As year-end approaches, tax planning preparation becomes increasingly important. Dentists who have received HHS Provider Relief Funds, PPP or EIDL loans certainly need to keep good accounting of any funds received to help them financially through the COVID-19 shutdowns. To maximize tax savings, dentists need to be proactive and keep tax planning and preparation top-of-mind, especially this year. Properly tracking and documenting expenditures is paramount.
In this episode of The Art of Dental Finance and Management podcast, Art meets with colleague Scott Haberman, CPA. Scott is a Partner on the Eide Bailly Dental Services team who helps dentists navigate the operational and tax implications of their practice. Art and Scott provide updates on the HHS Provider Relief Fund, what Congress has been working on that may affect dentists, and the important issues to consider regarding your 2020 tax planning.
If you have questions about tax planning or dental finance issues, Art is here to help you. His contact information is email@example.com or 657.279.3243. More information about the Eide Bailly dental team can be found at www.eidebailly.com/dentist.
Show Notes and Resources
- Eide Bailly’s Dental Practice
- What Business Areas to Focus on In Your Dental Practice
- Mark Rosen’s New England Parkinson’s Ride Fundraiser
Art Wiederman, CPA And hello, everyone, and welcome to another edition of the Art of Dental Finance and Management with Art Wiederman, CPA. I am Art Wiederman, CPA and it's a pleasure to be with you on a beautiful Sunday afternoon here in Southern California. We're gonna date stamp this podcast. Today is Sunday, August the 30th. That's going to come out on the 2nd of September. And the reason we're date stamping it is we're gonna talk to you about some of the stuff that's going on briefly with the PPP program and the HHS program and ESPN and HBO and anything else you want to know about. But we are going to talk today. And my guest is my really good friend and a team member from Eide Bailly, Scott Haberman, who's a partner in their office in Fort Collins, Colorado. We're gonna talk about some tax planning tips.
This is a year that is different than any of the forty-four tax filing seasons that I've been involved in. Scott and I are going to talk to you about what's going on with the government programs and mostly what you should be looking for, because folks, believe it or not, on Tuesday, we will be two-thirds of the way through 2020. I know that is impossible to believe. It seems like 2020 has lasted about 10 years for all of us. It's been a real tough year. But again, my saying is that failure is not an option. And I continue to believe that. Continue to hear great stories from dentists about how they're doing. We'll get Scott's take on how his dentists are doing.
But first, let me give you some information and some things that are going on. So, first of all, if you want to get a hold of me in my office in Tustin, California, my number is 657.279.3243. And if you want to get a hold of me on my email, my email is firstname.lastname@example.org. Real easy. That's W-I-E-D-E-R-M-A-N. Take a look at our partner. We have a wonderful partner that I talk about all the time. It's a magazine, a clinical magazine called Decisions in Dentistry. Go to their website www.decisionsindentistry.com. And if you want a free complimentary consultation with one of us at the Academy of Dental CPAs member in your area, you can go on there and click a box and we'll get ahold of you and do that. But the great thing about the Decisions in Dentistry is they have amazing articles and content. They have a great membership program. If you can go on go on to their CE page and if you sign up for an annual subscription membership, it's a very reasonable price. You will have access to more than one hundred and forty CE courses. Again, a very reasonable price.
Basically, here's a couple of the courses that they do. The Toxicity of E-Cigarettes on Human Health, Applications of Acupuncture in Dentistry, and Preservation Over Prevalence, The Importance of Interdental Cleaning. These are the types of courses that you're going to be able to have access to at Decisions in Dentistry.
Go onto our website also, which is www.EideBailly.com. That's E I D E B A I L L Y dot com. And you'll be able to see all the most recent podcasts and you can see them on the Decisions website too. HMWC is the firm that I've been with and we merged with Eide Bailly a little over a month ago. And it's been a really great partnership and I've gotten to meet wonderful people like Scott Haberman, who you're going to meet in a couple of minutes, and the entire team from top to bottom at Eide Bailly is just first class, top-notch. One other thing I would like to share with you also is that if you're looking for a dental CPA anywhere in the United States, go to our website, which is the www.ADCPA.org, 24 CPA firms across the United States that represent over 9000 dentists. I do want to share one event that is going on that I'd like to publicize. These are my dear friends, from back 20 years.
One of them is Mark Rosen out of Boston. And Mark was on the podcast with B.J. Coucher and Bob Gray about two months ago talking about the PPP rules. And Mark has an event coming up, which is to support the virtual New England Parkinson's Ride, which is going to be September the 12th. It's a fundraiser. And the link he sent to me is really long - https://fundraise.michaeljfox.org/new-england-parkinsons-ride-2020/Member/MyPage/4024247/Mark-Rosen. I'm not going to read it to you. I will put it in the show notes. But if you go to fundraise.MichaelJFox.org. Michael J. Fox is the comedic actor and he has had Parkinson's for many years. He's one of their main national spokespeople. And you go to Mark Rosen's page, you can contribute. I would encourage you to do that. I mean, all of our members, Eide Bailly is an unbelievably charitable organization. But all of our members, the ADCPA also people like Mark, who's a dear friend of mine. And please support his virtual New England Parkinson's Ride, which is September 12th. So today, folks, we're going to talk about tax planning. How exciting is that? Get yourself a glass of vodka or a bottle of wine or whatever, your beverage of choice is.
And my guest today is Scott Haberman. Scott is a partner at Eide Bailly. He's a tax partner and he works about 80 percent to 90 percent of his life, is spent working with dentists. And I'm gonna let Scott tell you a little bit about his story, but we're gonna talk a little bit about the HHS, what's going on with that update, with that the PPP.
And then what should you be looking at for tax planning? So my good friend, Scott Haberman, how are you doing today? Welcome to the Art of Dental Finance and Management.
Scott Haberman, CPA Thanks for having me. Art, it's great to be here.
Art Wiederman, CPA How's life in Colorado these days?
Scott Haberman, CPA You know, it's, uh, we had a nice rainstorm last night with some lightning and double rainbows, and we picked it up today with a nice sunny day. So. So life is good this Sunday.
Art Wiederman, CPA I mean, I spent my first week at the University of Colorado when I was at Deloitte back in 1981. And boy, is that a beautiful place. My aunt lives in Colorado, in Littleton. It's just a gorgeous, gorgeous place.
