In this episode of The Art of Dental Finance and Management podcast, Art meets with fellow Eide Bailly dental CPAs Scott Haberman and Don Watson to discuss how dentists can best prepare for the coming tax filing season. They cover some key tax prep considerations to ensure a less taxing experience:
- Gather all tax information
- Report all income
- Identify all legal deductions
- Calculate salary for S Corporation shareholders
- Decide whether to file on time versus extending
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.
Being more strategic in all aspects of your dental practice will lead to increased profitability.
Show Notes and Resources:
- Eide Bailly’s Dental Practice
- Eide Bailly's Tax Services
- Decisions in Dentistry magazine
- Academy of Dental CPAs
- Webinar Recording & Resources: How to Complete Reporting Requirements if You Received Money from the HHS Provider Relief Fund
- Contact Eide Bailly's Provider Relief Fund Team
- Tax Planning Guide
Art Wiederman: 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 and I am a dental division director at the CPA firm of Eide Bailly. I'm located in Southern California. And welcome to the podcast and we have a really special show. This is going to be fun for me because this is going to be the Eide Bailly Brain Trust today.
So we're recording this in early February of Twenty Twenty two, and I hate to tell you guys, but it's time to start putting your income tax information together now. If you remember back in twenty twenty twenty twenty twenty one, we had this pandemic thing going on, you know, and I know it's still going on, but we have this going on and the IRS put off the filing deadline, or they didn't put up the filing deadline. Well, there's no delays this year. You will have to file your tax returns by the regular deadlines, which we're going to get into in a little bit.
But my guests today are two dear friends of mine, Scott Haberman, who's a partner in our Fort Collins, Colorado office and specializes in working with dentists. And Don Watson, who is my right arm partner in crime here in our Tustin office. And the three of us are going to talk to you about what's going on a little bit dentistry. We're going to talk to you about what you need to do to get ready. It's be kind to your CPA year. It's busy and that I'm going to say it's be kind of your CPA decade, folks. So we're going to kind of help you get through tax filing for Twenty Twenty One, which is due in March and April before you turn around.
But before we do that, I want to go through a little bit of information and announcements. So first of all, please make sure to go on to the website of our wonderful, wonderful partner Decisions in Dentistry magazine. I've worked with Decisions in Dentistry and Lorraine Kent's group for now, over two years, they've been partners with us in this podcast and I can't say enough nice things about them. Their clinical content in their magazine is second to none. Their advisory board is a who's who in dentistry you can get one hundred and forty continuing education classes for a very, very reasonable price, and they've got a lot of really new and neat stuff coming out. So go to their website www.DecisionsinDentistry.com.
Also, my mother ship is the Academy of Dental CPAs. We formed that group that 20 years ago. And if you're looking for a dental CPA, we at Eide Bailly we work with over a thousand dentists and the ADCPA has got twenty four firms all over the country that work with about 10,000. And their website is www.ADCPA.org.
Couple of things I want to remind everybody about this is really, really important just might be more important. I hate to say this to my two friends on the other end of this call, but this might be the most important thing I tell you in this podcast. For those of you who received more than $10,000 from the HHS Provider Relief Fund between July one of 2020 and December 31 of 2020. And that's going to be virtually every one of you. If you did receive that amount of money during that period, you have to report on the HHS Provider Relief Funds portal. You have to report information on lost revenues and expenses to prepare to prepare for and respond to the coronavirus on or before. Please write this date down March 31st. If you don't, you will have to give back probably tens, if not hundreds, of thousands of dollars.
The good news is that we did a webinar, many of you who are listeners of this podcast were on the recording on January 21st, and what we did was we went through every step of the HHS Provider Relief Fund. Both the rules and the portal page by page, line by line. We had a lot of two hours. It turned out two and a half hours. If you want to acquire the recording of that webinar so that you can do this reporting. Send me an email at awiedermant@EideBailly.com and we'll get you the link to register and the recording is there.
So you got about a little less than two months to do this, folks, if you listen to this when the podcast comes out here in early February. The other thing I will tell you is that for those we've been doing the employee retention tax credit, our group out of Tustin has done about 100 dental practices. We're pushing towards $4 million in credits. If you had a greater than 20 percent reduction in your gross receipts in any of the first three quarters of 2021 versus the same quarters in 2019 or the fourth quarter of 2020 versus the fourth quarter of 2019, greater than 20 percent reduction. The numbers are getting silly.
I was working on one of these today, folks, about 20 employees to location practice. We got over $240,000 in tax credits. It's almost like the government is raising money again. When does this end? So I'd like to encourage you to go and do that. And before I introduce Don and Scott, I want to. I do know that a lot of our Eide Bailly clients listen to our podcast and I want to thank all of you from the bottom of my heart for the trust and that you have put into Don and Pam Chamberlain and Scott and the rest of us that at Eide Bailly to help to help our dentists, we take what we do very seriously.
You know, Don and I, we talk every day. I consider him a dear friend and we talk about how you know, Oh gosh, I woke up at two o'clock in the morning worrying about Dr. Smith again. OK, there we go, you know, so I just want to thank all of you again from the bottom of my heart for the trust and faith that you've put in us. And I, I hope that the information we put out in this podcast has been helpful to you and growing your business. And it's a call to action, folks. So that's what is. So with no further ado, I'm going to bring on my two good friends Scott Haberman, who is a partner at Eide Bailly in Fort Collins, Colorado. Hey Scott, how are you doing?
Scott Haberman: I'm wonderful art. Thanks for having me.
Art Wiederman: So what's the temperature in Fort Collins today?
Scott Haberman: It's a brisk 10 degrees and we got almost a foot of snow in the last 24 hours. So we are we are enjoying our winter so far.
Art Wiederman: Sweet and in contrast, Don Watson, who is a partner at Eide Bailly and our dental division in Tustin, California. How are you doing?
Don Watson: I'm doing great, too. Thanks so much for having me on. And hey, Scott. Yeah. Yeah, we are a little bit the contrast here, and we're probably running in the upper 60s. But with the breeze, it's in the low 60s, so it doesn't feel quite as warm, but still much better than Scott is.
