Taxation is one of the most complex issues businesses face, including dentists. This is especially true for mid-sized business owners who are not always well-represented before Congress. Art speaks with Eide Bailly Director of Legislative Affairs Mel Schwarz, JD, CPA, in this episode of The Art of Dental Finance and Management podcast.
In his unique role based in Washington, D.C., Mel spends his time working with members of Congress, as well as influential individuals at the Treasury and IRS regarding new and pending tax legislation. He is dedicated to keeping business owners informed on legislation updates that could affect owners as well as helping them make their concerns and needs heard by the right people.
In light of the recent election, Art and Mel discuss the relevant legislative issues that could affect dentists and their tax planning:
- What provisions of President-elect Biden’s tax plan may be implemented?
- Updates on pending PPP legislation.
- Potential changes to tax policy and law if:
- The White House and both houses of Congress are controlled by the Democrats, or
- The Senate remains in Republican control
- Possible overhaul of healthcare legislation and the Affordable Care Act.
Reach out to Art if you have any questions regarding dental finance and management for your dental practice. More information about the Eide Bailly dental team can be found at www.eidebailly.com/dentist.
Are you prepared for year-end tax planning? Our dental-specific CPA team is here to help.
Show Notes and Resources
- Eide Bailly’s Dental Practice
- Eide Bailly’s Director of Legislative Affairs
- Decisions in Dentistry magazine
Art Wiederman, CPA And hello, everyone, and welcome to another edition of the Art of Dental Finance and Management with Art Wiederman, CPA. I'm your host Art Wiederman. I am a dental specific CPA. I have been a dental specific CPA for, last time I checked, a little over 36 years. I am now a dental director with the wonderful CPA firm of Eide Bailly.
And we're recording this podcast on Wednesday, November the 11th. So you might have noticed, folks, that we had an election last week. You might have heard a little bit about it on the TV and the radio and reading about it on the Internet and all this stuff. And there's a lot of stuff going on. So I thought it was appropriate. And, you know, one of the great things about working with Eide Bailly is they have resources that I, again, I've been with the firm three and a half months and I'm still learning about what these guys do.
And several months ago, when we were doing webinars for dentists on the PPP, I met Mel Schwarz. And Mel is the Director of Legislative Affairs for Eide Bailly. And I'm going to introduce him in a minute. But Mel lives in, we'll call it the Beltway, I believe. And he is every day of his career, he's talking to people at the Treasury and SBA and congressmen and senators and staff people. So Mel is about as good of a resource as I could ask for to devote to this edition of The Art of Dental Finance and Management, which is OK. Now we have an election. It's not a 100 percent done, but what is it going to mean for tax legislation? What is it going to mean for dentists? What's it going to mean for PPP? So we're going to talk about all of that today. I want to do a little business first.
First, I want to share my, you know, information about our wonderful partner, Decisions in Dentistry magazine www.DecisionsinDentistry.com, fantastic clinical content, an advisory board, second to none in the dental profession, great continuing education courses, for example, Diagnosing Benign White Oral Mucosal Lesions is one course they have. Clinical Considerations for Drug Interactions and then Basic Concepts of Green Dentistry. I thought teeth were white enamel, but I guess there's some green stuff going on, but they've got great courses on all of that. Go to their website www.DecisionsinDentistry.com.
And if you want a complimentary consultation with a member of the Academy of Dental CPAs, just click on that. We'll get that taken care of for you. And if you're not a member of the, if you're not working with a member of the Academy of Dental CPAs, Eide Bailly is a member of the Academy of Dental CPAs. We work with about close to 800 dentists in our firm. You should be working with one. That's www.ADCPA.org.
And today, the 11th, came out my 100th podcast. And it is a wonderful interview with the Executive Director of the American Dental Association. You should be seeing, I believe something, a blurb about it in the ADA news and on the ADA's social media. But if you go on to Eide Bailly's social media places, I guess you would call it, which is Twitter, Facebook and Linked In. And you like us or you go on to our website, www.EideBailly.com and you check in, you basically subscribe to the podcast, which you can do by going to the Industry link and then the Dentistry link. You will be in the running, which we will announce on the 18th of November, a week from today, for a $100 Visa gift card. So if you like what we're doing and you like the interview, we'll send you out to a nice dinner or something like that.
But anyway, one more thing I want to remind you of is the Research and Development Tax Credit is a big deal for dentists now. And Mel and I are actually going to talk a little bit about that today. But we have a landing page on our website, which is www.EideBailly.com/dentalrd. And if you do any kind of innovation or new procedures or processes in your dental practice or practices, great for prosthodontics and periodontists, oral surgeons and general dentists that are doing advanced work, which many of you are doing, click on to that link. We'll give you some information and you can fill out a questionnaire and our R&D team will let you know if it is if something is going to work for you.
We've had dozens and dozens of dentists from all over the country from the podcast who have done that, and we're engaging, and we are increasing, like I say, the federal deficit as we speak, which is something that Mel loves to hear about. So without further ado, let me introduce my friend, Mel Schwarz, Director of Legislative Affairs at Eide Bailly. Welcome to The Art of Dental Finance and Management.
Mel Schwarz, JD, CPA Thank you, Art.
Art Wiederman, CPA Well, thank you, thank you for being on and so you're in Washington. In fact, when we record these, we record these on Microsoft Teams and I see the background of the Capitol building behind you. So not much going on in the Beltway this last week. Not much. What's life been like in Washington, D.C.?