Scott Haberman, CPA And yeah, it's wonderful up here. You had all the seasons and you can go to the high country lakes and everywhere in between. It's a really fun place to live.
Art Wiederman, CPA Well, Scott, before we get started talking about the exciting and scintillating and unbelievably just mind-blowing topic of tax planning for dentists. Tell us a little bit about you and your story and your journey.
Scott Haberman, CPA Sure. Sure. So, so much like you are. I started my career with Deloitte, actually, in their New York City office, and I was actually born and raised in Seattle, Washington. So that was my big adventure after college. So went to the University of Washington for my undergrad studies in accounting and stayed for my master’s as well and jumped on board with Deloitte. And after about a year with them, I had enough of the Big Four lifestyle and transitioned to a regional firm in the Seattle market.
Spent about 10 years there and my wife and I had an opportunity to come out to Colorado and get closer to the family who'd been retiring and moving around. And we found a great place in Fort Collins and Eide Bailly. So we've been here in Fort Collins for the last five years and it's been a fun ride.
I have some family who introduced me to serving the dental field from the accounting and tax and finance perspective. And that's it's been a great profession to learn and understand and really get some of those unbiased views from my family members who are in that profession, as well as my clients who are not only wonderful people to work with but also really dear friends, probably similar to your clients that you've been working with over the last 30 or 40 years.
Art Wiederman, CPA Yeah, it's amazing. Dentists are some of the finest human beings that I've ever met. And what's really interesting, Scott, is when you talk to a dentist and I've had the ability to, you know, to refer some patients to dentists in different areas of Southern California, because a lot of the people in my world know that I'm a dental CPA as well. Can you refer me to your dentist? And when I refer them, it's unbelievable. They turn on a switch, and it's like, yeah, they want to know about them and what are their issues and we're gonna take really good care of them. These are some of the kindest, most, you know, outgoing and caring people I've ever met. So they have had a tough time. So how are your dentists doing in your group how they've been doing? I mean, obviously, March 16th, they were not very, very well. But how have they come out of the pandemic?
Scott Haberman, CPA You know, I think those first two months were obviously pretty rough with all the uncertainty. Everyone was trying to figure out, you know, what's going to happen the next day.
But as soon as offices started opening up, I think that all of my clients, they all had a great response from their patients ready to get back in, ready to get the wheels turning in the practice again, most of the staff had been very positive and ready to get back to work and are excited to be there, even in my own dental office. I went in for a procedure about a month ago and everyone was very positive. And it's clean and organized and just a well-run operation. And they've been having some of the greatest months of their offices’ histories. So I think it's been anywhere from, you know, 80 percent of typical collections that's on the low side too, you know, one hundred, ten hundred twenty percent from their historical monthly collection. So it's been a great a great pickup and a great run since the reopening. You know, my concern is, OK, what are we doing to fill those gaps? And those are the conversations I'm having to my tax planning conversations of your how's, your October looking now, November, and the rest of the year. I think it's pretty imperative to keep your eye on the ball and making sure that you have that full schedule, but enough flexibility for any kind of exams or procedures. But I think it's been a great response since those June and May reopenings. How about yours, Art?
Art Wiederman, CPA Yeah. I mean, we've had all most of our clients have done really well. And I'm a little worried about the fourth quarter low, you know, making sure, as I've mentioned before, one of our guests in a prior podcast, my good friend Joanne Tanner, who's a consultant, was telling our listeners to take a look at all of your patients and see who has not been in for their two prophies that are covered by insurance and give them a call, even if they came in in September, say, listen, you got one more. Why don't you come in December? Let's just make sure everything is OK. And several of my clients have taken me up on that. But it's really about getting into the weeds, managing. And folks, let me again emphasize, marketing is so important. The day you stop marketing the business is the day your business starts to die. And so you want to be, you know, prevalent in social media. We had Leonard Tau on our podcast a couple of weeks ago talking about social media marketing and the importance of five-star Google reviews. Don't get me started. I'll get started on. This will become a marketing podcast. And Scott, you won't be able to say a word. But anyway, we won't do that to you. So let's get into some of these topics. Let's start off with it. Where is Congress right now, Scott?
Scott Haberman, CPA Aren’t they on recess? Yeah.
Art Wiederman, CPA They should be in time out. They shouldn't be. They should be in time out. And they should be left in time out for six months. Now they are in recess until probably next week after Labor Day. Labor Day is a week from tomorrow. So they'll be back the week of the. I guess they'll be the week of September 7th. Right?
Scott Haberman, CPA Yeah, yeah, yeah, they got, they have some things to do. Some things to take care of when they get back.
Art Wiederman, CPA Yeah. So I talked to my. I call her jokingly and lovingly my roving reporter, Megan Mortimer, who is the congressional lobbyist for the American Dental Association, who has been my, who's become a very good friend. I've never met her face to face. She is. She lives 3000 miles away from me in Washington, D.C. She's living and breathing the Beltway every single day. So here's what she told me, Scott. She told me that she actually had a conversation with several congressmen, one of them being the chairman of the House Ways and Means Committee. And what they said was this. They said there is significant, you know, bipartisan support for three things. Number one, anybody who has a PPP loan that is under one hundred fifty thousand dollars, which is the majority of our dentists, would be able to, if this law is passed, sign a one-page attestation that says, I solemnly swear that I follow the rules. Now leave me alone. That's basically what it's going to say. And you will be able to not send any information to the bank.
The banking industry is pushing hard for this because think about it, Scott. They get five million PPP loans are out there. Five million. That's five million underwriting touches that the banking industry has to have. So we hope that's going to happen, right?
Scott Haberman, CPA Oh, totally. Absolutely Art. I think all of my clients would love to take their time and spend it better elsewhere. And I think that you know, we as advisors would like to spend our time elsewhere, too, to give more guidance on areas that could help their practice grow rather than some of these compliance exercises. That is pretty much behind this forgiveness application.
Art Wiederman, CPA And folks, do watch our website. You know, it's amazing. I, like Scott, started my career at Deloitte. When I'm a I'm one of the gray hairs. Scott is not. But I started my career in 1981 with Deloitte, Haskins and Cells as what it was called. And, you know, back then, there was no Internet. We had Pong and Pacman that was about it. And, you know, being with a big firm has I've kind of come full circle. I was with Deloitte and then I had my own firm for 33 years with my dear friend Pam Chamberlin. And then I merged with HMWC, which was a 45-person firm that became a 90-person firm. And then last month we merged with Eide Bailly, which is a firm that has 40 offices in about twenty-five hundred people. But the resources that this firm have are frightening. One thing I did forget to mention, folks, by the way, on September 16th. Do not forget to listen to the podcast.
