Art Wiederman, CPA And hello, everyone, and welcome to another edition of the Art of Dental Finance and Management with Art Wiederman, CPA. Welcome to my podcast. My name is Art Wiederman. I am a director in the dental division of Eide Bailly. We joined Eide Bailly in the summer of 2020. Very, very glad that I did. And as I have mentioned in previous episodes of our podcast, you're going to meet some of my friends, not only in the dental profession but some of my brand new friends that I've made here at Eide Bailly. And you're going to meet two of them today. And we're going to basically. And this podcast, you want to listen to. There may be some other podcasts that I've done. It's like, you know, Art, really, I've heard this 77,000 times. It's good information, but I don't know. This one, you haven't heard. And this one you want to listen to from beginning to end, because I am going to save you money, money from the IRS. We are going to drive the federal deficit higher than it's ever been. Folks, that's what we're going to do here. And what we're talking about today is we're talking about something called the Research and Development Income Tax Credit. And this is a tax credit, it's been a law for many years. But recently there were some changes in the law that made it very, very attractive and available to be used by dentists. And my two guests today are my team members from Eide Bailly, Joe Stoddard and Heidi Lanin. And I'm going to bring them on in a minute. And they're going to tell you everything you want to know about the research and development credit and how you can take advantage possibly of this credit. And if you're eligible for this credit, which many dentists are, some are not, but many are, it's going to save you thousands and thousands of dollars in federal and possibly state taxes. So we'll get to Joe and Heidi in a moment. Let me give you some information. If you want to get a hold of me in my office in well, used to be Tustin, but I'm walking out of my home in South Orange County, California, in Laguna Beach. My number is 657.279.3243. We've spoken to hundreds of folks all over the country and keep them coming and keep the calls coming. We want to help you get through the pandemic and get back to profitability. If you have any questions, or anything for me personally, send me an email at firstname.lastname@example.org. Go to our partner, Decisions in Dentistry. We partner with Decisions in Dentistry about a year ago, the best clinical magazine in the dental profession. Hands down. Fantastic content, great articles, updates, a great continuing education courses that they offer, they're very, very you know, they're going to help you get to where you want to be. And that's www.DecisionsinDentistry.com. Click the box and we'll get you a complimentary 30-minute consultation with a dental CPA in our ADCPA group. Go on to our website, which is www.EideBailly.com. That's e-i-d-e-b-a-i-l-l-y.com. And we have a whole section on dental. All the podcasts are there if you want to listen to them as they are on the Decisions website. And if you're looking for dental-specific CPA anywhere in the country, www.ADCPA.org. We are the Southern California member of this fantastic organization, 24 CPA firms that represent about almost 10,000 dentists now. So today we're talking about the Research and Development tax credit. And this is a credit that you would take on your personal income tax return. You could actually take on a partnership return. It can flow through to a to your personal, you can take an S. Corp return. And this is a tax credit. And let me just explain before I bring Heidi and Joe on the difference between a tax credit and a tax deduction. You know, we all like tax deductions. You know, we want to write off 180% of our car. That's a tax deduction. And if I write off a I get a 10,000 write off from my car, maybe I get 3,000 tax savings. In this credit we are going to talk about today, it's a dollar for dollar tax savings. Now, there are some adjustments that have to be made which we'll get into. But if I get a 10,000 dollar credit, I save 10,000 in taxes. So this is something that is very appropriate for all of you. And the purpose of this podcast is to let you know how it works.
So, Heidi and Joe, welcome to the Art of Dental Finance and Management.
Joe Stoddard, CPA Hello there.
Heidi Lanin, JD Hi there.
Art Wiederman, CPA How are you doing, guys?
Heidi Lanin, JD Good.
Joe Stoddard, CPA Good.
Art Wiederman, CPA So the first thing I want to do is introduce you to the audience and let you know. Again, Heidi is a senior manager with Eide Bailly. And Joe is a partner. And they both work in the research and development group. You guys have, what, 20? I think you're only 26 or 27 people that work with you?
Joe Stoddard, CPA Yep, that's right. We've got about twenty-seven folks spread throughout the country that are dedicated to working with R&D tax credits.
Art Wiederman, CPA OK. Well, and we're doing a bunch of work with dentists. But let's first find out a little bit about you. So, guys, tell us a little bit about your journey and where you came from in your career and what you've done and any other things you'd like us to know.
Joe Stoddard, CPA Yes. On my end, I started my career as an R&D tax credit specialist, and I've been doing this for almost 20 years. So I started with a large national firm for the first 14 years. And I came over to Eide Bailly about six years ago. I'm the partner in charge of our group. So oversee that group of folks that work in this area.
Art Wiederman, CPA OK, so you say you've been with Eide Bailly for six years and you oversee everything. OK, Heidi. How about you?
Heidi Lanin, JD Yes. So like you said, I'm a senior manager. I'm based here in Phoenix and I'm actually an alumnus of Arizona State University. Go, Devils.
Art Wiederman, CPA Go Devils.
Heidi Lanin, JD I'm an attorney. And I started out in tax compliance with a large firm and then got interested in R&D. And I've been doing it for about nine years now.
Art Wiederman, CPA OK. Now, you're not gonna get mad at me, Heidi, if I tell you that I'm an SC fan and I came to Sun Devil Stadium, but my best friend about 10 years ago and we watched as SC was rated number one in Arizona went ahead 20 nothing at halftime. And the natives were really, really yelling and screaming at us in our SC hats. And I was sitting next to a lady, a very, very nice lady, probably in her 50s or 60s. And she was looking at us and we were right near the SC band and they played the song, a lot.