Art Wiederman: Oh man. So now, Scott, yeah, I can tell Scott. Scott and Don won't be talking to each other for a while. So anyway, Don and Scott work almost exclusively as I do with dentists and what we're going to talk about today, everybody is we're going to talk about, first of all, kind of their observations on what they're seeing with their clients in general about, you know, what's going on in their dental practices. Because remember, we're talking to lots and lots of dentists every single day, and then we're going to get into some of the things about tax season and what you have to be prepared for and how you're going to make it easy, hopefully for your CPA to get your taxes done and maybe some tips on how we can save you some money.
So let me start off by Hey, Scott, why don't you give us a little bit of a background on what your journey has been? And then we'll let Don do the same. You all know my story, but Scott, tell us a little bit about yourself.
Scott Haberman: Sure thing Art. So starting off, I began my career in the Seattle, Washington market and really cut my teeth in the joys of a public accounting in that part of the country and really as a jack of all trades, kind of master of none focused in taxes. So helped with a lot of manufacturers, real estate developers and tech startups and so forth. And over the past five years or so, I've really narrowed down my focus to the dental industry because A number one, because I have a lot of family in the industry and be a lot of my friends are in that industry. And so, you know, why not a combine my clients too and make it a good trifecta?
And so it's been a strange journey. I didn't think I'd see myself here, you know, 15, 20 years ago, but I love I love my clients, I love the client base. They're great people. Just true, true stand up individuals, and they're very fun to get creative and work on things together and try to solve problems and increase the dollars in their pocket after, you know, the payments to states and Uncle Sam. So it's been a good journey and I'm enjoying the ride.
Art Wiederman: And you are a Washington Husky. Is that correct?
Scott Haberman: Fortunately, certain times of the last decade, yes. Unfortunately for the last year, I yeah, I am a Washington Husky.
Art Wiederman: All right. Well, you know, what can I tell you? I'm a, I went to Long Beach State, but I our football team has been undefeated since 1993, when the football program ended. So I now I'm an athlete, I'm an SC guy, but it was kind of hard to be an SC man, although that might change. But we can talk football all this entire podcast, but we won't. So. Don Watson, tell us about your journey.
Don Watson: Sure Art. Yeah, I'm New Jersey raised and moved to West Virginia for about 20 years in Jersey and finished up my schooling there. I went to Marshall University. We Are Marshall, and if anybody's seen that movie, that's where I went to school. And met a wife, started a job and was there for the next 25 years and wife and I decided one day to pick up and leave. And now I've been in California for seven years.
But like Scott, I worked with service industries. I worked with retail, worked with rentals, you know, stuff of that nature. And after I got out here did a little bit strictly in tax department until I met you about five years ago. And now I've had the chance to hone my tax accounting skills to be more specific in the dental industry. And it's been a great opportunity. I've enjoyed everything you've been able to teach me and working with the clients that we do and its been very, very rewarding.
Art Wiederman: Well, I will tell you guys joking aside, it's a pleasure and an honor to work with both of you. You guys are just off the charts fantastic. So let's start talking about see what we can do to help our doctors. So first, I'm going to let each of you take a little shot. Scott, give us your observation. I mean, you work with what maybe I think you've told me, maybe 100 dentists, 125 or something like that. Yeah, maybe more. And what are you seeing? You're in Colorado. You work with dentists in Colorado, maybe, and some surrounding states. What are you seeing there in the Midwest as far as how are the dentists doing some observations?
Scott Haberman: Yeah, yeah. So my client base, you know, fortunately, so I get a good picture across the country is really spread out across all the states. I'd say probably about 15 percent of my clients are here in Colorado and the rest are spread out anywhere from New York to Arizona and even California, down to Florida and everywhere in between. And, you know, looking at all of them and how they've been doing, you know, since that awful, you know, the shutdown when it first started, you know, the sky was falling for everybody in the world at that time, particularly our dentists. I mean, you're closing your doors, you're cutting off their lifeline and how they're feeding their family and such.
And so, you know, when things started opening up and they opened up big time as the floodgates opened, they started doing fantastic, better than they've ever done before. A lot of my docs, they're kind of in expansion mode. And so some of them were at the point of, OK, let's tap the brakes. Let's get things evened out a little bit and stabilize income and make sure we're kind of operating on all cylinders. And so some of those folks are sitting at the position where, you know, they're waiting to expand a little bit more as they're kind of getting things equalized in their practice.
And then you got folks who are saying, OK, well, this is enough for me. This has been a headache for the last couple of years. I'm out of here. Only a couple of those folks, and I think that there had other things going on in their lives where it was time to cash their chips in. And, you know, but most of them are doing great across the board. They're having the best years of their careers and have had higher collections months. And, you know, expenses haven't grown at the same pace. And so they're having amazing, amazing last year and a half where it's pretty exciting to work with them and also utilizing government benefits to help them and replenish those cash reserves.
Obviously, like you were talking about during the podcasts a year and a half ago, you know, making sure that war chest is filled up and, you know, preparing for further expansion down the road, potentially. And so I think across the board, it's been a really good year for my docs and it'll be exciting to see with this next year holds too.
Art Wiederman: OK, and so, Don, I mean, most of our clients, for the most part, are in California, Southern California. What are you seeing? You're looking at financial statements every day, pretty much. So what are you seeing?
Don Watson: Yeah, I would echo a lot of what Scott said. And you're right. You know, we probably have a little bit more of the core clients that we work with here in Southern Central California, you know, maybe 15, 20 percent in other states, but we stretch across the country as well. But I think we found ourselves surprised when you and I were sitting down doing tax planning at the end of 2020 and the fact that the cash balances the bottom lines, a lot of them weren't as severely hit as we thought they might be.
And I think what we found is we have a lot of great clients that were also business people at the time, not just dentists. And while they were getting the program moneys that were offered out there because of, you know, the government threw in everything and the kitchen sink. They were, you know, sending out the EIDLs and the PPPs and doing things personally and whatnot. And the docs were being mindful as business people that if our revenues down, we have to watch what we're doing from an expense standpoint.
How can we really renegotiate and work with the lenders on the debts that we have? How can we work with our landlords in paying our rent? How can we, you know, maybe lay off a person too and let them use the unemployment system, whatever it is. But if they were able to work their expenses at the same time that their income was taken a little bit of a dive, we found the end of the year, the profits and the cash and stuff like that weren't as far off as we thought. And then we get into 21 and it just bounced back even further. So now I can say I'm pretty proud of the client base that we work with because they came through this by and large pretty well.