And it basically is it basically is going to be on the research and development tax credit. And the research and development tax credit is a credit that we are seeing is going to be available for dentists. So what I want you to do is go on to our website and go to www.EideBailly.com/dentalrd. And you can fill out a questionnaire with about the it’ll take you about 10 or 15 minutes. And what will happen is, is that we'll get back to you and see if you will can be subject to this credit. Now, Scott, I know you've done some of that, right?
Scott Haberman, CPA Oh, yes, absolutely. Of all of the tax planning calls I've been having with my clients for the past month and a half. We all go through the rundown of how I approach these. But this R&D tax credit, it hasn't really been recognized previously for this industry. And we saw some opportunity here. And as a firm, we've been discussing this lot with our dental industry. And I think it's a great opportunity to reduce your tax liability, not only for your federal credit, but also for you are California. I believe they have a pretty hefty credit out there that might even be more valuable than the IRS.
Art Wiederman, CPA It's big. It's bigger than the state one. And again, it just depends on the state that you're in. You know, if you're a if you're listening and you've got an ADCPA member firm, check with your ADCPA, CPA and they'll know about it. Scott knows about it. Well, let Scott give out his information here in a little bit. But again, go to our website, www.EideBailly.com/dentalrd, D E N T A L R D And you can basically fill this out. Click a button. And then our R&D team headed up by Joe Stoddard and Heidi Lanin, who you will hear in a couple of weeks. They're amazing. They actually got one of my clients in. And we can go back and amend 17 and 18 tax returns and 19 if you've done them. We got a client over four hundred thousand dollars in tax credits. Pretty, pretty cool deal. OK. So we talked about the PPP. Let's chat briefly about HHS and then we'll get into tax planning. So as you all know, the Department of Health and Human Services through the Cares Act had has this fund called the HHS Provider Relief Fund. That was one hundred and seventy-five billion dollars that was made a part of the CARES Act back in March. And it wasn't opened up to the dental profession until July. So now all dentists are eligible. I'm not going to get into lots and lots of details, but I will give you some updates. And, you know, we did a great webinar and I think that's going to be posted up on our website either Monday or Tuesday. And we can get you the link for that. But a couple of things to note. Number one, if you have not applied for the HHS, Scott, I think it's now September 13th.
Scott Haberman, CPA Yep. It was Friday, August 30, 2010. Excuse me August 28. Couple of days ago. And then it got kicked, began got kicked down the road to September 13. So we have another two weeks.
Art Wiederman, CPA So what are you telling your clients about applying for this relief?
Scott Haberman, CPA I'm letting them know that you know, it's a good source of additional income. You know, it is called a grant, but it is taxable income, just like collections. And so be aware that. It's two percent of your revenues from your most recently filed tax return. So most likely your 2019 filing. But, you know, that does come with some strings, some strings attached. And some of those are, like the PPP. How much you receive from these HHS funds will be public knowledge. And the concern there is some folks can look up and see what's your average annual collections. So that's one of the items that you need to be aware of. And the second is there will be some disclosures that you need to provide to HHS after the fact. So later this year, which I think Art might mention briefly in a bit about what did you use your funds for? What kind of expenses and so forth? But it is it's a good lifeline for some additional income and cash. And I, I don't see any reason why not to apply for it at this point in time.
Art Wiederman, CPA So the way this works is that it is generally approximately two percent of your gross revenues. I have had some clients, Scott, that have gotten more than two percent. I had a doctor who did about one point six million. He got $37,000. So, you know, everything is relative. They may not be you know, they didn't get the math right or they have some other formulas. But there's a couple of things you need to know. Number one, these funds need to be used to fight COVID-19. So the easy way.
And here's the really good thing that I just learned this is that you are allowed to use these funds even if you didn't get them. Most of our dentists, Scott, didn't get these till July or August. But you can use these funds pretty much for anything you spent. They say after January 1. But I would make it after March 16th. So for anything you spend to make your office safe for your patients, not that it wasn't safe. But to do everything that everybody had to do. So, for example, most of our doctors and I'm sure yours did, too, Scott. They spent money on, you know, air filtering and air conditioning systems and UV lighting, you know, the things that click on and off that take all the particles out of the air. And suction machines. I had was in my dentist's office in the hygienist was my hygienist, were showing me the suction machine that is specifically intended to keep the particles out of the air. The partitions, when you walk into a dental office, the Plexiglass partitions that you put up and all the PPP that you had to buy, if you got all that stuff from March 16th until you opened your office, maybe in June, you know, May or June, you are allowed to claim those expenditures, even though you didn't get the HHS funds until after you spent that money. And many of you have spent enough money to already be done. Now, they were supposed to come out with reporting requirements on the 17th. They did not. of August. They did not. Of course, in the rule of government, it's you know, it's like my golf score, all golf, golf scores, like, you know, all golf scores of Art Wiederman, are recorded approximately, all laws of the government are recorded approximately, right, Scott? You know, it's crazy. And so they have not come out with these rules. You are not supposed to buy anything from any vendor that is on the government's bad list. So you might ask that. But most of you should. You can use this money for PPP and then they say you can use it to replace lost revenues. Very confusing. But what we think that means is that for eight to twelve weeks, you had no revenues, but you had expenses you had to pay. You know, not things that you paid PPP, PPP for. Not wages, not rent, not utilities, not interest. But you had, you know, repairs. You had office expenses. You had you know supplies. You had lab bills. All those expenditures, we believe, are going to be covered, were waiting for guidance from them. But we think and I agree with Scott, that that you should apply for this. You need to read the terms and conditions. But you know what? You got till September 13th. It's two percent of your revenue. So for most of you, you have a million-dollar practice. It's 20 thousand bucks. Think of it as a big case that you're doing maybe two quadrants of crowns or implants, that you don't have any lab. You don't have to expend any supplies. And instead of having to drill on a patient, you just have to punch some numbers into a computer. That's the way we think about. So anything else on HHS, Scott, we should be thinking about?
Scott Haberman, CPA No, that was a great summary, Art.
Art Wiederman, CPA OK. All right. So let's now start talking about tax planning, which is what I want to spend the rest of the episode talking about. Scott, talk about how you are approaching tax planning for 2020. I mean, it is completely a different animal than any other year we've dealt with.
