In this episode of The Art of Dental Finance and Management podcast, Art meets with Mel Schwarz, Director of Legislative Affairs in Eide Bailly’s National Tax Office. Art and Mel discuss the new tax law changes related to the enactment of the American Rescue Plan Act (ARPA) signed into law in mid-March. Mel reviews components of the new plan that will help dentists minimize their tax liabilities, as well as provisions that may affect 2020 tax returns.
- Expanded child tax credits
- Stimulus payments of $1,400 per person
- Student loan debt forgiveness relief
- New rules on taxation of unemployment benefits
- Potential new tax laws coming
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.
Tax planning for 2020 may be challenging with the new tax law changes. Our advisors are here to help simplify the process.
Please note: The Art of Dental Finance and Management podcast will be published twice a month going forward.
Show Notes and Resources:
- Eide Bailly’s Dental Practice
- Decisions in Dentistry magazine
- Academy of Dental CPAs
- What’s Included in the $1.9 Trillion COVID-19 Rescue Plan
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. My name is Art Wiederman and I am a dental division director for the CPA firm of Eide Bailly. I'm located in Southern California. For those of you listening to the podcast for the first time, welcome. And I hope you'll find today's podcast and our future podcasts very informative and interesting.
And this podcast, as I've told you every week, we're kind of date stamping a lot of these where it's appropriate. We think we're over the hump as far as major, major information having to do with the PPP and the ERTC and all that kind of stuff. We had the last big piece of Treasury legislation was Notice 2021-20 which explained the interaction of the ERTC and the PPP. I'll chat about that here in a second.
So this one, maybe appropriately, is coming out on April Fool's Day, April 1st. My guest today is Mel Schwarz, who is from our National Tax Office in Washington, D.C. here at Eide Bailly. He is a very, very experienced tax professional and is talking to people on Capitol Hill every single day. The fact that I mentioned Mel's name and April Fools Day in the same breath has absolutely no meaning. Mel is one of the smartest guys I know.
So we're going to talk about three things today. We're going to talk about the key provisions in the new American Rescue Plan Act that President Biden signed about a week and a half ago, which is the one point nine trillion dollar stimulus bill. We're going to talk about the moving of the federal tax deadline and what that means to you. The federal individual tax deadline has been moved from April 15th for this year to May 17th. We'll talk about what that means and then we're going to talk about what is going on Capitol Hill. I was listening to the Today Show the other day and they said that the Biden administration is starting to have conversations about tax reform and rolling back a lot of what the Tax Cuts and Jobs Act bill of 2017 did under the Trump administration. So we're going to talk about all of that with Mel in a moment.
But I want to give you some information first. I want to again encourage you to look on the website of our partner, Decisions in Dentistry magazine. Decisions in Dentistry magazine has one of the best websites I've ever seen to help dentists. They've got great clinical articles. They have been absolutely on top of things during the COVID pandemic. They have continuing education courses for all dentists that will allow you to get your CE at a very reasonable price. They have a deal where they offer you up to one hundred and forty courses in a year for a very, very low price. And you can also get a consultation with me or a member of our Academy of Dental CPAs by going on to their website, which is www.DecisionsinDentistry.com.
If you're not working with a specific CPA we at Eide Bailly work with about 800 dentists across the western United States. If you are looking for a dental specific CPA, my mothership is also the Academy of Dental CPAs www.ADCPA.org.
I do have an announcement I wanted to make. Well, first, let me tell you kind of again the update on the ERTC and the PPP. Remember folks that Congress came out with, I mean, Treasury came out with Notice 2021-20 on March 1st, which basically gave us the rules of the road that will allow you if your practice had a greater than 50 percent reduction in gross receipts, net of patient refunds probably in the second quarter of 2020 or you were shut down by a government order. And by the way, if you want to learn about what a government order means in Notice 2021-20, you can read pages twenty four to forty four. It's 20 pages of what a government order means. Good luck with that. It's very, very complicated.
So most of you, if you qualify for this employee retention tax credit, which is a five thousand dollars per employee credit, which will probably, if you had the 50 percent or more reduction, get you the credit for the second and third quarters, you are now allowed to take that credit, even though you've got a PPP loan, that was not the case until December twenty seventh. So if you need help with that, we at Eide Bailly have put together a large team of people. I'm heading up the dental group to help our doctors to not only file for the PPP forgiveness, but to also get the maximum credit. It is very involved and very complex. So if you are interested, please send me an email at awiederman@EideBailly.com.
We did a two hour webinar with Jim Donovan of our firm. So if you go on to our website at www.EideBailly.com, go on to our YouTube channel and you can find that webinar along with all the other webinars that we do. And we're doing a business of webinar, a business of webinar help you. All right. We're doing a Business of Dentistry webinar series for the whole year for six local dental societies in Southern California. Our next one is going to be, I believe it is, April the 9th. Let me look at the calendar here real quick.
And yeah, that is a I'm sorry, April the dates, April 14th. I take that back the second Wednesday of every month we do this. Security in the dental office and also Internal Control and Fraud Prevention. Please join us on those. To register or go to www.EideBailly.com/dentalseries. With that said, and I had mentioned that I am going to be heading up our group on PPP and ERTC. I am managing a bunch of people to do that and it is taking up a good amount of time because to get you guys tens of thousands of dollars of tax credits is a big deal. And it's very important to us that we help all of our doctors with this.