Art Wiederman: Yeah, and I want to make just a point. I agree. But doctors, I want you to remember that number one, we are going through what's called the Great Resignation. 4.3 million people changed jobs in December of 2021. That crazy for lots of reasons. We could spend an hour talking about that. But the number one point that I want to make about this is, yeah, the doctors are doing better, but you need to do a really, really good job in communicating with your employees, seeing how they're doing, making sure they're happy working for you because I'm going to tell you they're watching the news just like Don and Scott and I are watching, and you need to be making sure that they don't want to go anywhere else. And a lot of times it's not about money. So that's my that's my take on it.
Also, so, guys, let's get into talking about taxes here. OK, it's tax season now, right? So until the last two years, deadlines haven't changed. So, OK, so you guys are in the trenches, you're doing tax returns. Talk about the best way for these, for our clients to accumulate their data, so we send out a tax organizer every year, probably in January. And what would you say? You know, it's got all the stuff from last year. So Scott start talking a little bit about, you know, how do we how do you like your clients to get information to you? So, you know, it's January, it's February now, we got to get taxes filed by April, and we'd like to get them in. So what do you do in the process? What are you telling clients about accumulating? How do they accumulate stuff?
Scott Haberman: I tell them, you know, send me one piece of information every week for.
Art Wiederman: Right? And bring it in. Drive down into the office when it's 10 degrees with three feet of snow on the ground. And go ahead and bring it in there, right? And bring a pizza while you're doing it right?
Scott Haberman: Absolutely. Absolutely. No. It's like you guys have mentioned, tax organizer. It helps you kind of put all that documentation together, accumulated. And then, you know, once it's pretty much almost all the way there, send it in to us. And you know, if your stuff is electronic and that's going to make it so much easier, that's where the world is heading. And that's where it is right now is electronic. So if you can make things efficient for you, you know, saving money on postage, saving time driving to and from an office to drop stuff off and try to go as electronic as much as possible.
And we do have that opportunity to receive your organize electronically for you to fill it in electronically. And so, you know, if you want to move to that option, we can definitely do that. But I think a lot of our clients still prefer the paper option. But, you know, put your stuff in a file throughout the year that is paper and then, you know, set up a different inbox in your email and stash those, you know, those e-mails that you're getting that are tax related. And then once it's all said and done and the year's over, well, there you go. Let's accumulate that information and send it in to us.
But yeah, try to get it all together in one fell swoop in and avoid the piecemeal. Just because, you know, we're dealing with hundreds of clients at one time, and we want to make sure that we don't miss anything and that we're focused on your work and are able to, you know, get everything together and make it efficient for you too. And just make sure we get you the best answer at the end of the day.
Even though a lot of our planning is during the year, it's not after the year ends. But still, we want to make sure that, you know, we see everything and we can help you out and lower your tax liability as much as possible.
Art Wiederman: And Don we have the ability to scout with some electronic using technology and you know how good I am at technology, right, Don?
Don Watson: Yeah. So I'm one step above, Scott. I prefer you just take a picture on your cell phone and send me a picture when I type my at my cell phone so I can download it.
Art Wiederman: Exactly. There you go. So but we have the ability to download. We have the ability for clients to upload, you know, their W-2s and not only the organizer, but the other stuff, right?
Don Watson: Yeah. And I will tell you it's funny because we had this conversation last week with a dear client and what they prefer and Scott's right. You know, we certainly have clients that have a preference. We as a big firm and a lot of firms just have thought through this over the years of what's the best, most streamlined way to handle this process? And because we're in the 21st century with this technology and we have a portal here at Eide Bailly.
So our goal is to provide stuff out and get stuff in using the portal. And for instance, this year, a lot of mine are put on the portal. The organizers fill them out. You can leave them there. On top of that, you can add all your documents, which you can download because at the end of the day, everything that we keep is going to be electronic form. So if it begins there, when it hits our doorstep, then we're already we've already done half the battle. But if it comes in paper form and that's just, you know what you prefer, you don't have a scanner. Yeah, we can make it happen. So just we always have that alternate route we can go. We just try to hopefully, you know, skin this cat, the, you know, the best way that we can.
Art Wiederman: So. So and it's really important, guys, that that we again, you know, nobody likes to do taxes. Nobody wants to do their estate plan. But the fact is, is that in a CPA office, ladies and gentlemen, the fact of the matter is, is that if everybody sent their tax stuff in on the 7th of April, well, you got a week to get it done. People say you've got a week to get in done, yeah, but there's 200 other people who have got the same opinion. So the sooner you can get the stuff in, then I will tell you, you guys were a little less stressed on the 2nd of February when we're recording this podcast than we are on the 2nd of March or the 20th of March, right?
Scott Haberman: Yes, a little less braindead.
Don Watson: Exactly. It's funny you mention because today was our tax season kick off day, at least in our office. Every office in our firm does it at different intervals, at different lengths. But for instance, we talked about the business returns due on March 15th and the personal returns and other things due on April 15th. We have a three week window out where we really need that information in. Otherwise it's hard to guarantee getting return done because you understand when stuff comes in. By the time you get through it, you ask the questions, you put it into a return form and get it out. It usually takes a few weeks. So if you get it to us two weeks out, it's just sometimes impossible to get through that process, unfortunately. So everybody, it's individual clients of ours, for instance, we'll see that in an organizer. That date is in there in case you happen to miss it.
Art Wiederman: There you go. So let's get into some things, some little bit of technical stuff. So we have a lot of our clients are S Corporations. I know Don's and mine are because in the state of California, you are not allowed by law to operate a dental practice as an LLC or an LLP or an LL anything. Scott, I think it might be a little different in your neck of the woods where we have people who are PLLCs and stuff like that.
So let's talk to our S-Corporation shareholders. So I'm going to let each of you hit one of the topics here. So, Scott, talk about why a taking a reasonable salary from your S Corporation is so important.
Scott Haberman: Oh man. Well, reasonable salary. How do you define that Art? That's a term of Art, right? That's right. Yes.