Mel Schwarz, JD, CPA It's been kind of uncertain. People are trying to figure out where the election ultimately is going to go. A lot of feeling I think that the major networks probably have a higher likelihood of having called this, and the complaints from the other side. But nothing is decided yet. We're going to have some recounts. And so people are kind of trying to think about how does this develop out if Biden is actually the President Elect or if President Trump retains his job. And there's some very, very different results and very, very different avenues that people are going to be exploring, depending on which way that goes.
Art Wiederman, CPA We're going to talk about that. So a little bit about Mel, then I'm going to let him tell you his story. Mel, like I said, he's the Director of Legislative Affairs for Eide Bailly, which means he's talking to people all the time and he's not a, you've heard me refer pretty much every week to my good friend Megan Mortimer, who is actually a congressional lobbyist. She goes and she lobbies for the, you know, what the American Dental Association is hoping to accomplish through legislation.
Mel is involved in legislative affairs. So he's going around Washington and seeing, I'll let him tell you more about what he does, you know, what does legislation look like, how is it going to affect our clients and all these things. Mel was the chairman of the Tax Legislation Committee of the American Institute of Certified Public Accountants. He's a CPA and a JD and as I've said with many of our guests, probably way too smart to be on this podcast, but we let him on anyway. Right, Mel?
Mel Schwarz, JD, CPA I appreciate it.
Art Wiederman, CPA So tell us about your story and your journey and your career and then we'll get into our topic.
Mel Schwarz, JD, CPA Oh, like a lot of people that came to Washington for one year. I got here the day that President Reagan signed the 1984 Tax Act. And like a lot of people who come to Washington, I just never went home. My excuse is I married a local. So and then I was fortunate enough to work on Capitol Hill for six years as the staff of the Joint Committee on Taxation, which gave me an opportunity really to become involved with the legislative process, particularly to become involved in the trying to figure out how to make the ideas that are put forward by the politicians. How do you make that work in real practice? What does it look like when you have to implement that? What does it look like when you have to report that?
Which is an area that I think Congress is not always completely comfortable with, is completely knowledgeable of, and that really leads into, I think, what is the key to the position that I hold with Eide Bailly, which is to be able to convey some of that information and some of that knowledge that we as accountants put together to the staff and to the members in Congress who may not have quite as a relationship with the realities that their tax provisions create.
Art Wiederman, CPA So when you're talking to people, Mel, about tax law and stuff, you're not as much trying to influence legislation as much as you are trying to maybe educate some congressmen and senators and staff people, given your CPA knowledge, because the lobbyists are not really CPAs. They are, you know, they're lobbyists, right?
Mel Schwarz, JD, CPA They are lobbyists. But things move across. Things move across the line. And certainly I hope that some of the information that I can bring that's based on the knowledge that Eide Bailly and the professionals at Eide Bailly have developed, that influences how the legislation is ultimately written. And, you know, maybe in some issues that we might get into discussing later today, perhaps can derail some of the worst ideas entirely.
Art Wiederman, CPA Okay, well, that's a good introduction. So let's start kind of talking in general terms, then I want to get into some of the weeds about what might happen with tax legislation, how it's going to affect dentists. Let's start off.
You know, so given the election results and where we are, and again, folks, I really, really tried to not get into politics and Mel and I will not do that today. Even though he lives in the place that politics lives and breathes I guess. What we have right now is we have a, as Mel said earlier, the presidential election was declared for Vice President Biden. President Trump has not conceded. He is going down the road of court challenges and we'll see where that goes. I did read this morning, Mel, that the Alaska Senate race was called. So it looks like the Republicans have 50 senators. The Democrats right now have 48 and we have two runoff elections January 5th in Georgia, which we'll talk about. So, and the House has pretty much stayed Democratic, I think, about a 15-person majority.
So with all of this, we've been talking about a stimulus package. I know that senator, that Chief of Staff Meadows and Mnuchin and Nancy Pelosi have been talking, but nothing happened. Do you see a stimulus package happening at all before January?
Mel Schwarz, JD, CPA Well, I see a stimulus package happening, Art. Whether it is before January or not, I think is an open question. Clearly, there is going to be a lame duck session of Congress. In fact, they have already started the lame duck session. Senate held votes yesterday. They're going to hold votes tomorrow. But whether this is something that can get done between now and the end of the year, or whether it's something that falls over into, let's say, early, late winter or early spring is very much up in the air at this point. We really don't know, what the real. As we go through the process of dealing and trying to settle out the presidential election, we don't know how that is going to affect relationships between the parties in Congress.
And until we begin to get a sense of what's going to happen in those two runoff elections down in Georgia, and those are not scheduled until the 5th of January. So that raises some questions as to what position each of the parties is willing to take, and at least at the moment, it looks like that the Trump administration is stepping away somewhat from the negotiations and is going to leave that to Senator McConnell and the Senate Republicans to handle the Republican end.
And, of course, they were much less open to a large package then the administration was. And so now we find ourselves in a situation where the House Democrats are at a relatively high number. The Senate Republicans are going to be at a relatively low number. There's a lot of space to bridge between the two. If they don't get it done in lame duck, and any time you're in lame duck, there is a tendency to say, let's do what we absolutely have to do and then go home.
