In this episode of The Art of Dental Finance and Management podcast, Art discusses the current state of the economy, where he thinks the economy is headed, and how it might affect your dental practice in the long term. Art also speaks on the importance of owning real estate and how to best navigate this tax season.
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
- Decisions in Dentistry magazine
- Academy of Dental CPAs
- What Business Areas to Focus on in Your Dental Practice
Art Wiederman, CPA: 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 CPA. Welcome to my podcast. I am a proud Dental Division director in the Tustin office of the CPA firm of Eide Bailly, again located in Tustin, California. And our firm works with about a thousand dentists in all of our offices across the western United States and about 300 of them in our office in Tustin. And today, it's just going to be you and I. And I really enjoy the podcast where I just basically sit in front of the microphone and talk to you. And we're going to talk about several interesting topics today. I really want to talk a little bit about the economy and where I think it's going and how I think it it's going to affect your dental practice for your long term thinking because we've got a lot of different forces clashing. We've got all kinds of stuff going on. We have inflation. We have higher interest rates than normal. We have low unemployment. What does all that means? So we're and talk a little bit about that. I also want to talk about ownership of real estate, your personal residence, and also a dental building. And then we're going to talk a little bit, since it is the beginning of March when we're recording this podcast. It is tax time again.
You know, I was a dental CPA for 44 years. I still am a dental CPA, but I was a dental CPA who was actually in the trenches dealing with tax season, and I don't do that any longer. My wonderful, wonderful partners, Don Watson and Pam Chamberlain test and take care of that. I'm still here for all of my clients. Most of them have my cellphone numbers so they can call me if they need me. And but, you know, it is the time that we need to be thinking about taxes not only for 2022, but tax planning for 2023 because you don't want to get behind the eight ball. But before we get to all of that, I got several things to tell you.
First of all, I want to tell you again, as I do every week about my every every podcast, about my wonderful, wonderful marketing partner, Decisions in Dentistry magazine, Lorraine Kent and her incredible team in Southern California have a magazine and a great website. Again, it's www.DecisionsinDentistry.com. They have the best clinical content of any magazine that you're going to find. You want to learn anything about anything that's clinical in dentistry. They are the ones that are going to get it to you. You can also purchase up to 140 continuing education courses for a very, very reasonable price. Go to www.DecisionsinDentistry.com. I want to tell for those of you in Northern California, I want you to save the dates June 10th in either San Francisco or San Jose. We have not nailed down a location yet and June 22nd in sacramento, we are doing in conjunction with the California Dental association a live half day seminar called Now and Next in Dentistry Mapping Your Career. And for those of you who are just getting started in your careers, you're probably somewhere in the first 5 to 8 years of your career. Maybe you are. Maybe you're in specialty school. Maybe you're doing a general practice residency. Maybe you are an associate dentist in a practice or a large group practice, or maybe you're looking at buying your first dental practice or going into partnership. We got you covered. And the California Dental Association has put together a great panel of speakers, myself included, to talk to you and to spend time with you to talk about these issues. Where are you now? Where do you want to go? What choices you should you be looking at? We're going to be talking about insurances with the TLC folks. When we talking about banking with the Bank of America. Folks, you'll be there. I will be there. Katie Fanelli and her wonderful team from CDA will be there to talk to you about what you should be thinking about. So if you're interested in registering for those live seminars, go to www.kda.org and go to live events and webinars and you can register for those. And I'm really excited about about these webinars. Also, I'm going to be speaking at the California Dental Association Convention in Anaheim, and that is May 17th to the 19th, I believe I'm going to be speaking to dentists who are looking at buying dental practices. I'm going to be speaking at the spot, which is a wonderful place. They put different people come and talk at different times during the weekend. Both of those, I believe, are on Saturday. So you'll be able to look in the schedule when you get to CDA. We also have a booth at CDA at Eide Bailly and Art Wiederman. Madura, what's partnership? So come come around and see us at our booth. So I will be at CDA and we're very excited about that.