For that reason. And the fact that it's tax season and the fact that the HHS Provider Relief Fund someday before we die is going to finish their portal. I'm going to be involved in all of that. So we've made the decision, at least for the next four months, that we are going to go ahead and publish this podcast every other week. Something had to give for me and I. It is time consuming. It is an absolute labor of love. We're going to continue to bring you great content and great guests and great information just for this next four months. We're going to do it every other week because we've got to get through some of these other projects which are very, very important to our clients. So watch for our next podcast, which is going to be April the 14th with Alex and Heather Nottingham of All Star Dental Academy, which is a great interview. I did it yesterday morning, so I just want to let you know that and we're still here. We're working real hard. We're here to help you. And we're just going to kind of do this every other week instead of every week for until we get through all this PPP and ERTC stuff.
All right. With that said, folks, I want to introduce my guest, my good friend here at Eide Bailly. His name is Mel Schwarz. Mel is in Washington, D.C. He is a congressional lobbyist for our firm Eide Bailly. Mel has over thirty seven years of experience specializing in legislative affairs, including development and implementation of tax legislation at the national level. For six years, he was on the staff of the Joint Committee of Taxation and was the chairman of the Tax Legislation Committee of the American Institute of Certified Public Accountants, which means he is much smarter than I will ever be. He spends his time at the Capitol meeting with legislators, listening on updates that impact taxes and processes and procedures. He provides all of our clients timely updates and education on issues and opportunities, you know, impacting our clients. And he's a frequent speaker to lots and lots of groups. So Mr. Mel Schwarz, my good friend, welcome to the Art of Dental Finance and Management.
Mel Schwarz, JD, CPA: Thank you Art, great to be here.
Art Wiederman, CPA: So all these things I'm saying about you, you're like really smart, right? Because if you're not, I'm going to stop this podcast right now.
Mel Schwarz, JD, CPA: Well, then let's turn it off. It's OK.
Art Wiederman, CPA: So first of all, let's just how is the transition from the Trump administration to the Biden administration just kind of your thirty five thousand foot view? I mean, you're talking to people on Capitol Hill every day, right?
Mel Schwarz, JD, CPA: It is a in some ways, it's a huge change and in other ways it's not a change at all. We clearly have a whole new direction that the administration is going to. This administration is going to try and take the country. On the other hand, the partisan battles that we have gotten used to continue unabated. The idea that we're going to move past partisanship, I think that has already been pretty much put to rest. And it's going to be a it's going to be a battle from here on in. And there's no question the 2022 election has already begun. I think that everything that we're going to see come forward have seen come forward so far we'll see come forward for the rest of the year. All this has to be viewed in the through the lens of how does this lead us to the 2022 election.
The margins in both the Senate and the House are so thin, razor thin, that there's no one feels no one feels comfortable as to where this is going. And that, I think, is likely to put a real accelerator behind some of the Biden administration ideas, because there is a real fear that they will get they have this two year period and that may be the end of the their control of that of both the House.
Art Wiederman, CPA: And Mel isn't this a replay of what happened after 2016, the Republicans controlled the White House, the Senate and the House, and they got they got tax legislation through last week of December and twenty was a twenty in 2017. Right. Yeah. So this is the same movie all over again. Right.
Mel Schwarz, JD, CPA: It is the same movie all over again. But with where it used to be, it used to be a knife fight. I think I'm concerned they're bringing ammunition this time.
Art Wiederman, CPA: Oh yeah. It's there's a lot of hard feelings. We could spend the whole hour talking about that, but that's not what we want to do. We want to share some great information. So about a week and a half ago, Mel, the president signed the American Rescue Plan Act one point nine trillion dollar relief bill that made a bunch of changes. It provided a lot of money to help a lot of people, you know, vaccines and this and that, which we're not going to get into. But there were several key tax provisions in this bill that we want to cover today.
Let's start off with the fourteen hundred dollar recovery rebate. So I'll just read something off of our article. It's for each taxpayer and dependent. So if you have a family of four, you could be looking at fifty six hundred dollars. It's going to be a refundable credit, which is important because refundable means if you have no tax liability, you still get the money. A non refundable credit carries over or goes away depending on the type of credit we're talking about. Phases out between seventy five and eighty thousand for single people. One hundred twelve five and hundred twenty thousand for heads of household and one hundred fifty to one hundred sixty thousand for couples, which depending on where you're at doctors that could be you. Maybe you just bought a practice this year, maybe 2020 was not a good year. That might have you might have heard there was a pandemic and stuff.
So now let's talk a little bit about how, you know, some of the things that our doctors should be thinking about with this rebate.
Mel Schwarz, JD, CPA: Well, I think the key here is to understand how the IRS all of it's described as a credit and technically it's a credit against your 2021 tax. It really is a check from the Treasury Department. And you almost need to view it as how do I maximize the amount of that check. What the Treasury is doing is they're taking your 2019 tax return and looking at that and they're going to use that to determine whether you get the full amount, whether you get a partial amount because you're phasing out or whether you get no check at all because you earn too much money back in 2019.
OK, well 2019 is done, but 2019 is not the end of the discussion because particularly if you did not qualify for anything using your 2019 numbers, there may still be an opportunity to generate some cash when you file your 2020 return. If the 2020 return does not or shows that you did not earn as much and maybe would allow you to have a higher rebate check. And important to note is even if in 2021 you went back up, your income went back up, so if you use the 2021 numbers, you would not receive anything up. If you've been able to generate a check using your 2020 numbers, you don't have to give that money back.
Art Wiederman, CPA: That's important.