Congressmen love to go out on recess. It's like third grade, they get stuff done and that means you get to go to recess. So that is, and what they have to do is do something with respect to the spending bills, whether it be another continuing resolution or whether it be completing the spending legislation by the 11th of December, or the government shuts down. Well, once they kick that can down the road, then there's going to be an enormous temptation to say we're ready to go home, particularly among those members that may not be coming back next year.
Art Wiederman, CPA I tell you what, instead of going to recess, I think they all need a time out. They should all be put in the corner and given time out. And I'm probably not the only one that feels that way. I mean, it's you know, we can get into all kinds of discussions about the fact that the people in this country are in need. And, you know, let's just hope that whatever administration takes over first, second, third week of January, that they're going to do a good job for the American people. It's all we can ask for.
So I want to get into some of this about the Paycheck Protection Program. I've been talking about this for eight months. And I told a story on the podcast a little while ago that I went out with some friends and they all said, you're not going to talk about business. And I said, great, if I mention anything with the letter P in it, hit me or throw me off the boat or something because I've been living and breathing PPP.
So the big question that we have for the dental profession and that I'm doing dealing with in our year end planning meetings and our members of the Academy of Dental CPAs and everybody else we deal with, Mel, is at the moment the Treasury came out with notice 2020- 32 which basically says that if you receive forgiveness on your PPP loan, you are going to not be able to deduct the expenses associated with that.
And that came out in May when everybody thought there was going to be an eight-week covered period and when they thought that everybody's forgiveness is going to be taken care of in 2020. And that would be a wash because you would get the forgiveness, that's not income. Then you don't get the deduction and you're no better or worse off. Well, now we got forgiveness is 24 weeks. We've got it covered period is 24 weeks.
We've got forgiveness that is and filing for forgiveness is 10 months after that. So most people aren't going to be getting forgiveness until 2021. So we have that issue. Do you get any feel from Congress as to whether they're even going to give us some guidance as to how to deal with that any time soon?
Mel Schwarz, JD, CPA I think if Congress gets its say, Congress is going to say you can deduct it. That clearly was their reaction when the original announcement from the IRS came out. This is not a partisan issue. I mean, both sides made it very clear that they thought was that this really was tax free money. Or, this this was free money to the extent that the debt was forgiven. So I think there is a very good chance that when we ultimately see in the next round of stimulus legislation, we're going to see a provision in there that says you can, to the extent you are spending money that was from a forgiven loan, if it was for something that's deductible deduct it, if it's for something that has to be capitalized, capitalize it, but you get to take that amount into account.
Now, if Congress doesn't say that, I don't think the IRS is likely to give us any break on this. They definitely feel that they've got the answer under the current law and they're going to stick with that position until Congress does something else.
Art Wiederman, CPA So here's the 64-dollar question for you. I understand that. And you're absolutely right. Now, you know, you've been a tax guy a long, many, many years. You're a CPA, you understand tax matters better than most. I like to think that I do, too. In my mind, and what I've been telling clients, is that for 2020, you don't have forgiveness, you don't have debt forgiveness that is being excluded. Therefore, you have a loan like anybody else. There's no guarantee that you're going to get forgiveness.
I've had two clients literally email me and say, Art, I'm afraid that with all the uncertainty, they might just pull all this forgiveness out from underneath us. I don't think that's going to happen. But who knows? So in my mind, I've got deductible expenses for 2020 and then in 2021 I either have to take that amount as income when I get forgiveness or I have to file an amended return. I mean, that's what I've done is like, okay, Mr. Mnuchin, if you want to keep your law that way, that's great. But tell us how to handle it. And you don't see anything coming out of Treasury about that?
Mel Schwarz, JD, CPA Not at this point. It might well be now. If In fact, the president has been reelected and Mr. Mnuchin remains in charge of the Treasury Department, then I think he might consider that. If it turns out that Joe Biden is the new president and we have a new secretary of the Treasury sometime in February, a new acting secretary, sometime in February, maybe we then see some guidance. But I don't see the IRS taking us off the hook right now. I think we're going to have to make a decision on our own.
Now, as you say, you look at this and you say, well, if it's not been forgiven, if I haven't applied for forgiveness, if I haven't been told I'm forgiven, then it's not forgiven as of that date. So, yeah, I might have to go back and take it into income in 2021
Art Wiederman, CPA And that's what everybody is, you know, guys got a $90,000 loan and you use that money in the 24 weeks and you paid your payroll and your rent and utilities and interest all at legitimate tax deductions for your dental practice. You know, we're basically saying, what I'm even doing with these clients is saying, OK, here's what it is if you get to deduct it, here's what it is if you don't get to deduct it.
You know, I use the analogy and I've done this in my lectures is that, you know, it's the same as the state dental board of California going to one of my clients and saying, okay, you can do a crown, but, you know, we're not really sure what impression of materials to use. And we're really not sure what your margins should look like or whether you should use porcelain or zirconium or whatever. And that's how we have to tell the patients about. It's the same thing with us. We don't know the answer, so don't shoot the messenger. That's why it's so important for all of my listeners to go and meet with their CPAs before the end of the year. You know, absolutely meet with your CPAs and see where you're at, see what your choices are. This is a year like no other.
Alright, we've also been talking, Mel, about legislation around the Paycheck Protection Program, about the fact that, we've also heard about a second round of PPP, have you heard anything They get 130 billion dollars left that they haven't spent. What are you hearing about a second round of PPP?