Art Wiederman: Yeah. Well, well, reasonable salary. I mean, I always say a reasonable salary. I've always been one who said, you know, half salary, half distributions in an S Corp. So if a doctor makes three hundred thousand, one hundred and fifty thousand salary, hundred fifty thousand in distributions, nobody's going to give you a problem like that. But on the other hand, yeah, I've been an expert witness in about 15 court cases, and I've gotten into the ADA's books of statistics and out of the ADA office in Chicago. And the average dentist who is working as an employee is making somewhere between 100 and probably one hundred and forty and $200,000 depends on the part of the country and a specialist. Some make more. So, you know, I mean, but from a realistic standpoint, is it a good idea for a doctor to take no salary in an S Corp?
Scott Haberman: Yeah, yeah. Yeah. And maybe some background on that. So most, most docs will elect to be taxed as an S corporation because there is a great employment tax savings there. And so the IRS, when you elect to be taxed as an S Corporation, they say, congratulations, you're an S Corp, make sure you pay yourself a reasonable salary. Right? And so they'll ask the CPA, Well, what's a reasonable salary? OK, well, you know, if the IRS come look at you, they'd say, What would you pay you know, doctor A on the street to do the same job that you're performing.
And so that's kind of where I start. But really, the IRS wants their employment taxes and, you know, to really hedge our bets and make sure we're staying a little more risk averse. I tell my docs, pay yourself at least the Social Security limit of around one hundred forty five thousand dollars these days. And then let's kind of work from there. Are you investing for the future? Are you retaining cash to expand? OK, well, maybe we pull that down some or, you know, maybe we're just taking a ton of distributions and OK, well, we can't take zero salary and take $400,000 distributions. The IRS might look at you. Have a seen a reasonable comp study in the last couple of years. No, but there's nobody working at the IRS, so there's no audits going on these days.
So, you know, even though you know your friend down the street might be writing off the gold that he's buying for his basement to put in the safe and some guns that he's storing offsite in is in his fallout shelter. Well, that's because IRS hasn't been really conducting the audits, so they're happening. As I tell my clients, everything is deductible until you get caught.
So for reasonable compensation, there's various factors to pay yourself lower. There's also various factors to pay yourself higher. If you have a, you know, a profit share plan, with a 401K and maybe looking at cash balance and supercharging that, there might be a reason to pay yourself a higher salary. And so it all depends on your situation, really.
Art Wiederman: Yeah. So Don, there's another side to this section 199 A. So if we pay too big of a salary, is that good or bad? How does that work?
Don Watson: Yeah. So that 199A which came about from the Tax Act at the end of 2017, I believe was implemented for the first year of 18 was based upon the amount of pass through income. The whole, you know, people also nickname it the pass through deduction 20 percent. So the goal there was to have a number that you could work with to get this 20 percent deduction. But now you have this push and pull between these two philosophies of, you know, where do you go from a salary standpoint?
And Scott's right, he touched on most of them, how I used to have, heck, I used to have a partner said anything that's on that line for officer compensation would fly as long as it's populated with something. I've been doing this, this is my 30th tax season and I've never had an audit based upon that. So go back to Scott's comment. It's only wrong if you get caught or somebody challenges it, but you can make a case for any numbers good. You can make a case for 50-50. Like Art said, you can make a case for hitting the Social Security limit. You can make a case because you're trying to work retirement.
So there's anything along that spectrum that makes sense. But one person's situation could be different than another. You know, maybe you sell other ancillary items like water pics and whatnot, so you're making money off that. You have other associates working for you, you have a strong hygiene department. So what are your services worth? Well, maybe you're only working three days a week and therefore your salary is maybe deserving of one hundred twenty five thousand out of a $400,000 profit. You could, as long as you make a strong case and you put it in your file, I think that gives you the opportunity to defend it, you know, without much regret.
Art Wiederman: Now on this 199A, it's a pretty sweet deduction, isn't it, Don? I mean, there's a sweet spot for dentists. We got to keep their income what is it under, I think it's under four hundred well, we're trying to keep it under below 330,000 and I don't remember what the numbers for this year is.
Don Watson: 330 to 430 is the phase offering. So if you basically are losing a portion for every bit of that $100,000 you cross over. So if you could stay below the 330 in the adjusted gross income on your tax return, your personal return, then yeah, you're going to be in pretty good shape for getting the most benefit you can out of that deduction, whatever it is to offer you. But whatever it offers you, as you get over the 330, then it starts going down and down, down eventually to zero, should you exceed the 430 number.
Art Wiederman: Right. So if I've got a dental practice, I did really well. Patients are coming back. I'm making, you know, $430,000 and I've got an S Corporation right? OK, so Don, I mean, the 199 A works better if I have a lower salary, right? Because I got more going to the bottom line isn't that how it works?
Don Watson: That's correct. So yes, if you take out less than you're going to leave more, that's the pass through amount, the pass through amount, which has the 20 percent calculated. But again, you know, you have to consider what it is that you are going to be doing with salary and does it cross the line of some other item that you're trying to accomplish? So one parts a deduction, one thing could be retirement. It could be reasonable compensation from S-Corp standpoint, it could be meeting, trying to meet some other need that it has to be considered.
Art Wiederman: Yeah. So the whole point, folks, is that when you're looking at, you were at the beginning of the year setting your salary, you don't just do what you did last year. Take a look and see if it's the right salary for you based on retirement, 199 A, reasonable comp.
All right, let's talk about deductions. I mean, first of all, I'll ask each of you. So what's the strangest deduction you've ever seen a client want to take? They think about, you've been doing 30 years, you said. Come up with a winner.
Don Watson: Well, I'll tell you, I know you've told me a couple of stories from clients you've had. There is one when I used to work in our physician division and there was a doctor over there. And one of my bookkeepers is working with me, and she comes over and starts telling me about what she's seeing on there. And so as she starts asking the doctor owner, What is this that was going on in there and turned out that there was the doctor hired somebody to bring a pony for a child's birthday party and for the doctor that they invited colleagues of theirs, and therefore it was a marketing/business development event. But they were trying to put the party for their child on there with all the fixings to write it off as a business expense. So as we know, that kind of fits more in the entertainment, even if you could get into the business realm. Otherwise, if it's not even a business expense, then as we know.
Art Wiederman: You're the head of our dental division and there's a PNL and we have a chart of accounts and pony expense goes right between dental supplies and lab. Don't you know that?
Don Watson: Well, I guess, I'd probably put it right beneath the promotion alphabetical order, I think that fits better. OK.