Scott Haberman, CPA Yeah, yeah. It's totally year like no other out there in much like probably your client base when you're serving them from a tax planning perspective. You know, most of them have growth each year and their income keeps going up with inflation at least as long as their practice is growing over the years. But it's pretty easy, you know, to have those conversations and go through your bullet point list of are you doing this strategy? Are you doing that to keep your liability as low as it could be? And here's what your tax estimate is looking like come April of 2021. If you're making your quarterly payments. But now we have two months of closed doors. We have PPP forgiveness. That could be deductible. Might not be.
We have HHS funds that might spike your income for one month. Are we pulling that out to see OK, what's our annualized income looking like? So there's a lot of moving parts this year that you kind of have to run through multiple scenarios with your CPA and really know, OK. You know, what's the best-case scenario, depending on what Congress does? What's worst case scenario? So I think you've got to look at it from multiple points of view. And that's just not something that we've had to do in the past with uncertainty of, you know, we're in a plane. And as you mentioned before, Art, the plane is still being built when it's in air. And so I think we're still at that point when we need that clear guidance.
Art Wiederman, CPA Well, so let's take an example, Scott. So I have a doctor who's doing a million dollars a year. Maybe they net let's say they net 350, you as their CPA, recommending a salary in this typical scenario, maybe a salary of two hundred fifty thousand. And they're going to take distributions at two hundred. Is that a reasonable, you know, something that you see in your practice?
Scott Haberman, CPA Yeah, yeah. I always have that reasonable compensation discussion with my docs. And, you know, there is no exact number out there.
It's a term of art. And that term of art is something the IRS uses if they ever to come and say, hey, let me know what your wage you're paying yourself is. You have these distributions, you have this profit. Well, why is your wage this? And they'll essentially tell you what your salary should be. And that amount is based upon your geographic region of the country, the services you perform, your the profits that your practice, and so forth. So there's a lot of moving parts there. I think a good way to hedge your risk is OK. What would you pay someone in a position if you were to hire them unrelated to you? So not a family member, but if you were to hire someone from a headhunter that you might have found an associate for. How much would you pay them to perform the same procedures? I think that's a good rule of thumb. And there's also some folks talk about the Social Security wage base, about one hundred thirty-eight thousand, I think it is for 2020, give or take a couple of thousand dollars. That's also, I think, a minimum salary that some folks will pay themselves. But that's usually a conversation we have during those tax planning meetings each year.
Art Wiederman, CPA Those are those are really great points. A couple of things I want to bring up. Number one, doctors, if you're an S corporation, make sure you take a reasonable salary. If you have a million-dollar practice and you have a three hundred-thousand-dollar bottom line K1 and no salary, you're asking for a whooping. You're going to they're going to come and get you. In fact, when you get your approval to become an S corporation, it flat out says on the approval form from the IRS, you will take a reasonable salary. You will do this, you will not pass go, you will not collect 200 dollars. That's just kind of how it works. This is what you need to do. And so that's one thing. Another thing to think about here is so. So from a salary standpoint, Scott, number one is going to put money into a retirement plan. We you know, if we take 50 thousand dollars in salary, we're not going to be able to number one, it may not be reasonable. Number two. That's going to cause a problem for how much money we can put in a pension plan. Right?
Scott Haberman, CPA Right. Right. Any kind of profit-sharing that you have linked in with your 401 K or employee match? There's a lot of factors that you need to discuss with your CPA or us and your retirement plan adviser of what's the right salary we need to have for ourselves, our employees. Is your spouse on staff? Do we need to look at increasing that spouse's salary? So there are a lot of moving parts. And again, if you own your building, maybe a way to hedge your bets from a low salary is increasing your rent to a market rate. Maybe your rent's pretty low. And we can reduce the profit of the practice and increase the profit of that self-rental. So I think there's a lot of different moving parts that just got to go through with your tax planner and adviser to make sure that you're in the best spot possible.
Art Wiederman, CPA And the other thing we've got is we've got this section one ninety-nine a deduction that, you know, it's kind of a double-edged sword. You know, the smaller I mean, the bigger our K 1 is and the less salary we take. If our income for married filing joint is under about four hundred and twenty-four hundred twenty-five thousand dollars. We get this 20 nice 20 percent deduction.
Scott Haberman, CPA It's a great deduction. It's a phantom deduction. Quote unquote. So you don't have to spend a dollar to get it. It was introduced with the Tax Reform Act that was passed at the end of 2017. So it's only been around for 18, 19, and now 20. It's going to expire, I think, at two thousand twenty-five. But of course, that could change next year depending on who is in office. So that could be rolled back.
But that's a great a great opportunity.
But again, like Art said, for our profession, CPAs attorneys, dentists, doctors, other specified services that the IRS said are not eligible for the full deduction if you're over a certain income threshold. We really have to focus on keeping your income within a certain point. If you have a practice that, you know, you might be in this income range. So it's something to focus on.
Art Wiederman, CPA Now, I also want to throw something else out, Scott, which I think is very important. So in about, I believe it was 60 to 65 days. We have an election. And again, as everybody knows, I did get an email from somebody that said, even though, Art, you say you're not political, you're talking political.
I am not. I am absolutely not talking politics.
Scott Haberman, CPA Nothing is.
Art Wiederman, CPA What's that?
We're talking tax. Here's the facts. Our government has gone to point to two point two trillion dollars into debt. They're going to go more. It's going to be three to five trillion, which is an unbelievable number if you think about. I mean, one or two or three isn't the big number. But when you put a trillion behind it, I mean, that's a lot of zeros already.
Scott Haberman, CPA Why rewind 11 years? Remember the bank bailout? What was that? Eight hundred billion or so. And that was mind-blowing. And now we're here and it doesn't really make the headlines these days.
Art Wiederman, CPA Well, if it may you know, Scott, I'm old enough to remember this in 1981 when Ronald Reagan became the president and Jimmy Carter left office. I think I got my presidents right. The national debt in this country was nine hundred billion dollars. When we get done with 2020, our national debt will be somewhere between 25 and 27 trillion dollars. It's pretty frightening. So the reason I say that is think about it this way, folks. What's happening in our government? OK. What I mean, in our society, businesses are opening up, but there's lots of businesses that are not opening up. 15 percent of all restaurants have closed, 10 percent more are going to close. We also have you know, we had the six-hundred-dollar kicker, Scott, for the unemployment, that's gone.