Mel Schwarz, JD, CPA Well, again, assuming that we do get another stimulus bill, then PPP, both the money that has not yet been spent and probably some additional money is likely to be in a brand new round of PPP loans. Now, those loans may have, Congress is still a little leery about some of the newspaper reports that came out about people who got some of the original money. So I think we're likely to see maybe a little tighter rules. I don't know that that would necessarily affect this industry or maybe some of the very, very, well, maybe some of the very, very large conglomerates, but certainly not the independent office. I think we're going to see, I think we're going to see more PPP money. We're going to see more opportunities. And hopefully we would get it right with regard to deductibility of any forgiven amounts.
Art Wiederman, CPA So what you're saying is my nightmare is not going to end sometime in 2021 maybe.
Mel Schwarz, JD, CPA No, no, no, that's not it. I mean, it's not a nightmare. Any time the government wants to send you some money and may not ask for it back, I think we should take them up on that.
Art Wiederman, CPA No, no, no. I totally, totally agree.
I know they softened the, about two weeks ago. It was interesting. SBA did this, Congress didn't. They came out with this new Form 3508S, which said that if you had 50,000 dollars or lower PPP loan, that you basically don't have to worry about having the same number of full time equivalent employees or having the same, having not reduced salaries by more or hourly wage by more than 25 percent. So you can ignore those rules as long as you spent 60 percent of the money on payroll, you're golden. And here's your golden ticket. Get out of jail free. I know there's been conversation about expanding that to 150. Megan from the ADA was even saying there's about 175 billion. I'm sorry, 175,000. Again. Do you hear anything about that or is that going to the same bucket of we'll have to see.
Mel Schwarz, JD, CPA There's going to be a lot of pressure and that's one that I think that the SBA is likely to, certainly Congress would hope that the SBA deals with that one themselves and Congress doesn't have to get involved in it. The small banks are who did an awful lot of the PPP work, are pushing very, very hard to get that 50,000 dollar number kicked up because of the difficulties that are going to go in just filling out the forms to ask for forgiveness. If you're actually have to go through and you have to prove all those items.
So I say I'm optimistic that we're going to see that number go up. Does it go up as high as everybody would like? No, probably not. But again, this may be another reason to hold off filing until January. Not only does that take away some of the pressure of are the expenses deductible or not in 2020, but, you know, also maybe get let's give the SBA a chance to push that number up a little bit.
Art Wiederman, CPA I'm guessing you talk to people at the SBA occasionally. I'm hearing that they are just swamped, overwhelmed by this whole PPP program and then EIDL. Is that the case?
Mel Schwarz, JD, CPA They would like to kick that number up and they would love to say, you know, we don't want it. We don't, we're not interested in your information. And, you know, actually, you look at some of the things that they put out so far and it's all, well, keep these records, but don't send them in. So consistent with that, I think that, you know, again, that becomes a, they're overwhelmed and they're going, they need some way to cut down the number of items they need to review. And certainly kicking that 50,000 dollar number up is a very good way for them to do that.
Art Wiederman, CPA Mel, it remains to be seen. A couple other things before we get into kind of what happens, depending on what kind of government we have and the Biden tax plan, which we're going to spend a lot of time on today. So, you know, we're in a pandemic. The economy is I mean, it's recovering. I mean, it's hard for it not to recover. It was just decimated in March, April and May. Do you hear any conversation Mel about the potential of maybe doing what they did, you know, in 2021 what they did in 2020 which is to put off the tax filing and the tax payments? They did that from April 15th to July 15th, maybe eliminating some underpayment penalties and trying to be kind to the taxpayers. Or do you not hear any of that?
Mel Schwarz, JD, CPA The thoughts about that are out there. I think it's a little premature to say whether that's going to come about or not. I guess people are going to be thinking about that January 15 estimate and how careful they need to be with that. But again, I think this this is the kind of thing that tends to get caught up in the transfer of power. We don't know whether the current Treasury and IRS leadership stays in place. We don't know whether a whole new leadership comes in. And it may be that, I think this will be considered as we get closer to March 15 and April 15. Whether they will get to it before then or not, I really can't say. They're aware of the issue, but it's not the number one thing on their plate.
Art Wiederman, CPA Okay, well, that's all great information Mel. And I want to get into now is, we were I guess, everybody was hoping, whatever the result was, that the result was going to be definitive and finished and done, maybe not on November 3rd, but a couple of days afterwards. That has not happened. So we kind of have to do some what ifs here. Okay, so number one, if there's going to be a change in tax law, Mel, you've been around the block once or twice like I have. So let's say that there's tax legislation next year, okay? And rates go up and things like that. We're going to get into the Biden tax plan in a second.
What do you think? I mean, are we going to get, I don't think they're going to pass a massive tax bill on January 20th. I don't think that's going to happen. You and I were talking yesterday on the phone about maybe later this year. What are you, what are people, I know they're all obviously everybody's concerned with the coronavirus. Everybody's concerned with the election. Everybody's concerned with who's going to be in control of the White House and Congress. So maybe there's not a lot of conversation about taxes right now. But I mean, if there's going to be a big tax bill, when do you think they're going to get to it?
Mel Schwarz, JD, CPA That depends entirely on who's in the White House and probably who controls the Senate. And that Senate the Senate really is the big question as I said before. The runoff in Georgia is not scheduled until January the 5th. So we don't know how that's going to play out.
Art Wiederman, CPA And the because right now, the Democrats, in order to get control of the Senate, would have to win both of those elections because then we'd have a 50 50 tie. And that tie is broken by Mr. Legislative Affairs Director, broken by whom?