So she says, excuse me, are you from USC? And I'm wearing an SC hat, so I said, Yeah. And she says, Can I ask you a question? Do they ever stop playing that expletive deleted song? And I said nah, pretty much not. So have you been doing SC Arizona State game?
Heidi Lanin, JD Oh, yes, we have season tickets.
Art Wiederman, CPA Oh, all right. I'm coming to Phoenix, although right now about 180 degrees where you are, right.
Heidi Lanin, JD Exactly. Maybe a 190.
Art Wiederman, CPA OK, well, I. So we will still be friends, Heidi, even though you are with another team and we're not gonna have any football this season, which is very sad, but that's the way it goes... Anyway. But we are going to save people money on tax credits. So let's start off, guys. Let's start off with a 35,000 foot view of the R&D tax credit, kind of how it works. Just kind of in layman's terms, what is it? How does it work?
Heidi Lanin, JD Sure. And you did a great job of explaining the difference between a credit and a deduction. And that's really something we want to be clear about, is that the credit really is a great incentive that you can take on your tax return. It's dollar for dollar. You know, it's been around for a while. Congress introduced it in 1981 and just for a couple of years. Then through the years and time, it's been extended again and again. And finally, in 2015, it was made permanent. So now we can definitely count on it that it's going to be there and the federal credit can be applied to tax owed. Any unused portion can actually be carried forward for 20 years.
Art Wiederman, CPA 20 years?
Heidi Lanin, JD Yes. Yes. And then also, if they don't have tax liability necessarily if they qualify, there's a few parameters and things that we'd have to look at. They could possibly use it for payroll tax, the employer's portion of the payroll tax. It's something to think about as well. So and also states offer their own credits. Sometimes those can be a little bit higher than federal. So something to keep in mind.
Art Wiederman, CPA Yeah. And a couple of things now. Wasn't it a couple of years ago that it's no longer limited by the alternative minimum tax? Is that kind of what kinda opened this thing up?
Heidi Lanin, JD Yeah, that certainly was part of the law in 2015 that opened it up, the payroll usage, and then also the AMT issue.
Art Wiederman, CPA Yeah, so. So we've talked about the AMT. The AMT guys, was a, you know, it was, it came into the law in 1969 and it was for 151 people that made over a million dollars a year and paid no taxes. And they basically said, well, we're not going to let you take all these oil and gas deductions, all this stuff. And the AMT, we're not gonna in the history of the AMT, but the AMT limited the ability for our doctors to take this. And once they opened this up, we started looking at this thing. And now it's available. And I know we did a joint case because, again, once I found out that you guys had R&D credits, that you did this, my eyes opened up because we have one of my biggest clients, I won't mention names.
Does a lot of us work. And the California credit, we have a lot of listeners in California. Guys, the California credit was actually bigger than the federal credit.
Heidi Lanin, JD Yeah, many times it can be.
Art Wiederman, CPA Wow, really, really great. So, OK, so now we can also go back based on the statute of limitations. Right. And they'll file amended returns. How does that work?
Joe Stoddard, CPA Yeah, exactly. You're you know, typically, you know, it's best to get these tax credits outside of original tax return on the original filing. But if you haven't been claiming the credit, you can certainly amend that. And the statute is typically three years. So if the first time we're working with a dentist to claim the credit, we would look at the current year and then potentially go back to those three prior years as well and amend it. It certainly doesn't make sense in every scenario to amend. You know, are there enough dollars to make the hassle and cost of amending worth it? You know, the other thing that we kind of go into on the whether to amend or not to amend is, hey, you know, when you do amend it, there's the IRS gets more involved and an amended return. Right. A human gets involved in processing that. So the question is, do you really you know, there's a potential I don't know if I call it a red flag, but I mean, the IRS potentially can ask more questions, that sort of thing. So the dentists we've worked with have kind of just been weighing that business decision of, hey, do I go back and grab those dollars from the prior years or do we let those, you know, let sleeping dogs lie in the past and just do this prospectively? But we've certainly seen different dentists, you know, either choose to do it prospectively or again, go back, go back and amend, so that option is there.
Art Wiederman, CPA Yeah. And it's like any other tax credit or deduction folks is you know, there's risk in taking a tax deduction for a continuing education trip. But, you know, it's the law is there. And we're going to talk here in a second about what research and development is. But it's you know, they made the law. They made it pretty, pretty broad. So you can go back. I mean, I did with this case that we did. It was a big one. I think we ended up, Heidi, with like close to 400,000 dollars over four years in credits, something like that. Federal and state.
Heidi Lanin, JD That's right. That's right.
Art Wiederman, CPA Yeah, it was. And when I told the owners of the business, they just like, they were very, very happy. So what I ended up having to do was the federal statute of limitations is three years from the due date of the tax return, including extensions. So it was a partnership and I needed to get that done by March the 15th. And I think I got it in. I think I got it in around the 10th of March. And then we have California, by the way, for you folks, the California statute of limitations is four years, not three. So you get an extra year for that. And so we're literally within a couple of days of getting that one in. But it was some big number. So. Let's get into the conversation of OK. What is research and development mean? I understand it's a pretty broad definition. What does that mean?
