emphasized the importance of carefully crafting a job description that outlines the desired skills, experience, and personality traits, then explored the critical compensation component. Several compensation models exist, including salary, commission, or a combination. Clearly defining the associate’s compensation avoids future misunderstandings.

Next, we explored associate contracts, which are complex legal documents. We advise consulting an attorney to address all aspects of the working relationship, including compensation, benefits, termination clauses, and restrictive covenants.

When you are ready to interview, develop open-ended questions to delve into the candidate’s goals and work style. Be alert for red flags that might indicate a mismatch in expectations, and be careful to ask lawful questions.

Finally, we explored the offer and negotiation phase when the owner presents a formal employment offer. Provide a written offer outlining the job description, compensation package, and contract terms. Expect negotiation and be prepared to discuss and compromise on some terms.

Overall, careful planning is vital to a successful associateship. By evaluating your practice, developing a clear hiring strategy, and negotiating a well-defined contract, you can increase your chances of finding the right associate and building a thriving partnership.

Ready to take the next step? Consider referring to the resources provided throughout this series for additional guidance or contact us when you’re ready. We have also created a step-through graphic guide to assist you on your journey to successful associateship.

Strengthen Your Cash Flow: Mastering Accounts Receivable Management

Jacob Courtright on March 20, 2024

Managing accounts receivable can be challenging, especially in an uncertain economy. To keep your company financially fit, it’s a good idea to occasionally revisit your billing and collections processes to ensure they’re as efficient and effective as possible. Consider these helpful tips.

Resolve billing issues quickly

The quality of your products or services, and the efficiency of order fulfillment and distribution processes, can significantly impact collections. When an order arrives damaged, late, or not at all, the customer has an excuse to question or not pay your invoice. Other mistakes include incorrectly billing a customer or failing to deliver on promised discounts or special offers.

Make sure you resolve billing mistakes quickly and ask customers to pay any portion of the bill they’re not disputing. Once the matter has been resolved and the product or service has been delivered, ask the customer to pay the remainder of the bill. Depending on the circumstances, you also may consider asking the customer to sign off on the matter by making a note on the final invoice. Doing so will help protect you from potential future claims.

A lengthy cycle time for resolving billing disputes can have ripple effects on finance and accounting processes, such as reporting and forecasting. For instance, if you prepare your first quarter financial statements with numerous outstanding adjustments, management won’t be able to evaluate first quarter results until the adjustments are made. Delays in financial reporting can lead to missed business opportunities and postpone detection of impending financial problems.

Send timely invoices

If you haven’t already done so, implement an automated collection system that generates invoices when work is complete, flags problem accounts, and produces useful financial reports. Consider sending invoices electronically and enabling customers to pay online. You can still send statements out monthly as a routine reminder of outstanding balances.

Delays in invoicing can impair collection efforts. Familiarize yourself with industry norms before setting payment schedules (whether they’re on 30-, 45- or 60-day cycles). If your most important or largest customers have their own payment schedules, be sure to set them up in your system.

It’s also important to regularly verify account information to ensure invoices and statements are accurate and they get into the right hands. Set clear standards and expectations with customers — both verbally and in writing — about your credit policy, including pricing, delivery and payment terms.

Consider rewards for early payment and penalties for delays

Despite your best efforts, you’re still likely to encounter slow-paying customers. Here are some ideas to encourage timely payments:

Request payment up front with deposits or service retainers,
Reward timely payments with early-payment discounts, and
Provide incentives to customers that improve their payment practices.

If positive reinforcement isn’t working, consider implementing late-payment penalties. For instance, you could assess fees on past-due accounts. You might also put a credit hold on extremely delinquent accounts or adjust their payment terms to cash on delivery.

Stay connected with high-maintenance customers

Make regular calls and send e-mail reminders to customers who haven’t settled their accounts. If necessary, the manager who works directly with the customer should try to resolve the payment issues with the lead contact at the company — or even the owner. Consider executing a promissory note to prevent the customer from disputing the charges in the future. If your efforts aren’t fruitful, get help from an attorney or collection agency. Keep in mind, though, that third-party fees may consume much of the collected amount.