Mel Schwarz, JD, CPA The vice president. And who's going to be the vice president?
Art Wiederman, CPA Well, I think Stuart Dominion maybe. I don't know. We'll see. So, okay. So with that said, let's kind of talk about some scenarios here. So and first of all, before we get into scenarios, let's talk about, okay, let's say that we end up with a, you know, a Democratic president, a Democratic House of Representatives and a Republican, albeit by no more than a majority of two because right now, if that were the case, if the Republicans won both the Georgia seats, they would be at 52-48, which is one less than they were before the election. It was 53-47. So if we end up with a mixed bag here and again, it doesn't give Joe Biden a complete road to all of his plans, how does that work? In other words, you know, do you get two or three senators from the Republican side that might flip over and then maybe Joe Biden does get his tax plan? How do you see that working?
Mel Schwarz, JD, CPA Well, there are lots of barriers to anything that looks like a significant tax package if the Republicans continue to control the Senate. The rules in the Senate are that in order for, well, two rules, one, in order for the Senate to take a vote on something, you normally need 60 senators to agree to take the vote. Well, my guess is we can find 41 Republican senators that will vote not to take a vote on a tax bill. Now, there are ways around that. There are, it's possible to use a kind of discharge provision. There is, alternatively, a technique that is frequently used, which is to wrap the tax bill inside of what's called a budget reconciliation bill. And this allows you to avoid that 60 votes.
But you still have to get the legislation to the floor. Who controls the floor? The majority leader controls the floor. And while I would certainly not expect Senator McConnell, if he continues to be the majority leader on the Republican side. And actually I think they have already voted if he will be the majority leader if the Republicans retain the majority. He will not prevent any Democratic legislation, but certainly if he decides I don't want to take a vote on Republican, on Democratic tax legislation, then I'm not going to take the vote. And he can effectively stonewall the whole thing for the next two years.
Art Wiederman, CPA And again, not getting into politics. But since Senator McConnell controlled the Senate, that is why they were able to confirm Amy Coney Barrett as the Supreme Court justice in such a record amount of time because he controlled the whole process, right, wrong or otherwise.
He controlled the whole process. Right. So basically, it means that Joe Biden is going to have a lot of say and a lot of umph and pressure to do it. And that doesn't mean that you can't get one of the senators or two of the senators to say, you know, I think we need to do this. And then, you know, who knows? But we'll have to see how that works. So let's get into this Biden tax plan.
If it turns out that, you know, because this is what he's talking about. Number one, and this is more on the economy, Mr. Biden, Vice President Biden is talking about increasing the corporate tax rate from 21 to 28 percent. And you and I chatted a little bit about this yesterday. What does that do to the economy? What does that do to, I mean, it affects the stock market. It affects corporate earnings. How do you see that coming down? And if we have the Democrats in control, do you think it'll go to 28?
Mel Schwarz, JD, CPA No.
Art Wiederman, CPA Oh, okay.
Mel Schwarz, JD, CPA That is the right answer? No, I don't think so. There is an enormous amount of concern on the part of the, what's looking to be the Biden transition team of putting through anything that looks like a across the board tax increase. Certainly while we're still fighting the COVID wars and we're still trying to bring the economy out of the COVID recession. Could they pass something that, let's say, maybe triggers in the future? Maybe at a rate lower than 28 percent, you hear 25 percent mentioned, I think that's a possibility.
But I think equally likely is that, I don't see an increase in the corporate rate for 2021. Let me just put it that way. Now, keep in mind, typically, when we have an increase in a rate, either it's effective the date that probably the president signs the legislation or it's effective as of the beginning of the next taxable year. So in this case, I think they would make it effective as of the beginning of the next tax year. They might even kick it out and say it's not going to be effective until 2023.
Art Wiederman, CPA So this is an important point. So let's think about it this way. You're a dentist and you are selling your dental practice. You're a dentist and you're selling a piece of real estate. You're a dentist and you have Apple stock that you've held forever. And you want to sell it because you want to do something with that or invest or whatever. So in the Biden tax plan, any capital gains of over a million dollars, if your income's over a million dollars, your capital gains rate would go to the 39.6 percent rate. So, you know, this is something, folks, that you might want to think about, Mel and certainly, I want your take on this, is if you're in the process of generating a significant capital gain this year, the likelihood that they'll raise the capital gains rate retroactive back to January of 2021, probably not very good, right Mel?
Mel Schwarz, JD, CPA Correct. Not very good.
Art Wiederman, CPA Well, and again, never say never. But then. But then what happens is, is that, you know, maybe you have two, three, four months. So the bottom line is, we have actually several dentists in our CPA practice that are selling their practices and we are pushing like the dickens, because they are all petrified to put that gain into 2021. So we're closing in 2020.
And so that's something. And that would be a big deal, especially for larger clients, you know, people selling businesses. But again, mostly real estate stocks, whatever. You know, you get a gain from the sale of a partnership interest. Who knows? The other thing that's interesting in the Biden tax plan is that it has this Social Security donut hole provision. So what it says is that right now, when you pay Social Security taxes, up to, you pay up to 12, you or the employee pays 6.2 percent, the employer pays 6.2. If you're a dental practice, you're both the employer and the employee if you own the dental practice, and that goes to a maximum of 137,700 dollars. And then you don't pay Social Security taxes anymore. You pay Medicare tax. If you make a zillion dollars, you pay in on all of that. That doesn't change.