Mel Schwarz, JD, CPA: Yeah. If for any reason 2021 is even your income is even lower and your check would be even bigger, that's where this becomes a true tax return credit. You'll be able to recover any additional amount, but it's very key, you don't ever have to give money back. So if you can get I mean, if 2019 is your lowest income, great. If 2020 would be lower and would provide a bigger check, give some real thought to getting that return in and seeing if that might not create an opportunity for an additional payment to come out of the Treasury.
Art Wiederman, CPA: Now, with that said, Mel, I want to make sure that everybody understands if you are a doctor who owns a practice and you are going to be applying for the employee retention tax credit, the problem with that is that you are going to have to add back to your practice income, the wages that you paid for that credit.
So while Mel's absolutely you're correct on this, we could be talking fourteen hundred, twenty eight hundred, forty two hundred. If you go ahead and file and then you go get this ERTC folks, is this complicated enough for you or what. Right. OK, if you file then and we haven't done or your CPA or financial adviser hasn't done the calculations yet, therefore you don't know what to add back to your income and you file, you're going to have to file an amended return, which there's a cost to doing that. So these are things to consider.
But this might be really good if we have doctors who are maybe they don't own a practice, maybe they're associates, you know, maybe they're making one hundred twenty thousand dollars a year, they're married or single. I mean, to make one hundred twenty they don't do it if they're single. But where you qualify, you don't own a practice or you didn't have a 50 percent reduction in your revenues, then Mel, you're absolutely right. Yeah. They should think about filing sooner rather than later.
Now they've sent out how many of these they've sent out a lot of these rebate checks. Right.
Mel Schwarz, JD, CPA: They've sent out an enormous number of checks. And if you qualify using your 2019 numbers and they know that and they know where you bank, whatever you were entitled to using the 2019 numbers should already have been paid. And for that group, I think it's probably too late to do anything with 2020. On the other hand, if you didn't qualify for anything at all in 2019.
And I think again, the point that you make about this being focused perhaps on those that don't own the practice but or are working on some sort of independent contractor basis with another facility, this may be a situation where there is an opportunity to put a number in now, could generate a payment within 2020. Again there are lots and lots of moving pieces. As a result of last year's legislation, as a result of this year's legislation. And you do have to take a look and see where each one of those is leading you.
Art Wiederman, CPA: Alright we got a lot more to talk about. I mean, we could spend the whole show on this these rebate rules. They added three hundred dollars of enhanced unemployment payments. That's extended to September 6th. And I think the maximum number of weeks enhanced unemployment benefits can be received now is increased to seventy nine weeks. Yeah. So that's pretty straightforward. So people will get their unemployment as well as the federal unemployment as well as whatever their states will pay them.
Now, here's a big one and let's talk about this one. This drove CPAs absolutely bat crazy. The first ten thousand two hundred dollars of unemployment benefits that you received and many of our doctors filed for unemployment. I know that. Even though the fact that they filed for unemployment, the first ten thousand two hundred dollars bill, as I understand, is excluded from the 2020 taxable income for people with adjusted gross income of less than one hundred fifty thousand. No Phase-Out, it's either more than 150 or less than 150.
Now, we all thought that there's going to be amended returns filed. But talk about how this is going to work. So what people there are lots of people in America who are not dentists, maybe, maybe doctors who have children or relatives who were lost their jobs during the pandemic, they got this money, but they already filed their tax returns. So what do we do here?
Mel Schwarz, JD, CPA: Well, originally there was no guidance on what you did. And so the assumption had to be, well, in order to get our money back, we're going to have to amend. Since then, the IRS has come out and I think recognized some reality here and said, no, please don't file an amended return. We are going to try. We, the IRS are going to try and establish ideally a system where we can automatically recalculate your taxes and send you a refund check.
Art Wiederman, CPA: With their circa 1950 computer system.
Mel Schwarz, JD, CPA: That's well, that's worth noting. So I think perhaps what we need to do is, you know, it's all on a tape somewhere. We put it in and they keep it in a in storage in West Virginia.
Art Wiederman, CPA: Well, you understand, it's like my golf game. All tax returns are quoted approximately. No, I'm just kidding. No, no, no.
Mel Schwarz, JD, CPA: It may well be that what we're going to end up with is needing to file another piece of paper, but hopefully a very simplified piece of paper, because keep in mind, if we were taking the ten thousand two hundred out, is it a taxable income and tax it out of adjusted gross income, it may require multiple recalculations.
Art Wiederman, CPA: So medical expenses.
Mel Schwarz, JD, CPA: We can get a simplified result and we can get a simplified form for the IRS a lot of us think that's probably worth waiting for. If you want to file an amended return. But I think the law says the IRS has to process it, but they're still processing some amended returns that were filed quite a while ago.
Art Wiederman, CPA: Oh, yeah. So talk about that for a second. If people are filing these amended returns for all kinds of things, research and development tax credit, the ER, you know, all kinds of things. I mean, I've seen things on the news where there's trucks sitting out front of IRS offices with but with amended returns that haven't even been brought into the building yet. I don't know if that's still the case, but what's happening with the IRS? I mean, how far behind are they in everything?
Mel Schwarz, JD, CPA: The IRS is it depends on what they're but they are way behind. They are way overloaded. I think we'll probably talk in a minute about the new the new child credit changes, which is even going to make it worse.
Art Wiederman, CPA: Oh, yeah, advanced credit payment.
Mel Schwarz, JD, CPA: There is some talk about trying to get some more funding into the IRS so they can at least try and get caught up. Whether that is politically possible or not. That is anybody's guess. It has been there has been no political penalty for cutting the funding of the IRS, lots of people think that sounds good and this is kind of what we end up with when they don't have the funds to process what they need to process.