Art Wiederman: All right. So let's talk about deductions, and I know that some people pay expenses personally and they reimburse. But Scott, this is important is like, you know, maybe some deductions that are doctors maybe aren't thinking about that they should, you know, they carry a personal business credit card. And, you know, maybe they just have the personal card and they go and they buy stuff for the practice. And they did. I mean, how do we account for all that kind of stuff?
Scott Haberman: Well, maybe going back to my favorite deduction Art.
Art Wiederman: I'm sorry, I forgot. Yeah, that's right.
Scott Haberman: I'll keep it short.
Art Wiederman: I've never done a podcast before. This is all new to me, so I'm sorry. Your favorite deduction? I completely forgot. I'm sorry.
Scott Haberman: I was looking through the detail and I now stop looking through the detail of the activity during the year. I just stick to the face of the income statement and balance sheet now, but I saw I'm networking and I was flipping through that because it looked pretty high and I kept on seeing this reoccurring charge of AdultFriendFinder and I accidentally looked at that website at the office, and I probably shouldn't have looked at that website. And so I closed that website and I moved on. So that was.
Art Wiederman: What category did you put that on on the 1120 S.
Scott Haberman: That might have been more of the entertainment.
Art Wiederman: Entertainment there you go.
Scott Haberman: Employee benefits. So any time I tell my docs say, Hey, if you're going to buy something for the business, make sure to use the business checking account, the business credit card and so forth. Try to stay away from using your personal cards just because keep it all in one spot so you don't have to track a bunch of pieces of information, but it happens. And so to really get that captured on your business tax return, you got to submit that expense for reimbursement.
And so it falls under what's called an accountable plan. Just like we have at our CPA firm, we have an accountable plan that's laid out there and it's in your I think it's in your employee handbook and it's within the business records that you submit your receipts to the business and the backup of, OK, here's what this was for and you get reimbursed. And so the company will reimburse you. So cash is leaving the company and that lands on the PNL, as well as an expense depending on the category you spend the money on.
And so if you're doing stuff outside of your company credit card or bank account, make sure that you let your CPA know. Let Don or I or anybody else on the dental team know, Hey, I spent all of this money on my personal credit card I want to make sure we capture this on the on the tax return because every dollar counts, right? Especially in California. Every dollar counts.
Art Wiederman: Yes.
Don Watson: I'd also stress the other side. You know, we're very regimented in the fact that, you know, you might be out and about and you've got the corporate checkbook, the corporate credit card, and then we see expenses that are of a personal nature that appear on the PNL and the balance sheet.
Scott Haberman: What no one does that Don? Come on?
Don Watson: Is it just my clients? I'm sorry. Your clients must not be a good. So it's very important that, you know, Scott says you've got two credit cards. I always keep one credit card business only one credit card personal only. I get that sometimes you're out and you just don't have that wallet or you can't locate it, whatever, but it just keeps the water from being too muddied. And us trying to figure out what's on there that shouldn't be and vice versa.
Art Wiederman: I want to talk a little bit now about kind of, you know, you know, doctors, sure, you want to write off everything that's legally allowable, OK, but let's talk about reporting income now. I have a you know, joking aside, my joke is that, you know, like my golf score tax returns are quoted approximately right. But when we talk about reporting income, Don, I'm going to throw this one at you. I mean, what is our opinion about? I mean, we get doctors to say, Oh, I don't, I don't deposit the cash or I don't put everything in, or how does that work? I mean, if the IRS gets wind of that, how does that work?
Don Watson: Well, I always had the mindset, and I got this question yesterday, just about audits in general. And you know, many times audits come under one umbrella, but they might expand depending on what the IRS sees. So you don't want to open up a Pandora's box by doing something which you feel is, you know, very innocuous. And all of a sudden that turns into something more, because if they don't trust you doing one sort of activity, one type of transaction, then they're going to probably want to look at other things. But no, we're very stern with, you know, the business brings in what it brings in.
And you know, we know there's certain types of businesses like bars, for instance, and restaurants, there's a lot of cash floating around and it's easy for those things to happen. It doesn't happen as much in the service industry when you got to professional services because most the time credit cards are paying, insurance is paying. But we do get clients who talk about anywhere between 10, 20, $30,000 a year, depending on their specialty and how they ask for payment, could come in to the front desk and front desk puts it in a drawer, and a doctor might at the end of the week, end of the month go, Oh, here's $1500 and you just ends up in the pocket. And then we realize that, you know, we've got revenue that's just kind of circumvented the whole system.
And that's not our desire. We certainly want to be the best advisers we can. And not that 15,000 a year might change the whole outlook of things. But being part of your numbers just helps us see the picture for what it is versus it just being behind the scenes and never being reported.
Art Wiederman: So, Scott, I have always been of the attitude of if you're going to be aggressive and try and cut your tax bill, be aggressive on the deduction side, but report all your income. What do you tell your clients? I'm sure you've had one or two clients who have said, Gee, do I really have to report this?
Scott Haberman: Yeah, yeah, absolutely. Yeah. And it goes back to, you know, the IRS has a matching system, too. And they tried to institute a couple of years ago. I think it's more a couple of years ago, maybe 10 years ago, where they started a rule for 1099 Ks for credit card processors. And on the tax return, they wanted you to lay out what was reported on the 1099 Ks and then what was reported outside of those. And so it's, you know, it's going to be, you know, only a matter of time until they start doing that.
They put the brakes on it for one reason or another, but they're going to start doing that and it's going to be it's going to be tough to get around that income reporting issue. But yeah, be aggressive with your expenses. Don't mess around with income. My father actually ran a business a number of years ago, and his CPA firm back in the day said, Do not mess with income, but we can play around with expenses and be creative there. So I agree.
Art Wiederman: I have a story. I had a client 20 years ago with a husband and wife, and their consultant called me up and said, I have to tell you they're not reporting cash. And I said, Oh, OK, what are we talking about? Eight to nine thousand dollars a month. So I said, that's six figures. She says, Well, what do you want to do? I said, Let's come into my office and they come in and. I after a little bit of small talk, I said, probably wondering why I called you in here and they said, yeah, and I said, Well, this is what my friend the consultant is telling me and I said, Is this true? And the doctor's wife said, Nod the head. Yes. And I said, Can I ask you why? He said, Well, because you'd make us pay taxes on it Art.