So under the Biden tax plan, he says, okay, after 137,700 and up to 400,000, no more Social Security tax. But anybody who makes more than 400,000 anything over that, he would they would pay the 12.4 percent. I mean, do you see that possibly going through if this, you know, in a law?
Mel Schwarz, JD, CPA I think it's doubtful. There are lots of reasons, not the least of which is under the current rules, you can't change Social Security under budget reconciliation. Which means that their path to say, and this becomes, I think, much more of an issue if we now assume that the Democrats win the two Georgia seats and are able to win the two Georgia seats and are able to take control in the Senate. If the Republicans have control in the Senate, I simply cannot see this coming up for a vote in the next two years. And even if the Democrats have control there, I think it's going to be enormously difficult for something like this to move. You can't include it budget reconciliation under the current rules. And this is, I mean, this is this is a huge item.
This is much bigger than increasing the tax, the income tax rate. We're going to pay an extra. And if you put this in combination with the 39, because the mentioned there we should is that there is a proposal, there's another proposal that would take the regular income tax rate up to 39.6% for amounts in taxable income in excess of 400 grand. You put that together with this and if you're talking about a multi-million dollar item, two million dollars that's going to fall into otherwise self-employment income. You're talking about a rate that's going to get close to 50 percent. That is, I mean, I think, now we're beginning to talk about numbers that really get people's attention. But again, playing with Social Security. And here's another reason. I think we all know that at some point we're going to have to restructure Social Security.
Art Wiederman, CPA Well, I will tell you Mel, that, I will tell you, nobody in Washington talks about our debt. We're now pushing close to 30 trillion. I mean, there will be another stimulus package. I don't think that this government has a choice, whether it's a scaled back version that's negotiated between Mitch McConnell and Nancy Pelosi in the White House. I mean, I don't know what's going to happen, but this debt is just frightening to me. I mean, do they talk about any of this on Capitol Hill?
Mel Schwarz, JD, CPA Yes, they do. And in fact, the Congressional Budget Office produced a report, I believe it was at the end, or in the middle of October because it goes through the end of September with their numbers, that really show some fairly horrifying things with regard to what the debt is likely to be, what is likely to grow to in the next, let's say, 30 years. The highest we've ever had in this country is a debt equal to 100 percent of the annual gross domestic product. That was the height of World War II.
If we stay under the current schemes. Don't change anything in the law, allow things to expire. Don't pass an additional stimulus bill. We're already looking at a situation where by the end of the 2040s, we would be at 200 percent of estimated gross domestic product. And this is, I mean, and they were getting ready to kick Greece out of the EU for less than that. So at some point we're going to have to come back and we're going to have to look at a lot of these things, which is another reason why I don't believe the donut hole Social Security thing can be included in any sort of tax reform because it's going to have to be saved for when we restructure Social Security. And that is just the nature of the beast.
Art Wiederman, CPA Yeah, well, and unfortunately, I was talking to my wife about this and about the budgets and everything and it's like. Was it 40 or 45 percent of our federal budget or entitlements, something like that, Mel? It's got to be close, maybe?
Mel Schwarz, JD, CPA It's got to be close. If not more. And the issue, actually the issue is here is not so much as that. But when we get into the, and I'm going to flip a few pages here because I've got something I can look at, when we start the CBO, when we start talking about how far we're going out, in 2019, roughly eight percent of federal outlays went to interest, because the deficits we're running, their estimate in 2050 is that 26 percent of total federal outlays will go to interest.
Art Wiederman, CPA Well, it's a math problem. I don't want to go too far down the road on this because we could spend hours talking about it.
Mel Schwarz, JD, CPA Oh yeah. I can come back. We can talk about this another time.
Art Wiederman, CPA Oh, no. You and I are going to talk some more. So let's talk about some of the things my dentists are looking at doing at the end of the year. We have 100 percent bonus depreciation. Anything in the Biden tax plan or anything you see down the road, any reason, because, you know, I mean, I'm telling clients if your income is going to be higher next year and maybe you're going to be in a higher tax rate, maybe you want to defer your equipment purchases. But do you see anything down the road that might eliminate bonus depreciation or curtail it?
Mel Schwarz, JD, CPA It is scheduled to go from 100 percent to 80 percent starting in 2023. I'm not hearing anything for 2020. That's 2023 isn't it? In any case, I'm not hearing any interest in accelerating that, certainly. So, I think 2020, 2021, 2022, we would expect to be eligible for 100 percent. I think there's a lot of interest in continuing the 100 percent beyond 2022. But like we talked about with regard to the lame duck, Congress gets around to doing things like third graders only when you tell them if they don't do them, they can't go up for recess. So this is if it doesn't expire until 2023, they're not going to worry about it.
Art Wiederman, CPA I'm pretty sure we go past the time, maybe we just ground all of them, make them stay home and do the right thing. Oh my gosh. So you don't see, so doctors, if you're going to buy equipment, probably going to get bonus depreciation in 2021. Definitely going to get it in 2020. I've always been one, Mel, and you're a tax guy like I am. I've always been one that says, you know what, I understand we've been in a pandemic. I'm seeing with our dentists and we've talked about this before, I won't reiterate it too much. But I don't think dentists net incomes are going to be down as much as they think they might be.