Art Wiederman, CPA: And, you know, years ago I said to somebody who was very, very smart at a seminar that I had attended, I said, explain this to me. I said, you know, there's 90 billion dollars of tax revenue that's lost in the underground economy. Why don't they just hire thousands and thousands of auditors and audit like 20 percent, 30 percent returns? And the gentleman looked at me, he said, because every congressman and senator would end up with a heart failure and they would all not get reelected. It's all about politics. If you push the American public and push them to follow the law, that politically we can have that discussion another day.
Let's move on to student loan defaults for 2021 through 2025. Folks, generally, when you have debt forgiveness, I mean, let's say God forbid you didn't file bankruptcy, but someone told you could go to your credit card company and negotiate your 50,000 credit card down to ten. That 40,000 is debt forgiveness income and it's taxable. Well, apparently not for student loan defaults for 2021 through 2025 Mel.
Mel Schwarz, JD, CPA: That's correct.
Art Wiederman, CPA: Wow. So if you are a dentist who's fallen on very, very rough time and you've had to default on your student loans, it's any loan provided expressly for post-secondary education expenses, regardless of whether provided through the educational institution directly to the borrowers. I mean, that could not just be dental school. That could be, you know, post-secondary education, MBA, I mean, whatever it is, so that that provision is in there.
The employee retention credit, which we have been talking about ad infinitum, Mel, on this podcast, and my webinars that I've been doing, was extended through the end of 2021, right?
Mel Schwarz, JD, CPA: Correct. Yep.
Art Wiederman, CPA: And they expanded it to start up firms that opened to trade or business after February 15 because you had to be in business by February 15th with average annual gross receipts that do not exceed a million dollars. So that provision is in the law. And that's a good deal, because doctors, if you are down more than 20 percent in your practice for the first quarter or the second quarter and now the third and the fourth quarter, you can qualify instead of five thousand dollars a year for 2020 seven thousand per quarter.
So if you have 20 employees and you're down 20 percent in the first quarter, folks, that's one hundred forty thousand dollars tax free refund. Did I say that right now? Tax free refund. Tax free refund. We like tax free refund. In fact, I've majored in tax free refund at Long Beach State University. So keep an eye on that, folks. Look at your collections. A lot of doctors are doing better, but they may be down 20 percent and you can use the immediately preceding quarter.
So, again, if you have trouble, you want to talk about the ERTC again, awiederman@EideBailly.com or again, call me 657.279.3243.
All right. Let's see, what else do we want to talk about here? I think the last thing. Oh, yeah, we wanted to talk about all the extensions to the credit for provisions for paid, qualified, sick leave and family leave that were established in the first CARES. The Family First Coronavirus Act through were extended through September 30 of 2021. Talk about that.
Mel Schwarz, JD, CPA: Well, this is really, I think, a very generous what they did was they extended the credit so that you get if you're, if you provide paid sick leave, paid family leave under the same provisions that we were looking at last year, the so-called Families First Provisions, Families First rules, then you are eligible for a 100 percent credit of the costs incurred, now you have to be a, quote, small taxpayer, which means you have five hundred or fewer employees. So if you are the number two international dental practice, maybe not for you, but for most practices clearly will be under five hundred. You don't have to. The key was back in 2020 you had to provide the paid leave. And then you got one 100 percent credit.
Now, you don't have to provide the paid leave, but if you choose to, you can still access that one hundred percent credit. So and what I've experienced in dealing with some of our clients is that if they sort of lost focus on this, once they got to the end of the year, they were no longer required. And so they kind of stopped paying attention. But many of them are still providing paid leave. And there's purely no reason not to go back and take advantage of this. And remember, this is one of these credits that comes not on your 1040, but reduces the amount of the employment tax deposits that you're otherwise going to be making.
Art Wiederman, CPA: Which is similar to the employee retention tax credit. Now, remember that, folks, that if you do claim this credit, you can't use those wages for purposes of the ERTC because that's double dipping. I mean, it would be nice, but that does not fall under the all tax returns requoted approximately. We can't do that. So. OK, so now let's talk about let's talk about this. A big one, the new enhanced child tax credit. Yes, it's now fully refundable and it goes increases the amount to 3,000 per child and thirty six hundred for a child, three thousand six hundred dollars for a child under the age of six. It phases out. To talk about that for a little bit. And then increase for one year as it increases the age to 17. So 17 year olds qualify. So talk about how that's all going to work.
Mel Schwarz, JD, CPA: OK, this is probably the biggest policy initiative that the Biden administration was able to put into this bill. All this is only going to apply to 2021 right now, but they are looking at to see what they can do about making this probably not permanent, but extending it for a number of years as we move forward. Leave that aside. But right now, we are talking about a increased amount per child. We're making it easier for it to be refunded so that if you don't if you run out of tax liability, you can still take advantage of the benefit.
And on top of everything else that they are asking the IRS to do, including unload that truck of amended returns you mentioned before, the IRS has been asked, no, take that back, has been told that not only is this credit going to be available, but the IRS needs to make an estimate what it's going to be and make periodic cash payments to taxpayers who appear to be entitled to this. Well, there was a hearing in the Senate Finance Committee, I believe it was two days ago, where the secretary of Treasury, Janet Yellen, was specifically asked about how are you going to handle this? And her response was, we're working on it.