Hello McFly. So what I did was I said, I'm sorry to hear that you're going to have to find a new CPA because you remember folks not only Don and Scott, but you signed your tax return under penalty of perjury. They put people who commit tax fraud in prison, and they are very serious about that. So I would not, I would heed these two gentlemen's advice about reporting all your income. So Don, let's talk about the deadlines. I mean, April 15th this year to file personal taxes, right?
Don Watson: Is that the deadline?
Art Wiederman: Shut up. All right. So anyway.
Don Watson: I'm not used to that because the past two years it's not been April 15.
Art Wiederman: No, it's not okay. But keep talking about extensions. Let's talk about I mean, you know, everybody, we have doctors, both you guys have doctors who say, you know, I don't want to file extension, or I want to file an extension because there's less of a chance I'm going to get audited. So, so I mean, is there anything wrong with filing an extension and what do you have to do and extensions and extension of time to file your income taxes? But what not to, you still have to pay your taxes. Talk about how that all works.
Don Watson: It's tough to pay. Yeah, so I've actually over for 30 years, I've heard two schools of thought. I've had clients go, I want an extension because I feel it's a less likely chance of an audit. I've had people say I want to file because there's less likely chance of an audit. Where they got this information from it's usually one of their buddies. I have never heard anything from an official standpoint that either one promotes an audit more than the other.
So, you know, the extensions are going to go out for almost all business and personal returns, either on by March 15th or April 15th. And yeah, Art's right that once that extension is filed, whatever you expect to owe for that return should be sent in by that date. Because what will happen is whatever you didn't send in, that whenever the return is done and shows as being due, the clock will begin ticking on late payment as well as interest.
So you certainly want to make a valid attempt and technically extensions are first only be valid if you made a good faith effort to calculate an amount to and you send it in. And not to say that always happens because like cases, we don't always have information for a client. These kind of ways are winging it or it's just zero. But the goal is really to have enough to do a valid attempt at coming up with that amount to save you those dollars on interest and penalty.
Art Wiederman: So, Scott, do we have, I know at the end of the year they were trying to pass this Build Back Better, which had a whole bunch of tax provisions. Anything new that our dentists should be looking at that they maybe didn't have to face for the 2020 tax return, but now they're facing for 2021. Is there anything, anything new?
Scott Haberman: Maybe to bounce off Don's comments for the extension, you know, I haven't been a big fan of filing extensions for everybody. I know there's different schools of thought there, but you know, from all the madness that's happened over the last couple of years with last minute changes and tax law changes midstream and so forth. You know, there's a strategy around extending your tax return, even if you do file it on time.
I think you should still file your or file the extension if you're an S-Corp or your partnership because there's ability to do what's called a superseded tax return. And so if you file one of those superseded tax return rather than amended return, you can make changes with elections and other types of positions on your tax return that you can't do it in amended return. So I think it's wise from a pass through standpoint for S Corporations and partnerships, which most businesses out there are really filing extension, even if you do file the tax return on time.
So don't be nervous if your CPA filed an extension or maybe gets you done a couple of days after the deadline because you know the partnership audit rules that changed a couple of years ago, those are painful to amend partnership tax return. And so if you file any of those, just know that extending a partnership filing is probably the best choice that you can make outside of filing your tax return on time.
Don Watson: So and I'll jump on that too, because we actually talked about this week or next week that part of our extension process is just to do with mass. We call it we would call it a stealth extension, just getting them all out the system. There's a way that we set out. We can do that to do exactly what you said, because to do a superseded return is much easier than what the rules say put on us for amended returns, but we're just trying to give us the opportunity to do that.
Scott Haberman: Yeah. So our clients fees superseded returns are much easier filed an amended returns. Yep. And it saves you from other, you know, potential pain and anguish down the road from filing an amended return. But going back to your question, Art, that what were we talking about?
Art Wiederman: Anything new that everybody's looking at?
Scott Haberman: Well, number one, if you have a meals and entertainment add back in prior years, maybe the nondeductible meals of a couple of thousand bucks or a thousand bucks. Well, you know, maybe that probably shouldn't be an add back this year because they are trying to support the restaurant industry and are allowing 100 percent deduction rather than a 50 percent deduction on any meals for business purposes that you're getting at a restaurant or you're getting from takeout.
You can't capture that deduction for maybe some snacks that you bought from the store down the street to put in the office fridge for yourself. But more than likely, the meals. You shouldn't have any kind of add backs this year. And I think that's going to catch a lot of other CPAs, a lot of them follow. Same as last year. But, you know, make sure that you're looking at your tax return with your CPA. And if that's an add back, probably ask why.
Art Wiederman: And so, Don, I hear the IRS is having some problems, they don't have enough people, what's going on at the IRS that we should be, that everybody needs to know about it.
Don Watson: Quite right. Let me just jump on Scott's thing and the other. Yeah, well. Oh no. It's just a position that.
Scott Haberman: We took over your podcasts. Sorry about that.
Art Wiederman: Scott of Dental Finance and Management. All right. I'm going to go get a cookie or something.
Don Watson: But what's funny is the.
Art Wiederman: I hate you guys. Go ahead.
Don Watson: The secret is, they run like hell. Yes. So going to Scott's point is they don't always adopt. Not every state adopted the rules that the feds did. So you take that example of the meals and entertainment meals, which is what Scott was talking about. Well, the state of California said, All right. So while you may have deducted 100 percent of meals on your federal return, we as the state of California, will only allow just 50 percent from the same rule from years ago.
But then you have to converse. A few years back, the feds said, no more entertainment. You know, you're going to take a client out to take them golfing or something of that nature. Take them to a sports event. Well, now the entertainment is not deductible. Well, California is still under the 50 50. So you could possibly in a state like ours, have reduced your meals back down to 50 percent, but increased that zero entertainment back up 50 percent. So it's just.
Art Wiederman: My head hurts.
Don Watson: You pick a state and who knows.
Art Wiederman: Oh, I know. So let's talk about 2022. So we're going to get the stuff in for 2021, folks. Please, please. You know, I, you know, take a week, take a Saturday, you know, get your stuff in and then, you know, it's going to make it better. You're going to get a better result. Joking, aside from your CPA, whether it's us or somebody else, if you send your stuff in the middle of February, end of February, because we're going to be a little, you know, we're not going to have everybody banging on our heads to do this.