I'm seeing 10 to 20 percent because of HHS Provider Relief Fund stimulus money because of the fact that PPP may not be deductible. Again, who knows? Because of the fact that a lot of these guys came back at 120, 130, 140 percent of what they were doing because of the pent-up demand. So I'm saying, you know what? You're going to have taxes this year. You're going to have a tax liability. You know, let's get a tax deduction this year and I'll worry about next year, next year. That's, I don't know, as a tax guy, that's the way I've always felt.
Mel Schwarz, JD, CPA There's a time value to money and, you know, particularly these days, there's a time value to money beyond the one tenth of one percent that the bank will pay you if you put it in your savings account.
Art Wiederman, CPA So it's gone up one tenth of one percent. So the other thing I want to bring out is before we go on to some other things, it is the fact that some of these tax rates, these tax rate increases, I read the Tax Foundation's analysis and what they said was that for anybody who makes in the top one percent, they will have an 11 percent reduction in their after tax income. But anybody underneath that is looking at one or two percent. I mean, the changes in rates for my dentists who are making 200 to 500,000 a year on average, some are higher, some are lower. I don't think it's going to be huge. I mean, am I reading the literature right?
Mel Schwarz, JD, CPA I think you're reading that right. Biden's proposal has a 400,000 dollar taxable income trigger in it. And they are, at least the conversations I've had with some of the people that I expect to be part of the Biden transition team and may well be at IRS when Biden, if Biden, is ultimately inaugurated. Is ultimately inaugurated. They don't see this as, I'm sorry, we're going to need to back up, because I just had a senior moment.
Art Wiederman, CPA Okay, so we were talking about the. That's okay. I've been there with you Mel. Don't worry about it. So we were talking about the fact that tax rates are not going to go up that much for dentists. And the fact that there's 400,000 dollars of taxable income is where, you know, the big hits are going to be. And I was just asking if you thought I had it right.
Mel Schwarz, JD, CPA You got it right. And the Biden people are going to be very careful about that 400,000 dollar amount. And they did not like the hits that they took from the Trump campaign, that there was going to be increases below that amount. And they're going to be very, very careful to try and defend that trigger amount. And so I think when you look at, and we talk about, well, what's the top one percent? Well, the top one percent doesn't have to be much. You don't get much past 400,000 dollars taxable income and you're in the top one percent.
Art Wiederman, CPA So for my doctors, you know, one of the things we're talking about is that, depending on what happens on January 5th and unfortunately, we're not going to know till January 5th. If you think the tax rates are going to go up and you're going to be in a higher tax bracket, and your income is going to be higher next year because you're not going to have to shut your dental office down for 10 to 12 weeks, then maybe you accelerate some income into this year and you defer deductions in the next year, like buying equipment. What about pension plans? Are there any changes on the horizon? I didn't see anything in the Biden tax plan.
Mel Schwarz, JD, CPA There really isn't any, I mean, there's some sort of general statements that pensions are good. The people should save for retirement. Actually, this is an area that, unlike most of the rest of tax, does attract some pretty solid bipartisan support. Richard Neal, who is the chairman of the Ways and Means Committee and the excuse me, and Brady, who is the ranking member, used to be the chairman when the Republicans were in charge, actually took the step of introducing legislation last week that would, as they say, strengthen American's retirement security. But there are a couple of interesting items in here, particularly for smaller businesses. There is, there have always been some credits for, to cover your startup costs if you're starting up a pension plan.
Art Wiederman, CPA $500 dollars a year.
Mel Schwarz, JD, CPA Yeah, but the legislation would increase that at least double the number. So, you know, a thousand dollars is a thousand bucks. You got five people working in the office. That's five grand. It certainly is, covers some of the costs of putting things together. And it is. So that's there. There is also, and this is, I think, going to be very interesting. There is a provision in this legislation that would essentially open up the so-called Section 1042 sales to an ESOP and would open that up to S corporations.
And so that then creates some interesting opportunities that, you know, previously you had to be in C Corp form to take advantage of that deferral of what would otherwise be the gain on the shares that you sell. Now, you know, this is a long way from being enacted and typically this kind of pension reform legislation has taken a period of time to sort of percolate up. Lots of times, we see a couple of year delay between the time that it's rolled out and the time that it ultimately comes through. But those are a couple of, you know, I think very interesting items and not dependent on this legislation already in the code are the new rules with regard to multiemployer 401ks. And those become effective for tax year tax plans beginning next year.
Art Wiederman, CPA Okay, well, we'll see what happens with all that. I want to touch on a couple more things. I know the estate tax is on the table. I know that in the Biden tax plan, see right now, folks, if you were to, God forbid, pass away and you were married and you did all the right elections in your state documents, you can eliminate the estate taxes on up to about 23 million dollars. Now, I again, you know, that's a lot of money net worth. That's your net worth. That's not your income. That's your net worth. That means the value of your house and real estate, your dental practice and stuff like that.
But they're talking about reducing that. I think in the Biden tax plan what was it about three and a half million per person, if I remember correctly. So what are you hearing about the estate taxes? That's a big deal. And why would I consider making some gifts before the end of the year? I don't know.
Mel Schwarz, JD, CPA Again, this is not something that I would say. Well, again, a lot of this depends upon what happens in Georgia. If the Republicans retain control, I would not see this kind of change coming through to affect 2021. Even if the Democrats take control, I would be doubtful that this is a change that would occur prior to 2022.
But that said, the shift back to essentially pre T.C.J.A., pre 2017 rules with regard to what the exemption amount is, to what the rate is, if you go over the exemption amount, there is a, there is some chance that that could be enacted and it probably would not be out of line to at least consider whether or not there are things that you could do in an estate plan that would, even if you don't pull the trigger now, would position you to pull the trigger if it looks like we're getting closer to this kind of legislation going forward.