So I would certainly understand it's their view it as a credit. I would not I would not base any of my economic projections on the assumption that you're going to see a check from the IRS with regard to this any time soon. You know that. I fear that. I fear that's just the reality of this situation. But it is an additional amount. We think that legislation in the future is likely to extend this into additional years, probably with some restructuring. But this would be the this would be the blueprint. Right now I think it's something that we wait and we take on our tax returns.
Art Wiederman, CPA: So we. Oh, go ahead. I'm sorry.
Mel Schwarz, JD, CPA: If it goes forward this may change the way at least people underneath these Phase-Out caps. Now, keep in mind, I mean, there is still a phase out cap there, but it is a it is a potential item that needs to be kept in mind.
Art Wiederman, CPA: Yeah. One thing before we move on to our next topic. So you're a congressional lobbyist. I know that there are a lot of the national firms have congressional lobbyists. Also, we have the American Institute of Certified Public Accountant who have lobbyists. I mean, some of the things that we see, which we're going to talk about here in a minute with the change in the tax filing deadline and how that came down, I mean, do they listen to the CPAs? I mean, we are the ones that really understand what the ramifications of their laws are. Do they listen to us?
Mel Schwarz, JD, CPA: At times they do. I think that I think that they really do. I'm not sure that they if we were to come in as the accounting profession and say we would like you to lower the individual income tax rate. That's a political call that probably we're not going to have that much influence on. On the other hand, there is a real opportunity to come in and say you've proposed this. And one of the benefits of, as much conflict as we sometimes see in Congress, is it takes a while for things to work their way through. And it's almost always some of the implementation rules change as things are there. And that is, I think, where the accountants have been able to influence the process.
Now you say, well, OK, if you've been able to influence the process, how did we end up with the mess we've ended up? And I think the answer to that is, well, there's a limit to how much influence.
Art Wiederman, CPA: So they'll listen to us to a point is what you're saying. With that said, that's a great segue into the next topic. So, folks, if you haven't heard, you should know that the IRS has extended the individual, not corporate, individual, not partnership, individual, not trust, individual tax filing deadline from April 15th until May 17th. But Mel, with that, they also kind of talked about estimated tax payments. And that's why I asked the question a second ago. It's like, what were they thinking? So what's the rule on estimated tax payments and the tax deadline?
Mel Schwarz, JD, CPA: There is no change. So you need to have your first quarter estimate in by April 15th, just like you always have. Now somebody is going to raise their hands and say, well, but I qualify for a safety and I have done my tax return yet because it's not even due until May 17th. How do I know how much to pay in? And the answer to that is.
Art Wiederman, CPA: We don't care.
Mel Schwarz, JD, CPA: Yeah, I think that's the kind of sums it up. So this is one of these ones that may set itself up for corrective action later on. A lot of us think that there's a good chance that somewhere probably in the late fall, the IRS will release a press release that will quietly say if you are underpaid on your first quarter, as long as you catch up by June 15, your second quarter, because we don't want to have to completely remeasure on May 17. You know, maybe we'll skip the underpayment underestimate.
Art Wiederman, CPA: So, I mean, this is this is what we do. So, guys, I'm going to say this again. And if I sound like a broken record and I repeat myself, I'm sorry. This is Be Kind to Your CPA Year, not a month, not week, year. What we have been and again, the dentists, you guys have been put through, you know what, for the last 12 months with everything you had to do with shutting down your offices and PPE and completely redoing what the way you do dentistry and the way you deliver care.
We CPAs, number one have been working for the most part at home for the last year. I think our firm has 20 or 30 percent of our employees are at work, and that's what most of the firms are doing. But they change the rules every week and then they do things like this then, you know, so don't shoot the messenger. And if you have a CPA that maybe doesn't get back to you for a day, you know, give them a mulligan because it's brutal with all the changes.
And, you know, our dentists are wonderful people and they have been very, very understanding. You know, one of the one of the one major things that I have set up at Eide Bailly with the dental division is that we have got to return phone calls and emails as quickly as possible. And we're really good at doing that. But it's hard. I mean, it's really hard. So, guys, ladies and gentlemen, please be kind to your CPAs because it's tough.
And again, this whole ERTC and PPP thing, folks, this is a whole new line of business that we were dropped in our laps, that everybody said, have your CPA do this for you. You know, I mean, you have to learn all these rules which are extensive and complicated and all this stuff. And you know, we have to hire people. We have trouble hiring people just like you do. So it's just be kind to your CPA, that's my that's my soapbox for the day Mel. Right.
Mel Schwarz, JD, CPA: It's a good soapbox.
Art Wiederman, CPA: All right. Last section of our podcast today I want to talk about the fact that the Biden administration has made inferences. President Biden during his campaign was very adamant that he was not going to raise taxes for anybody if he got elected making having adjusted gross income of less than four hundred thousand dollars, which does affect a lot of our dentists.
So now that we're you know, we're a couple months into his administration, they have started talking about overturning a lot of the jobs and the Jobs and Tax Cuts Act of 2017 passed by the Republican president and Congress. So let's talk about some of the provisions that you are hearing about that we should tell our listeners to be wary of and to plan for. Let's start with tax rates. What do you think they're going to do with tax rates? What are they talking about?
Mel Schwarz, JD, CPA: Ultimately, for those earning above four hundred thousand dollars, we're likely to see an increase in individual tax rates back to thirty nine point six percent. There doesn't seem to be any intention to go above thirty nine point six percent at this point in time unless we're talking about people earning a lot of money.
And we can get into that question a little bit farther down the line, but certainly below a million dollars of gross income there is no discussion about a higher individual tax rate other than the thirty nine point six.
