What Is the Lifecycle of a Dental Career?

By analyzing the life cycle of a dental career we know that the first 10 years make up a period known as the rapid growth phase. At the end of this phase most of the practice’s assets will have been depreciated down significently. The next 15 years will be the peak earning years. Around the 25th year in practice a dentist will experience a slow but steady decline due to his or her desire to work less. According to the past president of the CDA, only 6% of dentists will be able to retire at the age of 65 in a manner and standard to which they are accustomed.

Don't miss out on the most missed opportunity in dentistry, that of capturing the goodwill value of your practice more than once in your career. This is accomplished by selling your practice more than once. For example, by years 10 -15 you have substantially built-up most of your practice's goodwill value and you have depreciated down most of the value of your assets. Think about it, this is the time when your practice is at its optimum value to sell, not thirty years later when you have reduced your schedule and are generally slowing the practice down.

This does not mean that you would have to move from your community, as you could consider selling 1/2 of your practice or all of your practice and commuting to a different area outside of any restrictive geographic covenant.

Mutual Funds with Re-invested Distributions? Don’t Overpay Your Taxes!

It’s tax season again, and that means questions, questions, questions. Over the course of the next few months we’ll be putting forth what we believe to be useful tidbits for investors with taxable accounts. This is the first.

Say you’re an investor holding mutual fund shares in a taxable brokerage account. You’ve elected to “re-invest” all distributions in the fund, meaning that dividends, as well as short and long-term capital gains are all paid out to you and then re-invested into additional shares of the fund. Your initial investment was $2,500 and over the past 3 years capital appreciation and re-invested distributions have allowed you to build up a sizable stake in the “XYZ Fund”. Further let’s assume that in each of the past 3 years the fund paid out $200 in distributions that were re-invested. On the last day of 2006, your stake is worth $5,000 and you sell your entire position. What’s the gain on which you’re taxed?

If you answered $2,500 (the $5,000 sales proceeds less the $2,500 initial investment), you’d be wrong and, more importantly, end up paying too much in taxes.

The correct tax basis is the summation of all money used to purchase shares – both the initial investment and all re-invested distributions. In this case this amounts to $3,100. So, when you go to sell the XYZ Fund, your realized gain would be $1,900 (the $5,000 sales proceeds less the $3,100 adjusted cost basis of all your shares).

Further, while the distributions are re-invested in additional XYZ shares each year and the re-invested amount added to the share basis, the distributions themselves are taxable in the year in which they’re paid out, regardless of the fact they’re re-invested. For example if the $200 in the first year were comprised of $100 long-term gains and $100 in short-term gains, you’d recognize these payouts on your year 1 tax returns.

Finally, if a re-invested distribution is held less than a full year, the shares purchased with this distribution are taxable as short-term gains (or losses) in the year the position was liquidated. Using our example, assuming the fund paid out its last distribution on December 1, 2006 and the entire position was then liquidated on December 31, 2006 the shares purchased with the last distribution are short-term gains or losses. The remainder would be taxed as long-term gains/losses.

Most accounting software such as Intuit Quicken and Microsoft Money automatically account for these distributions correctly. However, if you’re not using personal finance software, the steps noted above should help you avoid paying too much to Uncle Sam.