Art Wiederman, CPA So it would be a bad idea, folks, if you have a significant net worth, one that is maybe below the 23-million-dollar limit, but above seven for three and a half times two. It might not be a bad idea for you to make a call to your estate planning attorney and say, hey listen, can you, let's talk some moves I should make before the end of the year and things, things like that.
So, I mean, so basically what we're saying, Mel, is that if we have a Democratic sweep and the Senate goes Democratic. And again, the only way that happens is if the two Georgia Senate races go Democratic. And again, we don't know what's going to happen until January 5th. So we're in a classic conundrum.
I mean, you remember Mel, in 2017, the Tax Cuts and Jobs Act, I think that was signed by President Trump on December 22nd. So, you know, it's like you're trying to do tax planning for people and, you know, all the tax planning is done in our office in late October and November and early December because the last two weeks of December, everybody is off celebrating with their families and who knows what's going to happen this year? Hopefully that's going to happen. So, you know, this is kind of the perfect storm.
And basically watch your news, check with your CPAs, meet with your CPAs. Please go meet with them, whether it's us or someone from the Academy of CPAs or somebody, go meet with them and find out what's going on. Stay on top of the PPP situation.
So, Mel, again, every day you're talking to different people. What else that might affect small businesses, dentists. Is there anything else in Washington we should be cognizant of that you could think of right now? I mean, we've talked about the tax law and what's going to happen and anything else going on that we should think about? I mean the government doesn't stop, right?
Mel Schwarz, JD, CPA Oh, no. And I think a lot of the, some of the areas particularly that we might see future legislation in, there's going to be a real push for additional infrastructure. I think, however the elections come out, we're going to see that coming back on the table. Health care, and that includes dental services, is going to be a huge discussion. We don't know what the outcome of the case that was heard in the in the Supreme Court yesterday.
It's likely to be the, you know the decision that's being considered would essentially throw out the entirety of Obamacare. And if that is the case, almost certainly, regardless of which party is in charge, there will have to be some attempt to put something together that replaces it. And if that is the case, how does the dental profession fit in to what ultimately is put together? I think that has to be the number one issue that the profession concerns itself with.
Art Wiederman, CPA Well, I can assure you that my friend Megan at the ADA is going to be and their four congressional lobbyists will be on top of that. And you'll be hearing things about what they're talking about, that's kind of scary.
Hey, so, Mel, if anybody is really fascinated by this stuff, which it is, it's really interesting. I love the back and forth and see where it's going to go. And hopefully, you know, hopefully we can get to some cooperation, and getting some really good things done in this country, because God knows we all need some good things to happen to us after this year. How can, if someone wants to email you with a question or get a hold of you, how would they get a hold?
Mel Schwarz, JD, CPA Just send an email to mschwarz@EideBailly.com. There is no T in Shwarz. Just like the toy store. And that's at EideBailly.com. And I'm happy to, happy to talk with anyone and but really the best way to reach me will be through email.
Art Wiederman, CPA Well that's fantastic. And so Mel, any final comments, I mean I'm not going to ask you to make any predictions because that'll get both you and I into trouble. But any final comments as far as, I'm a dentist, I'm getting down to the last two months of the year. Other than just pray and throw something up on the wall and hope that it sticks, you know. I mean, you've given a really good synopsis of what you think is going to happen.
Mel Schwarz, JD, CPA You know, don't panic. I think that's always a good idea. Don't change things that make business sense because you're afraid of paying an extra dime in tax. Let the business. Let business be the dog, tax can be the tail. I think that's particularly the case this time because I really don't think we're going to, regardless of who wins in Georgia, regardless of who wins the presidency, I don't think we're going to see very significant tax changes take effect in 2021. We're going to see him talked about and we may see some of them voted on. But the effective date, I think, is much more likely to be pushed farther out. Certainly, to be retroactive back to January 1.
Art Wiederman, CPA So my heart palpitations just stopped. I appreciate it. Mel Schwarz, Director of Legislative Affairs at Eide Bailly. Thank you for your time today. I really appreciate it. Thanks for all you do to help our clients and stuff like that. And ladies and gentlemen, and hang on before we, when I sign off.
But ladies and gentlemen, if you want to get a hold of me in my office in Tustin, my home office, it comes right through to my computer 657.279.3243. Email me at awiederman@EideBailly.com. Check out Decisions in Dentistry magazine www.DecisionsinDentistry.com. Our Academy of Dentals CPAs www.ADCPA.org.
And as I say to all of you in every single week, it's been a challenging year, it's almost over. We're all confident. Mel's kind of shaking his head. I can see him on the TV, on the computer. Failure is not an option, folks. That is what we're saying. Work hard on what you're doing.
We're going to have information about some webinars that we're doing here in Southern California that we're going to invite everybody to join in. Put December 9th on your calendar, because we're going to be talking about, again, year-end tax planning, maybe a little more information on what we think, although I don't think it's going to change a whole lot between now and then.
But anyway, I want to thank you from the bottom of my heart, everyone, for listening. Please tell all of your friends about the podcast, like the podcast. You know, send us some comments, anything you'd like to see. So that is it for this episode of The Art of Dental Finance and Management with Art Wiederman, CPA. Thank you for listening and we'll see you next time. Bye bye.