Joe Stoddard, CPA A lot of people hear the term research and development or R&D. And in their mind, you know, there's you know, the pharmaceutical companies of the world and the high tech and certainly, those types of companies are claiming R&D credits, but it is much broader than that. You know, a lot of companies we work with, you know, we work with companies in all different industries. There is a lot of technology software development. Engineering firms are claiming the credit, but a lot of just kind of what I might call low tech manufacturing companies are claiming the credit as well. So the types of companies that can claim the credit is fairly broad and the definition...We have a generic definition of R&D. And of one of the things the IRS looks at when we claim the credit and the rules that are outlined in the tax code, kind of talk about this concept of, and Art's told me to stay out of the tax weeds, so I won't use very much jargon here.
Art Wiederman, CPA You can get into the first cut of rough. I'm a golfer.
Joe Stoddard, CPA You know, but there's this concept of a business component and you can claim the R&D credit if you're developing a very new business component, or improving an existing business component. So what can that be? That can be a product, a process, a technique, a formula, an invention. So if any company, it doesn't have to be, you know, the Lockheed Martins of the world, you know, doing space research, that sort of thing, it can be much, much, much broader than that. Are you developing a new product? Are you improving an existing process? Or you're looking at a different technique, a different type of material? Those are the kinds of things that could potentially qualify at a high level.
Art Wiederman, CPA So let’s, I want to touch on because we're going to get into the dental world here in a second technique and materials. So a dentist basically learns a new way to do a full mouth reconstruction or to do a crown prep or is using a new and improved type of material even. They don't have to develop that material. They could just be using a new material, which is different. Is that the way it works, Joe?
Joe Stoddard, CPA Yeah, that's certainly one way to look at it. The other angle that we're talking with a lot of these dentists, is this whole concept of a product. Right? To the extent, a dentist is involved with designing and depending on the equipment you have in-house. You know, building a crown, a crown could be considered a product. And that crown is going to be a little different for each of your patients. Right. So designing a unique product and I'm using the product in quotes. Right. But I have that type of development and design can be very similar to what a machine shop might be doing for a part they're making for a particular component. So I guess the similarities in terms of both on the technique side but also on the product side is kind of where we draw some parallels that can certainly kind of fit the fit, the mold.
Art Wiederman, CPA OK, so I'm going to stop here because I want to give this information out a couple of times during the podcast. So I want to let everybody know and I've let everybody know in the last several podcasts that we've recorded that we have, not, well, I helped a little bit, but Joe and Heidi and their team have created a questionnaire for the dental profession. And so if you're listening wherever you are in the country, whether you're a client of Eide Bailly or not, you can go ahead and go on to our website. And so I will put this in the show notes. But I'm going to mention that the website. I want you to go to www.EideBailly.com. That's spelled e-i-d-e-b-a-i-l-l-y.com/dentalrd. So that's www.EideBailly.com/dentalRD and what you will get is you'll end up on a web page and you will be able to fill out, as I understand it, Joe and Heidi, are probably 10 minute at the most questionnaire asking you some questions about your practice and then you'll automatically be able to, as I understand it, when Mr. Wiederman is technologically impaired, is what we call it. That's why I had children to help me with this. So I have been led to believe the by the powers that be at Eide Bailly that you will be able to fill this out. Push a button that says send and it will go right to Joe and Heidi, even if, Joe, so it comes at like two-thirty in the morning. You're gonna get up and read it and make sure. Right.
Joe Stoddard, CPA Absolutely. I'll have an alarm.
Art Wiederman, CPA Okay. We'll have a lot of it will go off every single time. No, I'm just kidding. But yeah, if you want to do that, please do that. Please go ahead and go on to the website and we will take a look and see. And, you know, we'll be real honest with you this, you know, we'll talk with you and see if we can help you here. So and I'll mention this couple more times in the show notes. So we talked about research and development. Let's get into some of, well, let's get into the weeds, not the tax weeds, but the dental weeds. So we know that dentists do crowns and bridges and inlays and onlays and composite restorations and all these things. So who does this credit apply to Joe and Heidi? Is it you know, we have general dentists. We have specialists. What, who would be the best, you know, who's going to have the best shot of qualifying for this credit?
Joe Stoddard, CPA Yeah, great question.
Really, it can be either a specialist or a more general dentist. One thing we look at is just the complexity of the procedures you're working on. So if you look at maybe a purely pediatric practice that's doing a whole lot of cleaning and a whole lot of fillings, maybe some sealants, that sort of thing. Probably not a lot. Not a lot of those procedures are going to rise to the level of R&D under the tax code. But we've talked of several general practices that, you know, do a whole lot of crowns, a whole lot of bridges. And again, I kind of talked earlier about, you know, in terms of designing, there are some complexities in that. There's one of them again, I mean, some tax terms here. But, you know, there has to be some design uncertainty and some experimentation as you're designing a crown, for example. And, you know, the way that the tax regulations define experimentation is do you have a process set up to evaluate one or more alternatives? So if you're in your practice looking at the design of a particular crown, considering several ways to do that, maybe you have an in-house milling machine, run it through that as a prototype or in and do some modifications, maybe some additional grinding. You kind of go through that experimentation and design process. That's the kind of thing that can meet the definition of R&D. But again, I would say the more routine stuff where there isn't really any design uncertainty, where you're not really making a product, like we talked about earlier, those are the ones we typically stay away from.
Art Wiederman, CPA So if I got a dentist out there and they're listening to this and they're going, okay, well, you know, I'm not really sure. But, yeah, I, I play with different things and I design some crowns differently. Should they be like maybe taking some notes? Let's say they're doing a, you know, they're trying something new. They went to a CE course. And that's another thing. Folks, as you go to a CE course, you go to Kois, you go to Spear, you go to Pankey. These are the national continuing education providers that there are many, but these are just some of the premier ones. And you learned a new technique for restorations and you're trying it out. I mean, that would be a great opportunity, wouldn't it be?