It's not coming back. Six hundred, it may be 200 or 300 or whatever the brain surgeons in Washington come up with, but it's going to be less. So the bottom line is there's going to be less tax revenue. Businesses have made less money. Individuals have made less money. 30 million people went on unemployment. The bottom line is our government needs money. So here's how this is going to work, quite frankly. And this is not a. This is the history of our country. If we have, if Joe Biden wins the White House and if the Senate flips Democratic, I can guarantee you your taxes are going to go up. That is not a commentary. That is what they have said is taxes are going to go up on the high-income earners, on people making two, three, four, five hundred thousand dollars. They have to. If that does not happen, if we do have if President Trump is reelected, if the House is going to stay Republican because they got about a 35-seat edge, if the Senate, Scott, stays, then everything will probably stay the same. So I would think on November 4th, you and I are going to be making a lot of phone calls. Do you think?
Scott Haberman, CPA Oh, yeah. Yeah, there's a lot that's changing. And if the Democrats get the majority, do you remember Obamacare when it passed a number of years ago that no one thought anything like that could pass and yet it seemed like it went through without a hitch. And so I think anything can happen when a party can get a majority of most houses.
Art Wiederman, CPA The reason I bring this up, again, honest to goodness, folks, just makes the one thing able to just go out, make sure you vote. Whoever you vote for is your choice. My point is, is that you have about two months once the election is over to make some moves. So if we think the tax rates are going to go up in 2021, then what do you want to do, Scott? We want to accelerate income into 2020 and defer deductions maybe?
Scott Haberman, CPA Yeah. Yeah. And I think that kind of goes hand-in-hand with depreciation planning if you're making some large equipment purchases this year. And a lot of my clients are actually buying practices, they might be buying their second or third practice this year, maybe a building because the dentist is leaving town. They're over it and they're the retiring and they want to move away and call it a career. And so, you know, there's certain things that you have to consider that are opposite of your thought process last year of, oh, you bought this piece of equipment. Let's take a hundred percent bonus or 179 it. I think we got to take a more critical look of let's slow this down. If, you know, maybe we don't want to eat into these lower tax brackets that we're in right now. Let's save it for next year. And so you don't have to make that decision in 2020 for the 2020 tax year. I mean, you can make those depreciation decisions, you know, after the fact in 2021. And so there is a lot of things that you can do right now, but you can still do a number of things next year as well. And there's going to be a lot of moving parts. But hopefully, we get some more clarity in the next few weeks with a Cares 2.0 Act they can shed some light on this PPP non-deductibility issue.
Art Wiederman, CPA So let's talk about that for a second. So, folks, if you are doing your own Quick Books accounting, and maybe you don't send it more than once a year and you're looking at saying, you know, wow, my income is way down, Scott, this is very important. This might be the most important thing that you and I talk about in this entire podcast. When a dentist or any business owner looks at their financial statements right now, more than likely they will have put on their books. Let's say they get a loan for one hundred thousand dollars for PPP, OK. Make it easy numbers. It's Sunday afternoon. I've been in the sun. Oh, man. I hit this five wood today right over the stick. Was just. This is nothing to do. Taxes. I'm sorry. It's all about golf, folks. As you know. And that's all that matters with me anyway. So you got a hundred thousand-dollar PPP loan, right? And you look at your numbers and you say, wow, OK, I got I've got all this, you know, my income's down 40 percent. I was close and I'm not coming. Yeah. Come back a little bit but I'm down. I won't have a problem with taxes. But remember Scott, that one hundred thousand dollar they've probably already spent on wages and rent and utilities and interest. And at this moment, that is not tax-deductible. Right?
Scott Haberman, CPA Right. Right. Totally. And if you're looking at, say, one hundred fifty thousand of net income, maybe year to date through August, but you had that a hundred-thousand-dollar loan that you're going to seek forgiveness on right now, that a hundred thousand dollars is not deductible if it's all forgiven. And so even though you're hundred fifty thousand dollars of net income at this time of the year is showing us so in your financial statements, well, you're currently you're gonna be taxed on two hundred and fifty thousand dollars because of that for a given loan. And so that's going to catch a lot of folks off guard. And that's where we really need to have those conversations running those two scenarios because I think it is fluid. I think it is really a 50/50 chance of it being deductible again. And so we really need to plan for the worst-case scenario, which is it's nondeductible right now, but still no. OK, well, here it is. If it's if it is deductible.
Art Wiederman, CPA Exactly. So, Scott, you by the way you work with several you know, you work with large groups of people that own a lot of practices, right?
Scott Haberman, CPA Yeah, we do. We do. We work with a number of folks and they have some very large PPP loans. And so those are translating into some large dollars. But luckily there are some things we can do to keep their tax liability down that will we'll touch on a little bit later here.
Art Wiederman, CPA Why don't you quickly give out your contact information? If anybody wants to call Scott and have any questions about any of this fun, wonderful stuff. If you call Scott, Scott requires that you do have a glass of wine or a bourbon or whatever in your hand, and he won't talk to you otherwise in there, right?
Scott Haberman, CPA That's right. It's better that way. Better that way.
Art Wiederman, CPA That's right. Yes. Yeah. And if you go to Colorado and you're, what, five thousand feet up in the air and be, nobody will know anyway, so how do folks get a hold you?
Scott Haberman, CPA So my phone number is 970.999.8932. And my email is SHaberman@eidebailly.com. So feel free to give me a shout. Give me an email. Happy to have a conversation.
Art Wiederman, CPA Sounds good. Let's talk about funding retirement plans. Now I know that my clients are looking at me and I'm going, so you're going to fund a retirement plan for 2020 and they’re going, are you insane? Are you new? Art. Have you been seeing what's going on? There's a pandemic going on out there. But, you know, if you think about it, a lot of our doctors have come back and he, not 100 percent, but some of them are doing 120 hundred thirty percent of what they were doing pre-pandemic. And they may only be down a month's worth of revenues. And they've got PPP money to pay expenses and maybe they have EIDL money and maybe they're getting this HHS. So a lot of my doctors are not as badly bad off as they were. So what do you tell people as far as funding retirement for 2020?