I do want to touch on, as I have been touching on for months and months and months, because we're getting down to the wire here, the employee retention tax credit and there's been a lot of press about it. A lot of a lot of web websites have popped up, companies have popped up, a lot of social media, tons of social media posts from all different types of companies telling you that you should be eligible for up to $26,000 per employee for the employee retention tax credit. And I want to just share with you again that if you haven't received a phone call or multiple phone calls from these companies, you probably will. And we at Eide Bailly have taken the position that for the most part, unless there is a specific government shutdown that happened in your community, that would be a state, local or county shutdown, that unless you met the mathematical tests of the employee retention tax credit, that we are not claiming those for our clients. There are many companies out there that are taking the position that dentists are eligible because of supply chain issues, because of inability to get supplies, because of social distancing and reduction in revenues and the effect on their business. And all I can say, folks, is check with your financial advisor. If someone tells you that you're qualifying for all of the credits of all of the quarters of 2020 and 2021, check with your financial advisor and be aware doctors that number one, if a company just says answer a few questions and fill out this form and we'll get this done for you. If they don't ask for your PPP filings and applications, that's a problem because that has to be taken into account. And if they just base hundreds of thousands of dollars on a short phone call, that can be a problem. And if you do choose to claim this credit based on what one of these companies is proposing to you, a beep, beep, beep of the understanding, I'm mumbling be of the understanding, you need to understand that the statute of limitations that the IRS has to audit your employee retention tax credit filing is five years and the normal statute of limitations for filing tax returns and amending tax returns is three years.
So let me give you an example just so you can have this information. So let's say that you claim employee retention tax credit for the quarters of 2020 and all three quarters of 2021, and that's a quarter of $1,000,000. Number one, you will have to file amended tax returns to add back to your practice income. The amount of the credit in each year that you claim the credit because you can't take a credit and a deduction in the same in the same year on the same wages. So you can't do that. So you're going to lose depending on what your marginal tax rate is, probably anywhere between 22 and 37% of the credit. You're going to have fees to amend your tax return terms. You're going to have the fees to. To have this work done by any company that does it. And we've done 125 dental practices. So, you know, those fees, they all add up. So at the end of the day, most of our doctors are not going to receive 100% of the number they might receive, I don't know, maybe 60% of the number. But the thing you need to understand doctors is that if the IRS audits you and they say, no, no, you don't qualify, there was no government shut down and you don't qualify for all these quarters. They could audit you in year four, in which case they can disallow the $250,000 in credit. And then you'll go back to your CPA and say, well, wait a minute, I can get some of that money back because we amended our returns. Right? And your CPA or your financial advisor tax preparer is going to say to you, no, sorry, that statute of limitations was three years and you can't amend your return. So you're going to get double dinged on that. All I'm saying is get some opinions, get some professional advice. If you do choose to claim it for every single quarter that it's available because of non 50% or 20% reductions in your revenues. I would put that money in a safe place because the IRS does know that there are lots of companies that are springing up Now. That is not to say that all of the companies out there that are offering this service are not acting legally. I am not saying that at all. All I'm saying is, is that we at Eide Bailly, unless there was a specific government shutdown in your state, city or county, we are not taking the position that you qualify for the RTC other than if you meet the 50% rule of 2020 or the 20% rule of 2021.
Okay. So with that said, I want to share one more thing with you. And for any of you out there that are planning meetings, maybe you have a study club, dental society, state, dental societies. I love if you haven't figured that out after almost four and a half years of doing this, I always tell my friends I was on the golf course with a good friend of mine on Friday. We were playing and I said that I have three happy places, not necessarily in any order. Happy place. Number one is on a golf course and happy place. Number two is on a fly fishing lake, river stream and happy place. Number three is either in front of a microphone like I am right now, or giving either live or virtual lectures to dental groups. I have spent 38 years of my professional life working with the dental profession. We will be at 39 years come September, and I am very proud of the work that I've done and I feel like that my legacy in the dental profession is to give something back to all of you. We did a lot of it during the pandemic. We helped a lot of people get through that horrible, horrible time. But if you have a study club, if you have a local dental society and you're looking for a speaker, whether it be on a webinar or a live seminar, I would love to talk to you. My office number is 6572793243. My email is aWiederman@EideBailly.com. I just love doing this. When I spoke at the the Academy, the Academy General Dentistry meeting last summer, it was the first time since the pandemic had, I'm not going to say ended, but had subsided, if you will. And I just walked off of there and I said to the host, I said, you know, I just keep forgetting how much I really enjoy standing in front of an audience and helping them meet their personal and financial business goals. So you need somebody get a hold of me and we can talk.