Joe Stoddard, CPA Yeah that would certainly be on the list of things to consider for this credit for sure.
Art Wiederman, CPA Yeah. So if you've taken CE courses in the last one to two years and you've tried to do some things. Now what if I've got a dentist who's, they've been doing it for a while. But I mean. Well, maybe that leads us into the next question as to what kind of costs are included. So from the way I understand this credit, it's based on the amount of time a dentist spends and the team and the research and development. So what's the driver of this credit as far as the costs in this?
Heidi Lanin, JD Yes. Your wages really are the primary driver. What we do is when we start talking to you about the types of things that you're doing, determining if they're qualified or not, we want to get a sense of how much time you are spending on these activities. And we're able to develop a formula where we can see, OK, how much time are you spending on qualified activities? How much time do you spend in your practice in general. We come up with a percentage of time and that percentage is applied to taxable wages. And that's how we come up with the cost that can be claimed as part of the credit.
Art Wiederman, CPA OK. So, Heidi, so I have. And again, we can go back to the one we just did is that particular practice has about, I think, close to 30 employees. So the dental practice would have to identify I mean, let's talk about the team players. You've got the doctor, the front office administrator who's billing insurance, making appointments, doing financial arrangements. They're not really involved in this, are they? Or are they?
Heidi Lanin, JD So when we're looking at what we call direct support roles for R&D, we're looking really at like do they have in-house lab technicians? Do they have maybe some chairsides or some hygienists who are helping them in that design solution, identifying alternatives kind of process? Those are the types of things. So if someone is participating in more administrative duties, that is not really part of the technical process of R&D.
Art Wiederman, CPA So it's probably going to be a dental assistant and a doctor. I would think maybe to some extent a hygienist, possibly, a dental associate, treatment coordinator who's involved in some of the planning of some of the cases and things like that. So for example, Heidi, if I have, I mean, let's say I have a doctor who's doing, you know, two million dollars a year in revenues. The staff costs usually run, the team costs usually run somewhere around 30 percent. So they have like 600,000 dollars. So you're going to look at all this, right? So we paid 600,000 in taxable wages. You're going to look at this and you're going to go through an analysis and you might say, OK, 150,000 of this, based on my analysis and discussion with the doctor, is could qualify something like that, right?
Heidi Lanin, JD Right. Yeah. Really interviewing the dentist, figuring out what they're doing and who's doing what. Yeah, exactly.
Art Wiederman, CPA So the wages are going to come in and it's a percentage of the time that each provider in the practice spends in what is deemed to be the R&D activity. So what other costs can we look at here?
Heidi Lanin, JD Sure. So there's a couple of others. One of the ones that we see often in this industry is supplies. If you are doing some sort of new product or process or technique, there is anything tangible that you're using, any sort of, you know, if you're looking at alternative materials. If you're using them as a quote-unquote prototype or something of that nature, they're being used up in the process. Those supplies could possibly be qualified as well as if you're hiring anyone, someone in a third party who is doing testing. Something that an employee would be doing for you, except they're not your employee, they're a contractor. So those are the big top ones that we also look at.
Art Wiederman, CPA OK, so let's go back to 35,000 feet. How do we compute this credit? How does it work?
Joe Stoddard, CPA One important concept in terms of how the credits computed is it's an incremental credit. And what I mean by that is, unfortunately, you can't just look at a single year in a vacuum. So if working to compute a credit for 2020, the IRS requires, the tax code requires that we do a base amount computation and compare the current year spend to that base amount. And again, I won't bore you with all the tax details and the mechanics of how that works. But if we're going to look at the credit for 2020. Even if we don't go back and amend as we talked about earlier, we still need to go back and determine what that base amount is. Typically, that involves looking at least at the three prior years. So the first time you claim the credit. I'm not going to lie. It's a little bit of a hassle. Right. You've got to look at multiple years together. You've got to go back and put on your thinking cap to remember what you did four years ago, that sort of thing. Luckily, dentists have good records of the procedures they did and everything's so you don't have to, you know, come up with things out of thin air. But it's still a little bit of digging through records and wage data and that sort of thing. And then we'll gather the costs that Heidi was talking about, the wage cost and any supplies that we can potentially include. At the end of the day, again, kind of cutting through all the mechanics of the calculation, the actual credit amount, is typically for the federal it's usually between six and eight cents on the dollar. So if we did that, we did with it's for a dentist identified a couple 100,000 dollars of costs, the actual tax credit, you still get your deductions right we're not taking those away. But your credit on top of your deductions would be typically about 15,000 dollars, is what we find if we have a couple of 100,000 of costs. And then again, if you're in a state that offers a state credit, we would layer that on as well. And most of the states have similar incremental credit calculations that I kind of talked through a minute ago.
Art Wiederman, CPA So I could end up, if I had, you know, let's just say I had, I could find 300,000 dollars in costs. And that would be between dental team members. We get to include the payroll taxes on that, too, right?
Joe Stoddard, CPA It's just taxable wages.
Art Wiederman, CPA So just the wages. OK. And then, you know, lab supplies and other costs that we might be able to include in here. So that's 18,000 dollars for a federal credit. That could be the same for state credit. Is your experience that the state credits? I know California seems to be higher and even get on top of that. If you're an S Corporation, you get a credit at the S Corporation level and you get a credit at the personal level, which is really, really cool. But you could be looking for, if I could find 300,000 dollars of costs, we could be looking at 25, 30,000 dollars a year maybe?