Scott Haberman, CPA So I think it's something to look at, especially if you don't have a retirement plan set up yet. You need to seriously consider, OK, we have these deadlines coming up. I believe there's one in October and there's one at the end of the year, depending on what kind of plan that you have that you're going to put in place. But again, it's not something to jump on immediately. I mean, if you want to wait a month or so, that's probably OK. But still, if you have a cash flow and the money in the bank account and most of my clients do, as you said from the HHS and EIDL and PPP.
So you have your operating cash may be a little bit higher than usual. Let's look at potentially either setting up a retirement plan or maybe you're thinking about changing one if you're expanding your practice. So I think that's going to be a topic of conversation, even though tax rates are going to go up and, you know, maybe the deduction isn't worth it as much this year as it might be next year, depending on what happens with the next president. I think it's something that you just need to look at to keep building up, building up your retirement, and lowering your tax liability. And, you know, I think a big, big focus of that retirement plan deduction is maybe it can get you into that that tax bracket where you can catch that 20 percent deduction. So you get a double benefit there.
Not only the tax deduction, but also the tax deduction from the retirement plan, but also that 20 percent QBI Qualify Business Income deduction. So it's a pretty powerful tool to lower your liability using retirement plans.
Art Wiederman, CPA That's a really great point. And I want to re-emphasize this, especially if I have a doctor who's maybe two to four years out. Maybe you're at the top of your game now. Obviously, it's hard for me to say anybody at the top of their game in 2020. But, you know, assuming that everything comes back to where it was in, the dental profession has done better than most industries have done. Most professions have done so. If you set up a defined benefit pension plan three, four years out, you can start funding. I have a Dr. Scott specialist. We knew he was selling in three years. So what we do is we set up a DB plan. He was 65 at the time and we put one hundred fifty-five thousand each year for three years because that's what he was comfortable with. And we worked with the TPA, which is. The third-party administrator we work with, the TPA. And basically what we ended up doing is we end up putting about three hundred fifty thousand dollars in the year that he sold. So we got almost seven hundred thousand dollars into his plan over a four-year period. He was a very, very happy camper. So that's something to look at if you're. And with these new cash balance plan, Scott, you can start. I got Dr. started when they're 40 years old with a cash balance plan. And it's pretty cool, huh?
Scott Haberman, CPA Yeah. Yeah. And the thing I think what people don't want to do is, you know, they don't want to have these hefty liabilities for their whole staff. Well, I think you got to do the analysis of, well, who would you rather pay your staff or the IRS.
Art Wiederman, CPA Exactly.
Scott Haberman, CPA You have that conversation. And I think once you tell him that and show the numbers, it makes perfect sense. You know, I'd rather pay my hygiene team than Uncle Sam. And I think I think most business owners would prefer to do that.
Art Wiederman, CPA Now, one other thing that we need to point out, and I want to be very clear on this because it's an important distinction in the Cares Act, Congress suspended your need to take a required minimum distribution. We call it an RMD for 2020. But folks, that is only for IRAs and Profit-Sharing plants. So if you have a defined benefit pension plan, please listen to this. You cannot avoid taking your RMD into an RMD in 2020. So you have to take that out. If you have a defined benefit, if you have a defined contribution, money purchase, nobody has money purchase anymore. But if you did and an IRA you have, you can avoid taking out your RMD for 2020. Now, if your income is way down, you might actually want to take it out because you are going to be in these low tax brackets. Now, remember, folks, you know, your taxable income of between is between 160 and 200 and 320,000 as a married couple. That's 24 percent. I don't remember, Scott, rates that low. I mean, the rates are as low as they're ever going to be. You know, so. So that's something else to be thinking about. Talk about cars. I mean, I know, Scott, if you're clients like mine, all my clients want to write off like seven hundred and thirty-eight percent of their car. You know, my car is over six thousand pounds. OK. You sure about that?
Well, it looks pretty heavy, so it must be over 6000 pounds, right?
Scott Haberman, CPA Yeah. I lifted it myself so it must be 6000.
Art Wiederman, CPA I need my six-foot, six-inch banker kid. I have to have one of those to lift it up for me. So talk. What's your opinion about cars? I mean, how do you talk to the clients about cars?
Scott Haberman, CPA Yeah, I agree that anybody, anybody out there wants to pay the lowest liability to federal and state governments.
So, you know, you don't blame anybody for exploring all the options, but for the cars. So here's that. The rules. So if you're driving from your house to your dental practice, you have one practice, you make your money in the chair.
You have an office within your dental practice where you review your finances, which most practices do have a little closet where folks can go look at charts and do numbers and so forth. So that's called commuting time. So that's like me and Art going to, you know, our respective offices from our home when we actually can go back to the offices someday when we drive to that office. That's called commuting time. But, you know, here's the thing. What if you have two offices and you're not really practicing in the chair each. Each day, maybe you're managing a team of associates and hygiene staff and you have a dedicated office within your house and you're really managing those practices from your house.
Well, you know, your house is your home office. And so every time you leave your house, that's not commuting time when you're going to those offices. That's business use time for your vehicle. And so I think when you have a multiple office locations, that's a pretty slam dunk case of I can write off my car, but. But where do you make your money? Where do you perform your services? If it's in the. If it's in the exam room, then boom. That's hard to argue with IRS that all of my vehicle driving time is business use because you might just be going from your home to your clinic each day. But, you know, if you're driving to a CE event or to the airport for a CE event or driving to get supplies after work. So that is business use driving time. So it's a case by case scenario. And I think you got to talk through the facts with your clients to see if it's an option.
Art Wiederman, CPA Now, if you do have a car that if you do purchase a car, they did with the Tax Reform Act of 2017, raise the depreciation. I think it's about ten thousand in the first year, 16000 in the second year, and then it drops back down. If I remember the numbers correctly. But if your car is over six thousand pounds, ground vehicle weight, and by the way, you can find that out by looking on the driver's door. There is always a like a thing on the driver's door that will tell you what this is. GVWR, I believe is what the term is because there is ground vehicle weight and there's ground GVWR. Again, it's just too many letters. I do numbers. Anyway, the bottom line is you can look up and see there are lists on the Internet that will tell you which cars qualify. If those cars qualify, then you that car qualifies for what's called 100 percent bonus depreciation. Scott, talk about bonus depreciation. That's a pretty cool deal.