If an outstanding debt is uncollectible, you can write it off as an ordinary business expense. Be sure to document customers’ promises to pay and your collection efforts, as well as why you believe the debt is worthless.

We can help

Solid billing and collections strategies are integral to a company’s financial health. Contact us for more ideas for improving your company’s approach to accounts receivable.

Successful Dental Associateship Recruitment

Jacob Courtright on March 18, 2024

Part 3: Finding the Right Dental Associateship

The American Dental Association reports that about half of all associateships fail (Ebert, n.d.). Other sources paint a more drastic picture, claiming that 8 in 10 associateships dissolve (PTS, 2022). Dental associateship failures emotionally impact the owner, the staff, and the associate, making it harder to trust and try again. While there is no guarantee that you will have a successful hire, there are strategies that can increase your chances of making an excellent match for your office. This segment of our series will examine how to hire, train, and manage an associateship to maximize your chances of success.

Finding the Right Person

In the first two segments of our three-part series, we looked at reasons dentists might hire an associate and how to know if the timing is financially right. When owners have carefully evaluated the reasons for the dental associateship and have calculated their office’s profitability and break-even point, they are ready to begin crafting a job description that can be used to identify the right candidate for their unique situation.

The Research Phase.

The owner dentist seeking to hire an associate must begin by researching best practices in hiring and paying an associate. Owners should thoroughly develop a compensation plan while tailoring the associate’s job description. Some models of compensation per the ADA (n.d.) are as follows:

Straight Salary: When owners pay a straight salary, payroll calculations are based the total yearly salary divided by the number of payrolls per year or the daily rate times the number of days worked per pay period. For example, if the associate is offered $182,000 annually, paid bi-weekly, the gross or pre-tax pay is $7,000 per pay period.
Salary Plus Commission: Under this structure, the associate would have a guaranteed base salary plus earn extra income based on productivity. For example, in addition to the $7,000 base pay, the associate may earn 10%-30% of their gross production. Suppose the associate produces $40,000 in one month. In addition to the $7,000, the associate would earn an additional $4,000-$12,000.
Commission: Under this system, associates receive compensation based on a percentage of production, adjusted production, or net collections. An example of paying on commission is provided below.
Net Profit: This method compensates associates on adjusted production minus a share of the office’s expenses. Typical expenses deducted are the associate’s pro-rata share of laboratory fees and supplies.

When deciding on the associate’s compensation method, remember to stipulate the following:

How will the associate receive patients?
Will the associate be allowed to perform all the work they diagnose, or will a more senior dentist do higher-dollar procedures?
How will contracted insurance reimbursement rates affect the associate’s pay?
How will hygiene exams factor into compensation?
How robust is the office’s collection ratio?
Will the associate have additional compliance or managerial duties?
What additional benefits, such as health or liability insurance, pension, or continuing education, are part of the total compensation package?
When and how often will compensation be re-negotiated?

Articulating the compensation method may be the most crucial factor in securing a successful owner-associate relationship. It is essential that neither party feels disadvantaged or trust suffers. It is wise to provide examples for the associate to see how compensation will work in your office. The example below depicts how different commission compensation methods affect an associate’s pay. If associates are paid using another method listed above, adjust the base pay and/or percentages to provide authentic examples based on your unique situation.

Associate Contracts.

Associate contracts are complex documents, so owners should always engage an attorney to write the contract. In addition to compensation, benefits, and perks, the contract should detail working hours, expectations, termination processes, restrictive covenants, contract length and renewal terms (Chelle Law, n.d.).

Worker Classification.