Joe Stoddard, CPA Yeah, that's certainly a scenario we've seen. And the state credits do vary pretty widely. California happens to have one of the more beneficial credits. My home state of Utah, similar. Very beneficial credit. Arizona. We're all representing the states that have some of the most beneficial credits on the podcast today. Some other states like, you know, we do a lot of work in Idaho, for example. There's a state credit. It's usually about half of what the federal credit is. So, again, it's just going to vary state by state. One other thing.
Art Wiederman, CPA I want to save money. I mean, it's a lot. And so and if you go back and you amend two or three years, you could be looking at 40, 50, 60,000. And again, you know, let's be clear, Joe, because you and I talked about this beforehand. This is not for every dentist. So we want to be really clear about that, that, you know, like you say, if you have a very bread and butter practice, maybe. I don't think a pedo practice would probably be a can't. Pediatric dental handles children would have a lot unless there's some innovation that you can show us. But a prosthodontist who's doing all kinds of complex care and treatment and things like that, they might be a better candidate, right?
Joe Stoddard, CPA Exactly. And just like with everything, there's a cost-benefit here. Almost every dentist that we've talked to has some level of R&D activities. It's just a matter of, you know, we don't want to stress too much how difficult this is because we can make it fairly easy. But still, you're going to have some effort to gather some data for us. You know, we don't work for free, so we're gonna want to get paid. And, you know, if we do a whole bunch of work and there's only, you know, 30,000 dollars of costs, it's just not going to be enough. I mean, the cost of your time and our time to go and get that credit is not going to be there. So that's why we have the questionnaire that we talked about earlier so we can tell and hopefully, in a very short amount of time of, hey, is there something here to go after or is it just not going to be favorable.
Art Wiederman, CPA OK. So both of you.
How do we get ... If a dentist just wants to call you and say, hey, I want to talk about this, would be the best way to get a hold of the two of you.
Joe Stoddard, CPA So we have the landing page we talked about earlier, Art. And really there's a couple of ways. But certainly starting with that questionnaire that we've developed, there's going to give us the information we need to do that initial kind of feasibility. Certainly, they could contact us directly as well. There's no problem with that. So my email address is jjstoddard@EideBailly.com.
Art Wiederman, CPA And Heidi, what's your email address?
Heidi Lanin, JD It is hlanin@EideBailly.com.
Art Wiederman, CPA OK. And again, one more time www.EideBailly.com/dentalRD. That's where you can find the questionnaire. Fill it out. Well, it will automatically push the send button. It'll go to Joe and Heidi's team and they'll get back to you. So, let's get into the process. How does this work? How does this, what do you do? What are the steps to do an R&D study?
Joe Stoddard, CPA So, again, the question, we'll keep talking about the questionnaire because I think it's a really good way to figure out if this is feasible without spending a lot of time on your end or our end. Let's say that we do the questionnaire and you do a lot of crowns and more complex cases, and it's gonna be enough to go after.
From there, we do what we call a phase, it's a phased approach. So phase one is we'll gather some additional information. Some of your payroll data, some other costs Heidi talked about. We'll have an initial probably 60-minute discussion to understand a little bit more about your fact pattern and your practice. At the end of phase one, we'll have a very good idea of the amount of credit. And it won't be an exact fillable number, but it'll be a good estimate of how much federal and state credit. And then phase two is, once we know how much credit there is, the work that's going to be required to go and get the credit. Phase two is the detailed work to finalize all the numbers and then do the substantiation piece, right? And put together a report. The reason we do this phased approach is, you know, if it's a fairly modest amount of credit, the amount of time and effort on the substantiation piece can be fairly modest. Right? If it's a great big credit, you're going to want to have more documentation, more substantiation. More work goes into it. So we do this phased approach just to make sure the whole cost benefit is in line. And we don't, instead of diving in headfirst, we kind of wade into the process.
Art Wiederman, CPA Okay. So, again, the best way is to go to fill out a questionnaire. Now, quickly, I want to touch on IRS. So you mentioned earlier that there they tend to scrutinize this kind of thing. But, you know, and you said it might raise a red flag. But again, obviously, if a reputable firm like Eide Bailly is doing this, this calculation, you've got work papers to back all this up. I mean, it's not. I mean, this is a very legitimate tax credit that's taken all the time, right?
Joe Stoddard, CPA Exactly. This credit's been around for a long time. It's tried and true. However, I mean, again, on the other side of this, it's a credit, right? The IRS, you know, when you have credit like this and especially if it's a substantial amount of savings, they're going to want to dig in. We kind of alluded to this earlier. There are some reasons that dentists weren't claiming the credit, you know, 10, 15 years ago. A lot of it had to do with the AMT limitation. There's been some other things that Congress has done or Treasury to loosen up some of the regulations around this. So one unfortunate thing is, since really dentists started getting heavily into the R&D credit a few years ago, we just don't have that case law. Right? We don't have a court case that says, hey. And most dental practices are fairly small. There's not enough dollars to go litigate. Right. So it's very unlikely we would get a court case that would lay out the facts. So it's certainly a gray area. There's just a lot of subjectivity kind of built into the definition of qualified research. So I guess my point here is because of that subjectivity, because a reasonable person could look at a certain type of activity or procedure and argue that, hey, that meets the definition or does not meet the definition, there is that potential if you're audited. So, again, we don't want to sugarcoat this and just say it's all going to be good and a guaranteed result. That type of thing. There's a little bit of gray in the law. And therefore, if this is audited, certain auditors will be a little bit more aggressive and trying to disallow it. So we just want to be very upfront and to Art's point, the reason we do this study, we do the documentation, is so that you're ready for that scrutiny if it does come. We just want to be very upfront that the IRS may push back.