Scott Haberman, CPA Yeah. Yeah. So bonus. I think it came around when we had the Great Recession. Maybe it was around before that. I think there is a there is some of that around 9/11 when the economy was hitting some speed bumps in 2002 and 2003. But one hundred percent bonus depreciation has come and gone a few times over the last ten years. But for that, it's separate from that 179 deduction that most folks will talk about. So bonus depreciation is a lot more flexible, especially now, because you can use it for new equipment or used equipment. And you can even if you have, say, one hundred and fifty thousand dollars’ worth of equipment purchases this year and your business income is only one hundred thousand dollars. Well, that one hundred fifty-thousand-dollar equipment purchase. If you take a 100 percent bonus on it, you can create what's called a net operating loss and use that net operating loss to carry back and pick up some of your prior year taxable income and get an immediate refund. So that change is part of the Cares Act too. And so bonus depreciation is much more powerful than that 179 deduction because you don't have to have taxable income to use all that bonus. But it is kind of similar where you can take immediate expensing of equipment similar to that one seventy-nine, but just a lot more flexible.
Art Wiederman, CPA And for those. And you're right. And for those doctors, for those of you out there, maybe you own two, three, four or five offices, your income, maybe it was a million dollars last year in 2019 and maybe you're down to six or seven hundred thousand dollars because of the pandemic. You're still in the maximum tax bracket. So you still want to take, make those moves. Talk about. So I want to finish up with you just re-emphasizing folks, you know, look at your PPP numbers. If you got one hundred fifty thousand dollars, you got to add that back. We could have a twenty-five-thousand-dollar tax credit for PPE that is also got bipartisan support. Megan says that could happen. But again, you know, we just don't know. We'll know. We will know by the end of September because they won't be around in October. They're gonna be you know, I don't know what campaigning looks like in 2020, but they're going to be working on their campaigns. So whatever is going to happen is going to happen in September. And a couple of other things, Scott, that we want to talk about. And the most important thing, folks, is if you haven't spoken to your CPA, whether it's Scott or me, or my partners at the office, Don Watson, Pam Chamberlain, Sam Williams, a member of the Academy… if you haven't talked. If you haven't spoken to your CPA, pick up the phone and say, hey, Scott, I haven't talked to you this year. And, you know, we've been reaching out to people, you know, should we talk earlier? Because we want it. We want to make sure that you know where you stand. One other thing I want to touch on is there was this provision of the Cares Act that also came in that got rid of what's called the QIP problem. So what happened was folks is back, you know, several years ago, we have this category called Qualified Improvement Property. And basically what that is, is when you build out a dental office, qualified improvement property is basically the partitions, the walls, the ceiling tiles, the carpet, the internal makings of your office that are not structural components, structural components, plumbing, and electrical inside the walls. So they had this technical error that they never fixed. And the Republicans wanted to fix it. The Democrats don't want to fix it. Then they didn't fix it. Well, they finally fixed it. What that means is that if you have a bunch of those qualified improvement properties, you know, the internal you built out a dental office and you spent 200, 300 thousand dollars, you might be depreciating that over thirty-nine years. Scott, we can go back and file an amended return for that, can't we?
Scott Haberman, CPA Yeah, yeah, yeah. Either amended return or I think you can do a change in accounting measure. Oh yeah.. Yep. Yep.
Art Wiederman, CPA I am required to speak Internal Revenue Code Section. By law. No FDIC anyway. So. But the other thing is a court talk about a cost segregation study. And for those of you, I, I had a guest years ago, years ago, two years ago. We've been doing this podcast for almost two years now. And my friend Kurt Goudreau in Louisiana. And by the way, since I mentioned it, God bless those of you on the Louisiana and Texas coast who were affected by the unbelievably devastating Hurricane Laura. God bless all of you. Lake Charles and all those outlying cities. Please know that we're all thinking about you. The fact of the matter is, is that we have this thing called a cost segregation study. Let’s talk about that for a little bit.
Scott Haberman, CPA Yeah. Yeah. So this goes hand in hand with planning conversations. I think at least a dozen of my clients have bought a new office. Maybe they're renting before and leasing that space for a number of years. But have found a deal down the street and are wanting to move space as well, a cost segregation study... If, actually let's rewind. So if you buy a building any place in the service, you're required to depreciate that building. If it's for commercial use, over 39 years. And so, you know, that million-dollar purchase that you made this year for the building, you're going to get that deduction over thirty-nine years. But here's the thing, Art, a dollar in your pocket today is worth way more than a dollar in your pocket thirty-nine years from now. Right?
Art Wiederman, CPA Right. Right.
Scott Haberman, CPA All right. That's time value money. And who knows if we'll be around thirty-nine years. So that is what.
Art Wiederman, CPA I would be, Scott. I would be 100 years old. I want to be. I want to be remembered. I know you guys remember Willard Scott from the show. I want to be one of these guys is like, okay, yeah. Art Wiederman lives in Laguna, Laguna Beach, California. He's 100 today. He's been doing taxes for like 97 years. What do you think? Do you think that'll go over well?
Scott Haberman, CPA You were around when taxes were created.
Art Wiederman, CPA Yeah, I was. I was around 1912. Teddy Roosevelt and I were best friends. Absolutely.
Scott Haberman, CPA Got to pay for that civil war somehow. Right?
Art Wiederman, CPA That's right. All right. So costs segregation studies. Let's not get off topic..
Scott Haberman, CPA So cost segregation study, what it comes down to is that time value of money play. So when do you want to get that deduction? Well. Your tax rates high. That right now you're taxed at thirty, thirty-seven percent federal if you're in California, you're paying what, 15 percent now Art.
Art Wiederman, CPA Thirteen-point three percent if your taxable income is over a million dollars because you're paying the mental health tax. So we pay one percent of all of our taxable income, over a million dollars for mental health tax.
Scott Haberman, CPA Yeah. So you have a pretty high effective tax rate and maybe your tax rate is going to go up next year depending on what Congress and Senate and the president do in 2021. But here's the deal. Is that the dollar in your pocket is worth way more today than 39 years from now. So what it costs the segregation study is and it's completely respected by the IRS. You have this booklet that a team will provide you or whoever you hire. Eide Bailly provides a service. We have a team of, gosh, I think 40 folks now internally where this is all they do, along with energy, credit studies and so forth. There's also other firms out there that do a great job as well, performing cost segregation study. So you get a booklet that lays out, all right, here's the breakdown of the wiring that goes into the building, the HVAC, and so forth. And it's connected to these chairs, which it's a shorter year life for this. This operatory is a five-year asset, a seven year asset or so forth. So if we can get the costs of that building and break it up into buckets and we can get that costs into shorter life buckets. Well, a five-year asset, you can use one hundred percent bonus depreciation that Art and I were just talking about. And so if you use that one hundred percent bonus depreciation on those five and seven and 15, year assets and you pull that cost into the shorter life assets, you can get that deduction the year you purchase it. So if it's a million-dollar purchase, I think a rule of thumb is it's probably about a 30 percent portion of that, a million-dollar purchase that you can get. 20 to 30 percent about what I use.