And I think it's also important to keep in mind the four hundred thousand dollars, it's not just a line in the sand. They're treating it as if this was permanent paint on the asphalt. I mean, they really are not going to go over that four hundred thousand dollar number. They are in. And you go in and you discuss things with them. And one of the questions they will ask is, is this going to have an effect below four hundred thousand?
Now, that concern, though, is really taxing an individual tax concept. And also it appears that that four hundred thousand dollars is a married filing joint. If you're a single God forbid you are married filing separately, I would expect your cutoff number perhaps to be somewhat lower. On the corporate side, there's definitely discussion about and I think there is a likelihood of an eventual increase in the corporate rate and they're going to be some changes on the business side that for those of us for those clients that have Schedule C, that have Schedule E partnership and S corporation money, it's going to affect. Because some of the benefits that were included in the AJCA in the 2017 legislation, they are going to be looking at reversing.
Although some of that is we're not seeing a lot of definition with respect to that. One of the biggest ones is bonus depreciation, the ability to deduct additions to your capital. And so far, that does not seem to be one that they are targeting. And you even hear rumors of, well, one of the ways that we, the administration, will sell an increase in the corporate tax rate is we'll let people keep their bonus depreciation rules. That will be a big that will I mean, we're going to have to watch that play out over time. But that would be a that would be a big event. The question in all of this, I think, is when does this happen?
Art Wiederman, CPA: Well, and that's the biggest question that I get from my dentists all the time. So, Art, they're going to raise taxes. You've said they're going to raise taxes. You've told me they're going to raise taxes. Can they go back retroactively to January 1st and raise my tax rates? I mean, what if I sold my dental practice on February 1st? Am I going to have to pay the higher rates on that? So what are you hearing about when a when a tax increase or some of these things being rolled back would take effect?
Mel Schwarz, JD, CPA: They let's say, yes, they can, but they're not. All of the discussion is based on either it being a prospective change that would apply in the following year. And keep in mind, we don't know whether this is legislation that is done this year or is legislation that is done next year. So we could be talking about as late as 2023 for the effective date of some of these changes.
The other possibility, and this may apply in situations where you're particularly talking about special taxes with regard to gain or changes, perhaps, with respect to the ability to use installment sales techniques, any deferral of getting techniques. That might come in more likely with the date of either passage of the legislation or maybe some committee action.
No one seems to be talking about the idea of rolling back and applying these changes as of January 1 of 2021.
Art Wiederman, CPA: Because one of the things in the Biden tax plan, if you go on to the Tax Foundation's website or the president's campaign website, it's all on the Internet. Is that for any capital gains of over, I was over a million dollars. Or if your adjusted gross income was over a million dollars, that capital gains would be taxed at the highest ordinary rate for some of that. They're still talking about that, right?
Mel Schwarz, JD, CPA: Yes. That is still, I think, very much potentially on the table. That's going to be a tough sell. That's going to be one of the harder ones for them to push through. But it is still, I think, needs to be looked at as an active proposal. And that's where the effective date really does become, I think, particularly important.
But in that case, you really are looking at a date of transaction. Effective date is by far the most likely. So the fact that you sold yesterday is unlikely to impact you, and because that's a part of the calculation of the capital gain itself, they can bifurcate, they can bifurcate that as a separate activity.
You know, the million dollars, that number could change, I don't think it'll go down, but that number could go up. This may not come about at all, but by the same token, I think that we are. That does, is one that you have to give some consideration to. And probably if you are in the, if you are in the mood to sell a business, then you do begin to need to think about this as a possibility, if, in fact what this is going to do is trigger a million dollar capital gain.
Art Wiederman, CPA: And that's not only sell a business, folks, and it could be a dental practice. It could be if your family owns a family business and you're thinking about doing that, it could be if you're selling a piece of real estate, your dental building, commercial, residential.
So the message Mel, I guess, is, folks, if you have a transaction in process, it wouldn't be a bad idea to get it closed sooner rather than later, right?
Mel Schwarz, JD, CPA: I think that's correct. On the other hand, I would not pay a penalty. I would not pay a, I would not incur some additional costs. In order to race this thing to the finish line, because we're not going to we're not going to see the kind of legislation that would include this change being enacted, maybe even really seriously discussed until later this year at the earliest.
Art Wiederman, CPA: OK, so this is not something that's going to happen today.
Mel Schwarz, JD, CPA: This is not tomorrow's problem. And I would also not I would not race to, I would not enter into a transaction that doesn't make economic sense just in order to try and raise this date.
Art Wiederman, CPA: And that's good advice, folks, for any time in life. I had a financial adviser friend of mine who gave me the same thirty five years ago, is never let the tax tail wag the investment dog. And that you learn this at the Long Beach State accounting program, that's what they teach you. And so you never, ever do something to save taxes if it's not a good economic and financial decision for you and your family. And that's always good advice and stuff.
Mel Schwarz, JD, CPA: Let me make one more to this. And that is, you know, what we have to go on right now is essentially one sentence in a campaign document. There are lots of details that are likely to be considered, one of which is going to be, do you need special rules with respect to the sale of a business? And certainly the sale of a dental practice would fall into that. Because there are well, there are significant political and there are significant, I think, practical issues and really ethical issues with regard to how you, do you need a different rule for selling a business than you do for cashing in your Bitcoin bet.
Art Wiederman, CPA: I don't want to talk about Bitcoin because my head will explode. I don't understand it.
Mel Schwarz, JD, CPA: That's a separate podcast.