All right. Let's get into the gist of the podcast today. I want to start talking about the economy. What are consumers doing? What does it look like and what should you be thinking about? So, you know. In the last ten years, this economy has gone up and it's gone down and all the factors are different. And, you know, we have war, we have inflation, we have interest rates, we have unemployment. So let's let's get into talking about all that. So the first thing I was going to share with you, which is an interesting thing, is that personal spending in this country, according to the Commerce Department, went up in January of 2023 by 1.8%. Now, that is despite the fact that the Federal Reserve has raised interest rates numerous times in 2022 and they raised them again, 25 basis points. This year, earlier this year, and we are potentially looking at more interest rate increases. So remember, folks, here's how this works. Because of the fact that inflation for last year was in the neighborhood of 8 to 9%. What that did was that drove interest rates up. And, you know, people were they were in in deep trouble financially. So the government needed to cool the economy down. They needed to bring prices down. Interest rates on homes went up and weren't high about interest rates in a minute. Inflation, like I say, was 8 to 9%. It got to the point where I went to the store and a dozen eggs were $9 a dozen. You know, the cost of everything has gone up so much in every single aspect of our lives. So the only tool that the federal government has is the federal interest rate, the federal funds rate that they can adjust and they have adjusted that significantly. But even with that, personal spending has gone up because the whole idea is that government wants the economy to cool down. They want spending to drop a little bit. They want demand to go down so that, you know, supply goes up, prices go down, and that will bring that that will then allow them to bring interest rates down.
So why is that happening? Why are people spending more money? Well, they have more money in their pocket. A lot of reasons. Number one, we've got strong job growth. You got to remember that the pandemic retired. A lot of people a lot of people just said, you know what, I'm done. I don't want to work anymore or I want to do something else or I want to be self-employed, you know? But we still have strong job growth because the economy grew and people needed people to work. The number one challenge that you have in your dental practice is finding employees. And we've had strong job growth, 517,000 new jobs, according to the U.S. Labor Department. We're added to the U.S. economy in January, and the unemployment rate for January was at 3.4%. Now, the government was thinking that if they increased interest rates, companies would start to cut back and lay people off. Now, some of the larger tech companies have done that, but a lot of companies have not. So that's why the government is continuing to look at interest rate increases through at least the first half of 2023. And rising wages is another reason people have more money. 4.4% wages have gone up, according to the Labor Department this year, over a year ago. And this is not a political comment. Remember, guys, those of you who listen to me know that I don't talk politics on this. There are lots of other podcasts. If you want to listen to politics that you can listen to. But since Joe Biden became president, the United States economy has added 12.1 million jobs. And another reason that people have money in their pockets is because Social Security benefits rose by 8.7% in January of 2023, which gave tens of millions of retirees more money in their pocket each month. So, for example, if you're getting, you know, $3,000 a month in Social Security benefits, you know, 9% of 3000 is $270, which is about 30 $300 a year. Multiply that by tens of millions of people and that's a lot of money going into the economy or going into people's pockets. You also have to remember that there's a lot of people out there who put their lives on hold during the pandemic who didn't spend and saw their savings balance goes up, go up, and they got government relief. I mean, dentists got they got HHS provider relief fund money, tens in many cases, hundreds of thousands of dollars. They got employee retention tax credit money. They got PPP to round hundreds of thousands of dollars. So, you know, and then individuals got, you know, the $600 payments that were given out two or three times an unemployment benefit. So there's a lot of government money which unfortunately ran our federal deficit up about $10 trillion. It was about 21 trillion, 22 trillion before the pandemic started. We're now at 31 trillion and growing. That's another conversation for another day. So, again, it creates a problem, right? We want inflation to drop, but if we keep having higher consumer spending, there'll be more demand and supply prices will continue to be high and the Federal Reserve will continue to raise interest rates. But on the other hand, and this is the double edged sword that the government has. If consumer spending goes down, which is what the Fed wants, what the federal government wants, will it cool the economy too much? Will it cool it so much that more and more government I'm sorry, more and more companies will start laying people off and it could put us into a recession now. The textbook definition of a recession is two or more consecutive quarters of negative economic growth, which we actually had, I believe it was last year. But this economy just keeps going. It's stronger and stronger and stronger.