But let's talk about 2022. Scott, I mean, you know what? It's February now. We were just beginning of the year. What should people be thinking about for 2022 with planning? I mean, what do you do to plan for your clients at the beginning of the year? And then, Don, I'm going to hit the end of the year with you.
Scott Haberman: Yeah, yeah. So right now, it's OK. What's the plan for this year and not just this year, 2022, but twenty three and beyond? You know, I like to look at the business as a whole, but then also, OK, was this the side effects tax purposes? So a lot of these group practices out there that are expanding and there's heavy TIs that they're putting into place and a lot of equipment purchases. And we might have used a bonus depreciation for all of that in the past. You know, California has their limitations, obviously, and so Section 179 might be more valuable in California. That's also capped at about a million bucks of additions this year.
But bonus depreciation. That's another area of the tax code other outside of 179, and that allowance is 100 percent deductible in the year you purchase the fixed assets. But that's actually trickling down to 80 percent in 2023 and then 60 percent 2024 and then 40 percent in 2025 and so forth. So just be on the lookout for that long term planning because tax laws are changing, even though or excuse me, the tax benefits are changing, even though there is no tax law changes because of the TCJA Trump's tax cuts that he put into place, you know, four years ago. Know the QBI of the 199A is going away in a couple of years. So you got to look long term. What's the prospects for the practice? And what are all these moving parts. So try to get that multi-year projection in your head and talk to your CPA about that.
Art Wiederman: So Don, walk through kind of what the process is. I mean, I know Scott, you guys both look at where you at the beginning of the year, go down to October, November, December. We get past October 15, the last extension date. We think, OK, we take a little bit of a breather and then we get into planning season and then we meet with every one of our clients. And doctors if you're not meeting with your CPAs and you know, my podcast is not an advertisement for our services, but if you don't meet with your CPA at the end of the year, you need to meet with your CPA. You're leaving thousands of dollars on the table.
So Don, what do you do in preparation for a year end meeting? Because this is important stuff.
Don Watson: Yeah. And to be honest, the end of the year, everybody, after a couple of weeks off, that's for the most part the rest of November, December is getting together. And I'm going to say by and large, if by 80 to 90 percent of our client base, you know, some decide, you know, that things are going on, too busy, can't contact us. And Art's right. It's nice to get together. It could be as involved as you want it to be. It could be very superficial, but just talking through what's going on because there could be something that we could identify that's worth considering before the end of the year comes.
Because in a lot of respects taxes end on December 31st. There's very little you can do post December 31st. So having that, talk about it beforehand? Helpful. So what we end up doing is we get our clients information together. Usually, it's the S-Corp information we tie in, get a financial that we can work with. We talk to the clients. Find out what is it you expect to happen for the rest of the year? Income, expenses, payroll, bonuses, what things are you going to buy?
And we talk about the issues for that year. I mean, this year, like the past couple, is just laced with a bunch of stuff. Did you get your PPP 2 forgiveness filed for? Did you address possible ERTC? You have, you know yet, or will you be doing it? You know, maybe you did or didn't pay back your EIDL the loan from 2020. So there is just some housekeeping issues. There are some planning issues, strategic issues that you know, and in the end, sometimes there's great things that you end up doing that definitively you identify as helpful. Many times we just sit there and we have some things that we want to clean up by the end of the year, but we just simply are able to look forward and go, what is it that you should expect to see in April four or five months out?
What we certainly don't want to avoid at the very least or we want to avoid the very least, is you getting that tax return in April going, holy crap. I owe $25,000, $17,000, whatever it might be. But if we're able to look forward because of what we know and what's coming down the pike in this current year, we could at least plant the seeds and prepare for that. So that's what the tax projection season is all about.
Art Wiederman: Yeah, one of the things is we get and the three of us have gotten over the years you got I'm not going to say, close to 100 years of experience, but pretty damn close.
Scott Haberman: Three quarters of that's from you, Art, right?
Art Wiederman: Exactly. I hate you. I really do hate you. Why did I have you on my podcast? This is terrible. But the fact of the matter is, folks, you don't have a legal obligation to pay one dime more than what the law says that you need to pay. And we have a saying, pigs get fat and hogs get slaughtered. If you really, really take advantage, folks, in this Build Back Better bill, there's $80 billion in there to go after people that are breaking the tax law and to beef up the IRS audits.
And they have to because they just doled out about eight to 10 trillion dollars, they got to find a way to pay some of this deficit off. They can't keep running this deficit up this way every year. Or I don't know, it's not going to be pretty. But you know, if the number one way guys that we get new clients, I truly believe is how many calls have you gotten from a doctor? Oh my God, I just finished my taxes and I didn't know I had to pay $83,000 and I got one week's notice.
I mean, that's the part about the planning part is that, yeah, we can do two things right. We can give everybody notice, if they're going to owe money, how much they're going to owe and give them six nine months and notice about it. We meet with them in November. They've got till April to pay the taxes in most cases, but we can also try and reduce and that's the part of tax planning. Right guys?
Don Watson: Exactly agree.
Art Wiederman: Yeah. So anything else that we should be sharing with our doctors about April 15th and getting ready for this process and what we can do to help them and save them, maybe save them some money. Any last thoughts? I really appreciate your time today.
Scott Haberman: I think looking not only at the federal changes that we've gone through the last couple of years, but also the states, and it's kind of a combination of the two actually where there was a salt cap of $10,000. So the ability to deduct your real estate taxes and your income taxes, your state income taxes on your federal income tax returns. So that's been capped out to essentially most taxpayers out there that are making over a couple of hundred thousand dollars a year. So if you're making over that and you own your own business, you're not getting that every benefit of that dollar that you're paying in state taxes.
So a lot of states are putting together a workaround for that. And it's been blessed by the IRS, and so be on the lookout and talk to your CPA about that. That's not only California, but a lot of the states are moving in that direction here in Colorado, we're doing the same thing in 2022 think Oklahoma, Wisconsin, Maryland, I think, have had it in place for the last year or so. And so there is an opportunity to deduct every dollar of your state income taxes.
And some CPAs might have been putting you on hold because of Build Back Better program that were supposed to make some changes to that $10,000 limit. So you don't want to do a bunch of extra work and then, you know, the bill passes and now you're not even subject to that limit. But that's something to be focused on because it could save you tens of thousands of dollars for federal income tax purposes. So that's a big deal. It's out there.