Art Wiederman, CPA And with that said, guys, here's the deal. They are the ones that made this credit, the code and the regulations liberal. Right? I mean, if they would have put in specific things that you have to do a, b, c, d, e, and f. That would be one thing. But they didn't. The law is maybe by intent, maybe by design. It is, I'm not going to say ambiguous, but it gives a lot of latitude. They made the law, right?
Joe Stoddard, CPA Yeah. I mean obviously Congress makes the law and there's the old saying what Congress giveth, IRS taketh away. Right? So there's definitely some of that going on here. But to your point, Art, the regulations come from the Treasury Department. Right? The same folks that the IRS works for. And obviously, the states have different attitudes around these sorts of things as well. So you're right. There is a lot of wiggle room with the law. And that can be a good thing and a bad thing. People always ask me, you know, what type of documentation do we have to keep for this? And I always kind of jokingly say, well, this is both the good news and the bad news, but there's no specific documentation requirement. Like you were saying, Art. There's nothing, there's no roadmap to say, hey, you must keep this type of record in this format in order to claim the credit. That's good news, because you're given reasonable flexibility to use the records you have to document and calculate the credit. It's bad news because you don't have that guide. Right? And we've certainly run into auditors that want to see records in a certain way and can be very difficult to deal with. And that's certainly not the case every time. But again, there's some potential, right, for having to kind of fight that fight down the road.
Art Wiederman, CPA Yeah, I want to get through a couple more points, because, as usual, this time flies by. So what, let's go through some of your questions on this questionnaire. I mean, maybe talk about specialists like oral surgeons, periodontists who place implants, do specialty work. What are some of these questions that the doctors should be thinking about when they, when they're getting ready to maybe fill out the questionnaire?
Joe Stoddard, CPA Yeah, there are some general questions about your practice. Right? Just type of entity, annual revenue for the practice, how many folks you have on staff, what are the general wages. And what we're trying to kind of gauge there is, is there enough volume of wages you're paying, enough volume of procedures you're doing against some of those specialist areas? Can certainly help drive some of the potentials for benefit. We also want to get, we don't have to have an exact number. But just your procedure counts, right? How many crowns to do in a typical year, for example, so we have a whole kind of section asking to list the estimate of number of crowns. We also ask. And I can kind of jump on ahead a little bit here, but just what do you do for lab work? Right. Do you have an in-house Cerec machine? Some of the practices that we've dealt with have a full-blown lab. Right? That they've just, instead of going into a third party, that can be a good fact pattern. What are some of the other technology are you using in your practice? That sort of thing. So those are the types of questions that are outlined in the questionnaire.
Art Wiederman, CPA OK. And you had mentioned CAD Cam and all that stuff, that that's going to give us a better chance because then you're designing a crown. You are the one that's making changes and playing with the margins and occlusion and all that kind of stuff so that, you know, CAD cam machine doesn't guarantee that you're going to get the credit, but certainly gives you a better shot at it, right?
Joe Stoddard, CPA Exactly. Yeah, that's what we find.
Art Wiederman, CPA So, Heidi, we did, and I want to go back to our client that we took care of. So this was a large prosthodontist practice, and they were kind of the exception rather than the rule. And like we mentioned earlier, this is no joke. We got them over a four-year period, about 400,000 dollars in tax credit. So why don't you talk a little bit about this case and what was unique about it and maybe some, this might elicit some thoughts from our listeners that, oh, I do that.
Heidi Lanin, JD Yes, sure. This was a large practice of three dentists and a lot of patients come to them for restorative care from some sort of trauma or some sort of situation that created a problem with their mouth. So this group had an in-house lab with several assistants. They had a lot of employees. I want to say a couple dozen. And so we were able to analyze what they do. And what they were doing is they would take in a client, do x rays, do some sort of, you know, testing, consultation, all that. Then they would collaborate. The dentists would go back and talk in a team with their hygienists and their assistants and their lab techs and say, OK, this is what we see. What types of devices, what types of, you know, materials and things are we going to be putting together in order to achieve the result? And that's that iterative process that we've been talking about through this whole entire podcast is there has to be some sort of identification of, well, could we try this? We're uncertain that if we try that, we'll get the result that we want.
Heidi Lanin, JD So they were really involved in the design process using their CAD cam machine and different materials, the layering of multiple materials, different adhesives, combining multiple attachment systems, a lot of that, including your crowns and bridges and things like that, but very unique practice in the sense that they do a lot of complex cases. So that was the one that you were referring to that we were we're actually able to get federal and state credits north of 450,000 for them over a four-year period of time.
Art Wiederman, CPA Yeah. And it was really fun sending those tax returns out there. Oh, here comes your first one. This is about 90,000. It was really fun. So now, Heidi, you may, I think you have another maybe another case study of maybe a smaller general practice where you might have been able to get a doctor some credits if I remember our conversation.
Heidi Lanin, JD Yeah. And this is what we see a lot is, you know, you've got two dentists, a handful of hygienists and chairsides. They purchased some, you know, that CAD machine or, you know, mill and printing crowns and bridges in-house. And so this particular practice did about 300 crowns and 300 bridges a year. And so we analyzed their time, looked at it and thought, OK, you know, what are we going to include? And we were able to actually calculate about for federal and state just for one year about 30. 30,000.