I was watching a story this morning, today's Sunday and I was watching one of my favorite programs is Sunday Morning with Jane Pauley. She's got some just really, really neat stories that I like to watch. And the first story was about the fact that we have about, you know, $50 billion that has gone into the economy that was created by the federal government on a bipartisan basis to start building plants in Ohio and Arizona and other places in the United States to manufacture chips. Because if you remember, folks, one of the big takeaways that we got from this pandemic is that we were beholden to importing chips. Chips for your iPhone, chips for your computer, chips for cars, chips for everything in your kitchen, chips for everything that we use. These are computer chips. And we were down to the fact that the United States manufactured about 12% of those chips and what the government figured out with the pandemic and what Congress on a bipartisan basis, I did say bipartisan folks, they acted together on this, was that we here in the United States have to manufacture more of these chips because if something happens in the future, again, are we going to run into the supply chain problems that really hurt our economy? So, you know, that's that's what's going on, where, you know, manufacturing's making a comeback.
So interesting comment. I read in an article from NPR a gentleman by the name of Jonathan Silver of Affinity Solutions, who tracks credit card usage by about 100 million people, says we're bullish on 2023. We think spending rates will maintain themselves. And then another comment I read from Wells Fargo's economists estimated that households have about ten months of spending power if they continue to deplete excess savings. Now, I will tell you that credit card balances are starting to go up. They're going up by hundreds of billions of dollars. And what's happening is people have been cooped up for two and a half, three years. They want to get back to their normal lives. They want to take vacations. They want it you know, they want to buy cars. They want to buy this. They want to buy that. They want to go. They want to do and they're starting to run. Some people are starting to run out of these savings and people are running up credit card debt. And you guys know my feelings about credit card debt. Credit card debt is the devil. And I have my wife, Lynn and I have we each have one credit card. They each have a balance. The maximum we can put on each one, I think, is $15,000. And it is on automatic payment every single month that it is paid off for out of our checking account. I refuse to pay the 22 24% interest rates that the credit card companies are charging because it's unsecured debt and people file bankruptcy and all these kinds of things. Interestingly enough, also Walmart, the nation's largest retailer, is projecting almost only modest sales growth this year. As they say, consumers are focusing more on staples and less on discretionary spending. Interesting point there, but I guess it depends on who you're talking to.
But let's talk about what does this all mean for dentists? This is a mixed bag of economic news. What it means is that you as a dentist, you need to stay the course. And let's get back to the core of what I believe. You really need to focus on, what your vision needs to be to your team and what your vision needs to be to your patients is that you are there to improve people's lives. You are not someone who fixes teeth. You are someone who is about a better job, a better life, a better self-esteem, a better everything. So just some things I want you to remember is that you? Number one, don't diagnose a patient's pocketbook. You could hear someone who says, Oh, woe is me. My wife just lost her job. My husband just lost his job. We went into our house, went into foreclosure. I mean, you could hear all kinds of things. You need to listen to that. And, you know, one of the one of the verbal skills I love is, you know, you're going to have patients who are going to ask you for a deal or they're concerned about the treatment or what the cost is. And, you know, one of the things you say I learned this from one of my consultant friends is, you know, Mrs. Smith, Susie at the front desk is a master at fitting our patients dentistry into their budgets. We are here for you for the long haul, and we are here to take care of you and to make sure that you have the best possible health that we can provide you with as your health care provider. You want to continue to remind patients of the benefits of your dentistry, how it's going to improve their quality of their life, not negative. Well, if you don't do this crown, your tooth is going to explode and you're going to wake up at 3:00 in the morning and you're going to need a root canal and you may not be able to find it. It does not you don't want to say that. That's not what you want to say, that there are benefits, the benefits of how you're going to look, the benefits of how you're going to feel, the benefits of how people are going to recognize what a great smile that you have, how it's going to improve the way you chew and can eat food and the types of foods you can eat, and how it's just going to improve your quality of life. And, you know, people want to hear, you know, you're asking me to spend thousands of dollars. Would you tell me why? Tell me why I should do that? Okay. I think the most important thing doctors that you need to do is to build trust with your patients. 