Art Wiederman: And I know Don in California we have what's in AB 150. We have a lot of listeners in California. How does that work?
Don Watson: Yes. The AB 150 was the state's regulation that was put in place and really is the state's version of what they call the pass through entity tax. And, you know, as Scott said, many states have gone that route. I think they're pushing 20 25, maybe at this point in some form or very close to it. But it's about that whatever the taxable income is going to be in the state of California, you're going to pay 9.3 percent.
You know, in the beginning, it was uncertain. Do you pay a little bit? Do you pay more or less? What happens? But in the end, you got to pay exactly nine point three percent. If you pay more than the debate is what we're trying to figure this all out. What happens that extra money? Likely going to be refunded or applied to the next year. If you paid too little then you have to make it up when you file the return.
The thing is, they want that 9.3 percent by March 15th. So imagine if I'm not able to do that return Art, that 9.3 percent, we're going to take a pretty good shot in the dark. And if we're short, by the time we do the return summertime, September 15th, interest and penalty, will have reign on that money.
So we're all feeling our way through this particular process. And I think many of us were timid early on back in the fall as it came out, we really didn't know how to approach it. We had a lot of unanswered questions. AMT is what's considered to be, you know, one of those things that could pop up, the deduction itself. There are certain purists in the tax law that said, if the amount of tax is not fixed and determinable and a lot of times that can't happen until a return is done, if you make a payment by the end of that tax year, it is deductible. So while we sent money out by December 31st, there were some that weren't sure is deductible because you're just sending in, quote unquote an estimate, a deposit.
But we think that a lot of our clients, clients, the ones that are cash basis, not accrual basis, are going to get that deduction. And whatever we do in 2022 for the 21 year return would also allow that to be a deduction to just be in the next year. But based off of that same tax year. So that would just be a timing issue.
But we're going to be talking to clients about that. Do they want to participate in that program? And we're going to do that in conjunction with the extension. That's so that's part of what I'm going to be looking at here in the next week or two is to talk to clients about this particular process and see if they if they're interested in trying to get a deduction through this versus one that they can't get at their personal tax return level.
Art Wiederman: It's crazy. It keeps changing. I mean, I've been I've been doing tax the first year I did tax returns. Let's see. I moved to California in 1975. I went to work for the first guy. I worked for Larry Shipley in nineteen seventy seven. I mean, it's been, I think, you know, forty four years since I've been, it's and it changes all the time.
Don Watson: Was that when you did it by hand?
Art Wiederman: And yeah, no, we did. We actually thought we would have is so guys, we have.
Scott Haberman: So that was actually stone knives and bear skins.
Don Watson: Abacus, not a 10 key.
Art Wiederman: Yeah, yeah, yeah. Someday you'll be old Scott and your kids will call you old and you won't have hair like me. So there you go. But, I mean, it's changed. I remember when we used to have to go input, we input the stuff into our big, you know, mini computer. They called it, and then we would basically send it to the processing center in our town and then we'd get it back. And if there was one mistake, we had to go and do it and send it all the way back. Now we do it in-house, but it's changed a lot.
And like in dentistry, technology has definitely come the accounting profession. Well, listen, guys, I want to tell you, I really this is fun. I wish we could do this for hours. And you know, again, folks, we are going to let each of these guys give out their contact information here in a second. We are so appreciative of the opportunity to serve the dental profession. I've been in the dental profession for 38 years. I will tell you the dentists are some of the most wonderful human beings that I have ever met.
You guys save lives. You change lives for the better. And we are honored and humbled, joking aside to work with you to help you get to your business and personal financial goals. So, Mr. Haberman, if somebody wanted to get a hold of you and talk to you about taxes or Washington football, whatever it is. What's your contact information?
Scott Haberman: So I think the best way to contact me is just give me a call nine seven zero nine nine nine eight nine three two. My email's too long to see on the air. It'll take all night. It's probably worse than Art's.
Art Wiederman: So, yeah, we're about the same. So Don, what's your contact? You have a shorter name than we do, so you might want to give that out.
Don Watson: I do. And the good thing, our firm keeps us pretty consistent between how our emails appear. So it's first initial last name, so D. Watson and just like Art, it's gonna be dwatson@EideBailly.com and my direct phone number at the office is six five seven two seven nine three two seven three.
Art Wiederman: Fantastic. Ah, my good friend Scott Haberman and Don Watson. Thank you for your great expertise for all you do for our dentists, for your friendship. It's really fun to hang out with you guys. I have never, you know, I see Don on a regular basis. I have never met Scott other than on a computer screen. So we are keeping our fingers and toes crossed that for the first time in two and a half years and end of April and in Napa, California, that we're going to have a meeting of the Academy of Dental CPAs.
Mr. Haberman, hopefully I'll get to give you a big hug and maybe buy an adult beverage or something while we're there. You'll really enjoy our meetings. We really have a good time. And so thank you, both guys. Hang with me as I take the podcast out.
Folks, I want to remind you to go on to our partner, Decisions in Dentistry website. www.DecisionsinDentistry.com. Great clinical content, 140 Continuing education courses for a very reasonable annual fee, go to their website. Go to the website of the Academy pf Dental CPAs www.ADCPA.com.
Give us a call at Eide Bailly. We are here to help you. We are taking new clients and we'd love to help you. If you're, you know, if you. I always tell people if you have a really good CPA and you have a good relationship and they're doing all the stuff that that we do for our clients and that we're talking about, there may not be a need to change. But if you're not getting the service that you think you deserve to get and you think you're paying too much and you're not having these conversations like we've been talking about the last hour, you should give one of these guys a call. They do a really good job.
Remember to make sure that you file before March 31st on the HHS Provider Relief Funds portal. If you need some help with that, that's something that I'm doing. My direct number is six five seven two seven nine three two four three and I'm at awiederman@EideBailly.com.
With that, folks, I want to thank my good friends, Don and Scott, for coming on the podcast. I want to thank you for the honor and the privilege of your time. Please tell your friends about our podcast. Please write a review. You can download our podcast through many of the Apple or all the other ability, all of the other technological things that I probably don't understand. You can download our podcast, and we have thousands of people that listen every single month to our podcasts, and we thank you for that. And with that, folks, this is Art Wiederman for the Art of Dental Finance and Management with Art Wiederman, CPA, and we'll see you next time.