Art Wiederman, CPA: How do you take maximum advantage of Bitcoin by Art Wiederman and Mel Schwarz. I like that Mel.
Mel Schwarz, JD, CPA: Now, I think is another reason why there's a lot to be said for not racing right now. Let's see how things develop because, you know, maybe the number is not a million dollars for the sale of a business. Maybe the number is five million dollars for the sale. Maybe, you know, we don't know. Maybe there are to the extent that it's recovery of this or that, then. But let's wait and see a little more about where this is going, because I think we really do have time. If you're ready to do the deal, do the deal. But let's give them a chance to develop their proposal a little more before we panic about what it's going to do.
Art Wiederman, CPA: So another thing I want to bring up as we're coming to the close of our time Mel is let's talk to doctors you know, when we look at tax planning for our clients, we look at what happened in 2020. And now we're talking to them about what do you do in 2021. Well, let's think about this. Our doctors, their practices for the most part were down. They made less money in 2020 than they made and then they're going to make in 2021. They got free PPP money and they got to deduct it so their incomes were even lower. Some states have not allowed that. For example, at the moment California is not allowing you to deduct your PPP expenses. That may change.
So now we come to 2021. And what I'm hearing, which is really, really encouraging, folks, I'm hearing from lots of our clients. I'm talking to lots of dentists every day on the phone, on email, texting, things like that, is I'm hearing that the dental profession is coming back and is doing better. I'm hearing, oh my God, Art, I'm killing it. We're having our best quarter ever. Some of them are not. Some of them are down maybe five or ten percent.
The point is Mel is a lot of our doctors and other business owners are going to be with the fact that they had this huge deduction with tax free income on PPP. I mean, you might have gotten fifty, one hundred, two hundred, three hundred thousand dollars of tax free money that you get to deduct in 2020. You don't have that in 2021 and your practice is doing better. So talk about how we're looking at tax planning for 2021 and informing our clients about that.
Mel Schwarz, JD, CPA: Again, it is what we're at least what we're seeing, what we're hearing from the Hill is that changes to the extent they're going to be made are probably 2022 changes and not 2021 changes.
So for just as a starting point, let's go ahead and do our planning on the basis of what we know about the law now as it is currently structured and as it is, and include all of the, you know, the business benefits that exist there. Now, do we have certain limitations? Well, we have limitations on the ability to claim non business losses. So if you're playing games.
Art Wiederman, CPA: Games? My clients don't play games.
Mel Schwarz, JD, CPA: If you're doing something other than practicing dentistry with your investments. That I think is something that you want to come back and take a specific look at. But again, I think that this is not necessary. This is not the revolutionary year as far as doing is as far as doing your estimates. Look at what your projected to earn. Yes. Does that throw you into a higher bracket than you used to be? Well, maybe so. But by the same token, I don't think we're going to see the rates go down. So I think there a benefit to deferring income.
And there's always a benefit to deferring income. If I can defer for more than just a short period of time. So I think that all of our, most of our deferral techniques, whether it be pension contributions, whether it be investing in a way that tries to focus that, taking advantage of accelerated depreciation, these are all, I think, very, very viable techniques. And I don't see a change this year in their desirability.
You know, you start talking about like we did. Do you do something in 2021 or do you do it in 2022. OK, now we need to start thinking about things. But again, it will be helpful to know more about what 2022 may look like. And that's something that's probably followed before we are able to address.
Art Wiederman, CPA: So as a tax adviser, I'd like to hear your thoughts on this. I have always been of the opinion if I can defer income or I can cut my taxes or I can generate a deduction, buy equipment, I want to do it now. I want to cut my taxes today. I will worry about what happens tomorrow, tomorrow. But if I can save a dollar today and I know I can save a dollar today, that's a dollar in my pocket that I can spend on all kinds of other things. I think that I mean, how do you feel about that?
Mel Schwarz, JD, CPA: I think that is one hundred percent correct. I think that is one hundred percent correct. The only thing you want to do is you want to make sure you don't push it so far.
Art Wiederman, CPA: Right. Right. Yeah. We don't want to push it.
Mel Schwarz, JD, CPA: We don't want to create a bubble somewhere else that you don't want to have to deal with.
Art Wiederman, CPA: And the marginal rates Mel, for most of our dentist. They're going to be in a twenty two or twenty four, if I remember the rates up top my head, I think married couples twenty four goes up to about 320 ish. So once you get to three hundred and twenty of taxable income, that twenty four percent rate jumps to thirty two. That's a big jump. So, if you're looking at your taxable income doctors and how can you make major hits to your taxable income.
You can if it's appropriate and legal putting your kids and family members on the payroll, automobile expenses. These are the big ticket items. Pension contributions, pension plans, going from a simple to a Profit-Sharing or a Profit-Sharing to a defined benefit cash balance. And as Mel was saying, bonus depreciation.
So if your taxable income, you sit down with your tax advisor and if you're not working with a dental CPA guys, you got to be working with a dental CPA because we know how all this works. If I'm at 320 and I want to generate income, but maybe next year I'm going to be at two hundred, OK, I don't want to go over three hundred twenty of taxable income and that's an approximate number because if I do, I'm going to have an eight percent increase on every additional dollar. And that's how we look at tax planning right Mel?
Mel Schwarz, JD, CPA: Of course.
Art Wiederman, CPA: Yeah. So, that's what we want to do. So anything else going on in Washington that we that you think might be interesting that you're hearing on the Hill? I mean, how I mean, Janet Yellen is a very, very smart lady. I mean, she was chairman of the Federal Reserve. She's very intelligent, very articulate. I mean, how is the transition from Steve Mnuchin to Janet Yellen? How is the Treasury been changed by that?