The final compensation decision when adding an associate is determining if the associate will be classified as a W-2 employee or an independent contractor. Owners should not take employee classification lightly since misclassified employees can be costly for the owner and the associate ( Prescott et al., 2017). Owners who misclassify are subject to resolving tax deficiencies, penalties, and interest. Misclassified associates are impacted by self-employment taxes, ineligibility for fringe benefits, and unreimbursed business expenses. Prescott et al. (2017) emphasize that the IRS focuses on the control aspect in its ruling on provider classification (See Revenue Ruling 87-41 for 20 factors that influence the classification of workers). In Dental Economics, Prescott (2017) states the following: “If the practice pays the associate, schedules the associate, requires the associate to follow practice policies, and subjects the associate to a restrictive covenant, the associate is an employee.” Therefore, it is wise to consult a CPA or attorney when making this critical decision.

Crafting a Job Description.

Just as owners might use a job description document for other office roles, they should also list the desired qualifications for an associate. This document should specify the skill sets required, work hours, and office responsibilities. For example, if the new associate will be responsible for all hygiene on a specific day or if they must work some night or weekend hours, list them. Suppose they will be accountable for compliance initiatives within the office or manage certain staff members. In that case, those expectations belong in the job description, too. Beyond these items, however, owners should list values and people skills that the new associate should possess along with any specific personality or work characteristics needed to succeed in the office environment and culture.

This document should encompass the ideal candidate, but no one candidate will measure up to perfection. It may be helpful to order or rank the different characteristics. If certain items are non-negotiable, rank them as such. If others are less critical, indicate that. In this way, owners will formulate a clear picture of what they feel is best for their offices and be able to assess each candidate against the job description. The job description is not a static document. As owners move through the interview process, they may discover areas that need to be added to the description or decide to remove specific requirements that seem less important.

A critical aspect of the job description is identifying the type of associateship offered. Is the owner hoping to hire for an eventual buy-in or buy-out? Is the dental associateship mainly to provide a new revenue stream? Make sure the candidates understand the intention of the hiring. Otherwise, owners may be surprised if the associate has different objectives from their own.

The Interview Process.

Once owners have a clear job description, they can begin developing interview questions for the candidates and envisioning how they will conduct the interviews. Make sure to formulate open-ended interview questions. Yes or no questions rob the interviewer and the candidate of the opportunity to explore intentions and innuendo. Nothing can be worse for either party than to misinterpret answers, so strive to listen well, not just to be polite. Encourage candidates to ask questions of their own. Suggesting that they bring a question set for you to answer may be helpful since the goal of the interview is to discover if both parties want to move forward in the alliance. Uncovering as much information as possible will help everyone make a sound decision.

As the interview progresses, be alert for red flags indicating that the candidate’s goals are divergent or conflicting. Also, avoid asking illegal interview questions about race, gender, religion, age, family status, and other similar demographics. It is also unlawful to ask about citizenship or disabilities. The Great Lakes ADA Center reminds us that the purpose of the interview is to meet the applicant and learn more about their education, credentials, and experience, not to discover if the applicant has a disability or how severe it is. As interviewers relax during the interview, it is not uncommon to over-share about themselves or over-inquire about the candidate. Be vigilant to keep the interview’s tone professional and legal from start to finish.

There is no benefit to hastening the interview process, and setting up multiple back-to-back interviews is inadvisable. Instead, take time to reflect on each candidate’s strengths and weaknesses without the distraction of needing to rush to another interview. Also, be sure to allow trusted staff members to provide their impressions of the candidates. However, it is essential to show respect toward all candidates in front of the staff because one or another candidate will eventually be part of the team.

The Offer and Negotiation Phase.

The offer and negotiation phase is the most crucial part of hiring an associate because it formally sets the stage for how the arrangement will work. Once owners identify the right candidate, they should offer employment. Provide the potential hire with the contract and a written summary of the job expectations, terms of employment, and compensation package. Give the candidate time to think about the offer and consult their counselors. Arrange a suitable meeting time to enter negotiations.