Art Wiederman, CPA 30,000. Yeah. And now here's the cool thing about this, guys. This is not just a one-time deal. I mean, we can get this credit every year. Is that correct? Until they change the law?
Heidi Lanin, JD Yeah, that's correct.
Art Wiederman, CPA So this is like I have a friend of mine, he's my golfing buddy and he's a labor attorney.
And he's got a couple of clients that just every week when we go out golfing, he'll tell me this story and that story. And I said to them, I said so now, Counselor, this is, I have a new word for you. It's called annuity. Well, this is an annuity to you guys, doctors out there. This could be, assuming that you are practicing and you, as long as you're doing the same types of practice, this could be an annuity to you. Now, so, Heidi, Joe, I want to ask you this. So the idea is it has to be innovative and new and new procedures. So if a doctor is continuing to do what they're doing a year in and year out, can we claim year in and year out new procedures? How do you look from one year to the next to the next? And do you get to the point where you say, well, OK, you've done all your new procedures and you are not qualified anymore? Or does that ever happen?
Joe Stoddard, CPA It certainly can happen. But we can also look at it, you know, year in, year out. And one thing we talked about earlier is, you know, well, first off, a couple of thoughts. For most of this, whether it's a dentist or a manufacturing company or whatever, if you're kind of in that mode of innovation, you never stop innovating, right? You're always, there's always a different type of technique or material you're going to... We typically see there's this kind of process of continuous improvement. The other angle here is what we talked about earlier of every case is unique, right? Every patient's needs are a little bit unique. So if you're kind of, your practice is coming up with some of those unique solutions, you know, what you did this year, you can't just cut and paste and do the exact same thing next year for a different patient or a different scenario. So there's really a couple. Again, not to guarantee you're going to take it every year, but it's not unusual to see a dental practice that will get to claim this credit year in and year out.
Art Wiederman, CPA So let's talk about what the dentist can do to plan in their documentation as to how they can get this credit. In other words, a dentist says, I've been to all these courses, I've changed the way I'm doing things. But obviously, I don't know how the credit works. What kind of documentation should a dentist who's listening to this podcast kind of be writing down. Should they be taking notes, like okay, this is how I did procedure A and now I'm doing it this way. Or? What can we give some pearls here as far as what they should be thinking about? Obviously, you know, if you have any concept that you might qualify for this credit, fill out the questionnaire, and we'll take a look at it. But what kind of documentation or any changes maybe they could make in their practice that might make them better qualified for this credit?
Joe Stoddard, CPA You know, I'll take a shot at this one. So really, we're not, you know, probably ask you to do a whole bunch of extra work. But, you know, you've already got records of the procedures that you're doing and the different case files, that sort of thing. So there's really two types of things that we would like to see better documented. One would be to Art's point. If you're trying out a new type of procedure, a new technique, a new material, just jot that down in the file. Right? That hey, we tried, you know, we're trying this new procedure or there's something unique about a particular case of, hey, you know, where we need to do an implant. But, you know, when there's not a this is not a cut and dry procedure right there, we have to do a bone graft or something and not sure the best way to do this, that those sorts of kind of thought process types of things would be helpful to have documented. And then from a, on the more on the activity side, from a costing standpoint, most of the dentists we talk to have a pretty good idea of, hey, if I'm involved in designing and creating a crown, that's going to be one point five hours of dentist time or whatever. So it's good that if you don't have kind of a good handle on how much time certain procedures are taking you, it would be good to start to track that and be able to... That way if we identify hey, this group of procedures and things you are working on qualifies, we kind of have a blueprint for computing the qualified wage expenses that Heidi talked about earlier.
Art Wiederman, CPA I mean, you might even consider looking at your professional continuing education doctors is, you know, you're gonna take the courses that, you know, you need to take. You're gonna take your dental practices add courses and you're gonna take whatever is required. But you might consider looking at courses that involve new and innovative procedures. So, Joe and Heidi, what if we start doing sleep apnea procedures? Dentists make mouthpieces for people who, I am when, I have sleep apnea. I happen to sleep with a CPAP machine, but you can put in a device. Would that be considered a new procedure in an office, something like that? Maybe?
Joe Stoddard, CPA Yeah. Sorry, I've been hogging the mic, so I wanted to see if Heidi wants to jump in there.
Art Wiederman, CPA She's an Arizona State fan. Don't worry about it.
Heidi Lanin, JD Hey now.
Joe Stoddard, CPA You know, the reason I'm waffling a little bit because every procedure is going to be a little bit unique. Right? So but yeah, that would certainly be on the list of things we would want. Because if there's a design of a device and a scan needs to be made, that's something that's kind of unique is built for that particular patient or that case. That would be kind of on the list of things to consider.
Art Wiederman, CPA And then doctors that use lasers. I had one doctor who told me that he can do a, what's called a gingivectomy in about a minute and a half and charge, you know, 120 dollars for it. I mean, and that's a new procedure. So anything that you're doing, anything that are our listeners are doing, Joe and Heidi, that's new, improved, requires a different modality than what we've been doing before. This could do it. And, you know, 15, 20,000 dollars is 15 to 20,000 dollars. That could fund, folks, that could fund a, you know, maybe a third of your retirement plan. That could give you some extra money in your pocket during some of these difficult times that we have and stuff. So this is real. This is something that you should all be looking at. And just get creative. Use your, you know, the great thing about dentists, Joe and Heidi, is that they are, you know, they're, we have a lot of entrepreneurial doctors, but they're very creative. You go into dentistry because you want to create, you want to be innovative. You want to make a beautiful restoration or, you know, change lives and stuff. And there's just a lot of things that I think that they do. The more and more I've been talking to you guys, that might qualify. But again, not for everybody. I want to be real clear, we might come back to you and say, nah, I'm not feeling the love here. But, you've done, you've looked at these and you've done a lot of these. And this is real money and real credits and right? So, you know. Anyway, so we're about at the time we're going to wrap this up. So let me get to both of you some final thoughts, maybe some, you know, one or two pieces of advice to the doctors as to what they should be doing. And we'll give out the information one more time on the questionnaire. But, you know, any final thoughts from you guys?