Yeah, you can pull into those shorter life buckets and expense in the year of the building acquisition, so if you make that purchase this year and shoot after allocation of the land, you might have two hundred fifty thousand dollars that you can write off against your practice income. Another great way to capture some of that QBI deduction, too, if you really have a profitable practice. Yeah.
Art Wiederman, CPA And the thing is, is that this deduction is actually available if you built an office back as far back folks as 1987. Now you built an office in eighty-seven. Most of its depreciated. So you're not going to get much of your bang for your buck. But you know, you built an office out in the last five or 10 years. And, you know, let's say you're spending, you know, three hundred ninety thousand dollars on these improvements. You know, that's ten thousand dollars a year of depreciation. So maybe you've taken one hundred thousand dollars. Well, if I could move, you know, two hundred thousand dollars of that, you know, one hundred and one hundred hundred fifty thousand at 390 into, you know, writeoff-able deductible expenses. You can take a one time deduction, right, Scott? We can go back and write a file, a form, you know, to get them a deduction and they can get a one-time deduction in whatever year. And you can pick the year you want. I mean, you may not want that this year. You may say, you know what, I'm gearing up for 2021. I'm going to have a killer 2021. That's when I'm going to need it. So let's do it then. And we can pick and choose when we do that, right?
Scott Haberman, CPA Yeah, yeah. And it's not just for dental offices and commercial buildings. I mean, say you have a colleague and you just purchased a large apartment complex. Right. And it was a big, big acquisition that you're expanding your investments and you can look at it for that investment too where you can potentially lower your passive taxable income.
So it doesn't just apply to commercial buildings, it’s also any kind of real estate out there. You should take a serious look at it.
Art Wiederman, CPA Well, Mr. Scott, unfortunately, our time is about at the end. Time flies when you're having fun. I hope you enjoyed talking scintillating, amazing tax with me.
Scott Haberman, CPA I'm only in my fourth bourbon Art. I thought were going to go longer.
Art Wiederman, CPA Well, I'll tell you what. We're going to have our Academy of Dental CPA meeting next fall, and I think it's fall of 2021.
My dear, dear friend Jerry P. Samer in Lexington, Kentucky. And he said, no, Number one, we're going to a bourbon factory. Number two, we are going to an LSU Kentucky game. And one of our member firms is my other dear, dear friend, Robby Apple. And the Garran folks down there in Baton Rouge who think, thank goodness that storm missed them, but they've been kind enough to have me out twice, not once, but twice to LSU games. First of all, eating in the state of Louisiana is I mean, you should have to pay for that privilege.
It's that good. I mean, the food is that good. And second of all, those people know how to tailgate. So anyway, that has nothing to do with taxes. But hey, Scott, listen, thank you. One more time. How do we get a hold of you?
Scott Haberman, CPA So my phone number is 970.999.8932 and my email is SHaberman@EideBailly.com. Feel free to give me a shout or shoot me an email. Happy to catch up and answer any questions. So thanks for having me Art. I really appreciate this.
Art Wiederman, CPA Ok, hang on the line for a minute. I got some additional information again. Folks, I want to give out to you. Thank you so much for listening to our podcast. Our listenership has exploded. We're getting close to number one hundred podcasts. I think this is in ninety or ninety-one. I will have a surprise for you. I'm still working on it. Surprises take time, folks. Sorry, but we'll let you know. I think we've got something really cool coming up for our one-hundredth episode later this year. If you want to get a hold of me in my office in Tustin, my number is 657.279.3243 That's six five seven two seven nine three two, four, three. E-mail me at email@example.com. Go to our partner, Decisions in Dentistry website. Click on their offer for an annual membership and all of them are over 140 CE courses that you can get a very reasonable price. Make sure that you check our Eide Bailly website, check for our all the updates. I mean, we're gonna have updates on HHS and PPP. I mean, they have a marketing department, this firm that just blows my mind. What these folks do. It's really. Cool. So they've got everything right up to the date. They even have, I think, Scott, Mel Schwarz, Mel Schwarz's. We actually have a congressional lobbyist in Washington.
Scott Haberman, CPA Yeah, Mel's out there and he's on top of all of the changes and the potential changes. We have a lot of great talent kind of in our back-office who are tracking the changes that PPP and so forth. I know, Art, you did an outstanding job, over the last six months being on top of that PPP. But, you know, you're not the only one now. And I think you have a lot of folks that you can lean on. And like I said, we're lucky to have them around.Art Wiederman, CPA It's wonderful. And again, folks. Please be sure to go on to https://fundraise.michaeljfox.org/new-england-parkinsons-ride-2020/Member/MyPage/4024247/Mark-Rosen Fundraise dot. Michael J. Fox dot org. My good friend Mark Rosen from Rosen Associates out of Boston. And go to his. His email is MRosen@RosenCPAgroup.com. Mark is sponsoring the virtual New England Parkinson's Ride, which is going to be on September the 12th. Please support that. And folks, again, keep working on your dental practice. You know, you are so important, so vital. FEMA has recognized that you're one of the top professions serving America. It is so important, the work that you do to keep people safe, to keep people healthy. Don't give up on your practice. It's hard. Anything that's worthwhile is hard. You all work way too hard. And again, my saying is, folks, failure is not an option. Well, that's it for this episode of the Art of Dental Finance and Management. Don't forget to tune in on September the 16th. Go to our website, www.EideBailly.com/dentalRD. If you are interested in possibly obtaining a research and development tax credit, we'll help you out with that. But we got a lot of great and interesting topics coming up down the road. So again, folks, this is Art Wiederman. Thank you so much for listening to my podcast. And for all the great support and emails and comments you've made, it is humbling. And I hope I've been able to help you get through these difficult times. So, again, that's it for this episode for the of the Art of Dental Finance and Management with Art Wiederman, CPA. Have a wonderful week and we'll see you next time. Bye bye.