Chelle Law.com (n.d.) emphasizes that a well-negotiated contract can lead to long-term success and job satisfaction. In contrast, a poorly negotiated contract may result in legal disputes and financial strain. Tips for a successful negotiation phase are as follows:

Negotiate in person to ensure good communication. Body language is a good indicator of how the meeting is proceeding.
Expect the associate to have questions. It is not a healthy sign for someone to accept the contract without questions or without asking for stipulations.
Keep a respectful tone during the conversation.
Be ready to compromise on some terms. Think carefully about any points of challenge to determine if you can adjust the terms on that point.
Do not rush the negotiation phase to avoid missing important details of the relationship.
Be prepared to walk away if agreement to terms is not possible.
Change contract terms with the help of your attorney.
Expect multiple meetings to conclude negotiations.

Hopefully, the owner’s careful preparation will yield a successful hire and a fulfilling new relationship for both the owner and the associate.

Resources

For more information about appropriate interview questions, see these helpful resources

https://employeedisabilities.wisc.edu/wp-content/uploads/sites/343/2017/09/Job-Interview-Questions.pdf

EEOC: What you can ask

EEOC: Problematic Questions to Avoid

EEOC: What you CAN’T ask

EEOC: Hiring Tips

References

ADA.org (n.d.). Dentist compensation: What every dental associate should know. ada.org/resources/careers/dentist-compensation

Chelle Law (n.d.). Strategies for dental associate contract negotiation. https://www.chellelaw.com/strategies-for-dental-associate-contract-negotiation/

Ebert, J. (n.d.).5 tips to find the right dental associateship for you. 5 Tips to Find the Right Dental Associateship for You | American Dental Association (ada.org)

Prescott, W. P. (2017, June 1). The dental associate contract. https://www.dentaleconomics.com/practice/new-dentists/article/16389554/the-dental-associate-contract

Prescott, W. P., Altieri, M. P., VanDenHaute, K. A., & Tietz, R. I. (2017). Worker classification issues: Generally and in professional practices. Practical Tax Lawyer, 31(2), 17-28. https://www.wickenslaw.com/media/i2of55jt/worker-classification-issues-generally-and-in-professional-practices-1.pdf

PTS (2022, December 12). Why most dental practice associateships fail. Why Most Dental Practice Associateships Fail – Professional Transition Strategies

Yang, K. L. & Tan, H. E. (2024). Pre-employment screening considerations and the ADA. In Disability & HR: Tips for human resources professionals. Institute on Employment and Disability. Cornell University. https://www.hrtips.org/article_1.cfm?b_id=17

Spotlight on auditor independence

Jacob Courtright on March 11, 2024

Auditor independence is the cornerstone of the accounting profession. Auditors’ commitment to follow the standards set forth by the American Institute of Certified Public Accountants (AICPA), the Securities and Exchange Commission (SEC), and the International Auditing and Assurance Standards Board (IAASB) ensures stakeholders can trust that audited financial statements present an accurate picture of the performance and condition of companies.

Close-up on AICPA standards

Auditors of U.S. publicly traded and privately held companies must be members of the AICPA. According to AICPA standards, “Accountants in public practice should be independent in fact and appearance when providing auditing and other attestation services.” Specifically, the Professional Ethics Division of the AICPA defines independence as, “The state of mind that permits a member to perform an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.”

In short, auditors can’t provide any services for an audit client that would normally fall to the company’s management to complete. Auditors also can’t engage in any relationships with their clients that would:

Compromise their objectivity,
Require them to audit their own work, or
Result in self-dealing, a conflict of interest or advocacy.

In addition to maintaining their independence, all AICPA members must comply with a code of professional conduct. This code requires every member of the AICPA to act with integrity, objectivity, due care and competence, and maintain client confidentiality.

Benefits for your organization

Although auditor independence might seem relevant only to the accounting profession, it matters to the entire business community. When auditors adhere to the profession’s independence and ethics standards, they enhance the reliability of the financial reports they audit. The production of audited financial statements helps companies establish and maintain stakeholder confidence. This can help companies attract investors, secure bank loans, and demonstrate financial stability to other stakeholders, including employees, suppliers, and regulators.

Auditor independence is a critical issue for public and private companies alike. Contact us to discuss any questions you may have regarding independence.

Author: Jacob Courtright

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