Joe Stoddard, CPA I guess I'll start. You know, as we talk through some of the things that could qualify, I would say just while it's fresh, jot down what kind of what your thoughts, your areas of your practice is involved with that could potentially qualify. That way, when you get the questionnaire and fill it out, you'll be able to document that for us. And figure out if there's a way to benefit. And again, Art said it a couple of times. So it certainly doesn't benefit every dentist, but it's probably worth ten or fifteen minutes of your time just to figure out, hey, is this worth going after? Because it can be a real, real tax savings.
Heidi Lanin, JD Yeah. And I echo what Joe says, too. As far as you know, the IRS really does look at the process of experimentation, just a fancy way of saying, what different alternatives are you looking at? So if you can identify one or more, again, jot them down. That's very important. But that process of experimentation is really important to be able to show the IRS that you're trying different things.
Art Wiederman, CPA Well, I tell you what, you guys have really brought this to a level that, if you can bring it to a level that I understand, that's always a good thing, because I'm not one of the brightest bulbs out there.
Heidi Lanin, JD But you're USC.
Art Wiederman, CPA Well, there you go. There was a thing that was out there, Heidi, was called the USC Athletic Department Entrance Exam, and I lost that. I can't find it, but I remember the first page of it.
Now, again, we have a lot of clients who are SC clients. I'm a huge USC fan. I apologize. I'm probably going to lose half my practice from this right now. And I'm going to get some e-mails, some nasty emails from my SC people. But I am a huge SC fan. But this could be any college. I actually saw one that was also Florida, I think it was. So page one, it was a picture of a mouse and a picture of an elephant that said circle the one that's bigger. So, you know, they pick on the athletes all the time. Anyway, listen, you guys have done a great job of laying this out for our listeners. Really appreciate it very much. One more time. Give out your contact information and I'll give out the website. Then we'll wrap this thing up.
Joe Stoddard, CPA The best way to reach me is my email jjstoddard@EideBailly.com.
Heidi Lanin, JD And you can reach me at my email on hlanin@EideBailly.com.
Art Wiederman, CPA And again, if you would like to participate and I mean there's no cost to you. We'll take a look at this for free to see if you qualify. Go to our website at www.EideBailly.com/dentalrd.
You will find the questionnaire, fill out the questionnaire with whatever information they're asking for. Obviously everything that you send to us is confidential and just pushes the send button and we'll, Heidi and Joe and their team will take a look at it, and one way or another, you'll get back to them, right?
Joe Stoddard, CPA Absolutely.
Heidi Lanin, JD Yes.
Art Wiederman, CPA Well, guys, thank you so much for your time and your expertise.
I mean, this is one of the great things about our firm that we do and the fact that we have this capability of doing this and helping hopefully lots of dentists run-up the federal deficit, as I said earlier, is a pleasure. Let me give you out my information one more time. My phone number in Southern California, 657.279.3243 or awiederman@EideBailly.com. Look on Decisions in Dentistry's website www.DecisionsinDentistry.com. Again, fantastic clinical content, fantastic continuing education courses, cutting edge stuff. I mean, I look at it every month and there's always great new articles. Go to our website www.EideBailly.com. We have a dental page that's bringing all the newest updates. I write some of it. Some of the other folks write some of it. I know that, I think Joe and Heidi, I think, didn't you guys put an article out on our webpage recently or on this?
Heidi Lanin, JD Yeah, we did.
Art Wiederman, CPA So there's something there. And then again, if you're looking for a dental-specific CPA anywhere in the US www.ADCPA.org is where you want to go. Go to the member's link and look up the state. And there they are. There we are. So anyway, Heidi Lanin, Joe Stoddard, great information. Thank you so much for taking your valuable time today to talk. And hopefully, we can get some dentists, save some dentists money, maybe in time for the holidays. It's been a very, very challenging year for all of us. This might be a nice little something. Pay for some. holiday presents or something? We hope. Thanks a lot for your help, guys.
Heidi Lanin, JD Thanks for having us Art.
Joe Stoddard, CPA It's been a pleasure. Thank you.
Art Wiederman, CPA All right. And that's it, ladies and gentlemen, for this edition of the Art of Dental Finance and Management. Please tell your friends about our podcast. Send them the link. You know, just tell them they can go on to Apple or their Android and they go to their podcast app and just put in Art of Dental Finance and Management and you'll find it. You can subscribe to the podcast every week. Listen to it. We've got a lot of great guests. As I mentioned, we are now in the 90s as far as how many episodes we've done. I am working on a very big surprise episode for episode number 100, and I do not have it confirmed yet. But if I do, I will let you know in advance so you can listen. And like I say, that's... Please tell your friends and remember my five-word adage for 2020 - failure is not an option. Work on your practice. Work with a consultant. Have empathy towards your patients. We're all in this together. We are all going to get through this. And God bless every single one of you. And thank you so much. And bye bye now.