Mel Schwarz, JD, CPA: Well, we're really just beginning to see those changes because keep in mind, the bulk of the Treasury, even the bulk of the tax policy people in the Treasury, do not turn over with the administration, the career people, you know, sort of lifetime professionals there.
We're going to see some different focus from Yellen, I'm not sure that it's going to. Well. We're going to see a lot more focus on the international area. We're going to see a lot more focus on the taxation of multinationals to an extent. I think that's where the Treasury focus is going to be and not necessarily on the details of domestic business. Now. We may see a new rule that will say if you want to have that new, if you want to have that new crown made, please have it made in the United States. Don't have it made somewhere in the Far East. Right.
That's the kind of thing that because let's face it. At this point, this administration has a lot of very expensive goals that it wants to try and meet. It wants to try and push on the environment, it wants to try and push infrastructure. Tax wise, they're going to have to go where the money is and the money is at Apple and Microsoft and those types of companies. And not really, I think, at our dental practices.
Art Wiederman, CPA: You left out Amazon and Google.
Mel Schwarz, JD, CPA: Well, yes, they've got a couple of bucks, but you can you can list those. And actually, that's where Yellen has that really is more of where she has cut her teeth. Now, to the extent that our dentists are involved in non dental investments, that is a place that I think keep an eye on. But I don't really see this administration being a big push to change the way we do the methods of accounting, for instance, which used to be a big deal. And you don't really hear that discussed to a significant extent with regard to this administration.
Art Wiederman, CPA: The last thing I want to touch on, and this is something that I've touched on many podcasts, doctors, you are vulnerable to be contacted by promoters of investments that are, number one, probably not in your best interest. And number two, may have issues. I'm going to mention. I'm not going to mention any promoters because bad things will happen to me. But we're talking three different types of investments, a welfare benefit plan, a captive insurance company and conservation easements. Those are three things that our dentists are approached with. Now, done correctly, they are legal investments. However, isn't it true, Mel, that Treasury has kind of put those investments and others on their hit list of we're watching you?
Mel Schwarz, JD, CPA: I believe bull's eye would be the proper term to use and particularly with regard to particularly with regard to the captive insurance. We're the micro captives. We are seeing very, very aggressive. We are seeing beginning to see very aggressive determinations with respect to the easement contributions. Easement contributions work. But it's an opinion as to what that value is. And unfortunately, this gets into a couple of a couple of things. Someone's tax returns are going to be made public here pretty soon. Apparently, easement valuation is going to be a subject of their own. Which in you really don't want your investment to be handled that way on the front page of The Wall Street Journal for the next month.
Art Wiederman, CPA: Well, and I have been and I have been involved with clients who have brought these. I had one doctor about five years ago, brought me a conservation easement investment. And I looked through it and I read the prospectus. Because remember, doctors, when you get these investments, you get a prospectus. The prospectus is hundreds of pages long. They and they involve something called a tax opinion written by a law firm, a very good law firm, probably. And they talk about all the different court cases. And I read all of that.
And the fact of the matter is, is that the IRS has flat out put on their documents, their forms. They have said this is what's called a reportable transaction. You have to tell us about this. Doctors, do me a favor. Just be really, really, really careful about investing in things that all they're talking about is how much in tax you're going to save. I'm not saying that some of these are bad, you know, but I'm just saying these are the ones the three that I mentioned, that Treasury, as Mel aptly said, has a bullseye on. And, you know, if you're really aggressive and you believe that you can stand an audit and in court, maybe, you know, that's a decision that you have to make.
Talk to your CPA. Don't make investments like this without talking to your CPA. Don't do anything tax wise, folks, whether it's us or anybody else without talking to your CPA.
Mr. Schwarz, it is always a pleasure to talk to you. You are a wealth of knowledge, it's nice when we do these, we do these, we record these are Microsoft Teams. And you know what? Every time I talk to Mel, he's got this round building with a point on it called the U.S. Capitol right behind him and his picture. And it's always a blue sky with really pretty clouds and is my favorite building. The Star-Spangled Banner is my favorite song, you know. So it's always a pleasure to talk to you. Thank you so much for taking your time out of your day to do this.
Mel Schwarz, JD, CPA: Well, thank you for having me on Art. It is always a pleasure to talk with you.
Art Wiederman, CPA: So hang on for a second as I take us out. So, folks, thank you for the honor and the privilege of your time and listening to our podcast. Again, if you're looking for an opportunity to save tens of thousands of dollars with the employee retention tax credit email me at awiederman@EideBailly.com.
Go to our Decisions in Dentistry partner. Go to their website at www.DecisionsinDentistry.com. You can find the podcast on there. You can find great clinical information articles by a who's who in the dental profession internationally to help you in your practice.
Also, if you're looking for a dental specific CPA, give us a call, go to our website www.ADCPA.org. We are, I'm a founding member of this group. We're in our 20th year. Very excited about that. So I hope today was informative. Again, Mel is right on the cusp of what's going on in Washington and it's always great to get his insights.
So with that said, folks, thank you again for listening. I want to again, please tell your friends about our podcast. It's exploding. We've got thousands of people listening every week. We've got great emails. Contact me if there's a topic you're interested in or a guest that you think it'd be really great. So with that said, this is Art Wiederman for the Art of Dental Finance and Management with Art Wiederman, CPA. Thank you for listening and we'll see you next time.