100% is building trust. And this is especially important for doctors who are either starting a practice from scratch or purchasing a practice or starting as an associate dentist and seeing new patients. You have to build trust with them. I know for a fact that my clients over the years that I've worked with them, the majority of them will say to me, Art, I trust whatever you tell me, just tell me what to do. And your patients, for the most part, feel that way towards you. But until you can get to the point that your patients do not think that you are trying to sell them something or that the money is the biggest concern for you. Oh, my God, I've got to get that to crowds so I can make payroll. If they believe that they will not build the trust and you must show them that you care about them and that you care about their family and that you're a human being. If they trust you and they don't believe that you're trying to sell them something, they are much more likely to accept your treatment plan. That is critical. And that's not only from you, doctor, that is from your team. Your team has to have a culture. It's got to have a world class culture where when the doctor diagnoses. A quadrant of crowds and doctor leaves the room and left in the room is the dental assistant, and the patient says so. Dental assistant. Do I really need this? That dental assistant needs to say. Mrs. Smith, let me tell you something. We have the ultimate trust in Dr. Art Wiederman. He is as good of a health care provider as we know. And if he thinks that you need this work done. You can take that to the bank we have. You should have total faith in what he does. And if if your team is not prepared to say that to your patients, then you've got a culture issue. And that's another podcast that we're going to talk about. And I want to remind you of one more thing, doctors, that the patient is ready, not when you're ready to do the dentistry, but the patient is ready when they're ready and when the dentistry fits into their lives. So if somebody is saving up all their money to, you know, get a bigger house or to put on a wedding, I talked to a friend of mine who just married off two of his kids in 90 days. I said, How did that work? He says, I'm never doing that again. I said, No, doesn't sound like it'd be a lot of fun. That person might not be ready for your dentistry, but they will be ready when they're ready. And all you can do is to educate them about what the benefits are, the pitfalls of them not doing the work where it is appropriate.
And doctors, again, we got, you know, great dental conventions coming up here. You know, where at the beginning of 2023, we've got the ADA, we've got we've got the CDA Conventions in May and September. We've got all your local state, your your state dental conventions. Hinman We just in Chicago, Midwinter just happened, you know, Yankee, I think just happened. So all of these great dental conventions, when you go to these dental conventions, doctors promise me one thing that you're going to go to a course on how to talk to your patients and case presentation. I think that is absolutely huge. So, again, to put a bow on the economy, you know, we have a good strong economy. The economy is growing. Unemployment is not growing by leaps and bounds is still 3.4%. Interest rates are not going to go down in the short term, but. Doctors. This is a great time to be a dentist. My dentists have done really well in 2021 and 2022, coming back from the pandemic, One of the best recoveries from the pandemic has been the dental profession, and everybody is looking forward to a great 2023.
Okay, let's go on to the next topic. And that's real estate, real estate values, dental office ownership. I think that there are four key assets that you have as a dentist now. You could have more, but one of them is your home. One of them is your retirement plan. One of them would be your dental office building if you can own your building. And the fourth one is the actual equity that you have in your dental practice. So we're going to talk about two of those right now. One of them is real estate, your personal residence, and the other is dental office ownership. So let me give you some statistics on homes right now. So according to the real estate brokerage firm Redfin, U.S.. Home values have dropped 4.9% between June of 2022 and December of 2022. So according to this study, the total value of all residential real estate in the United States dropped from $47.7 trillion. That's trillion with a T to $45.3 trillion. Now, we all know that home mortgage interest rates have gone up. So home mortgage interest rates for the longest time for years were hovering in the 3%, three and a half percent range. According to bankrate.com, the national average as of now beginning of March of 2023 for a home mortgage owner occupied is 7.06%. From the people that I've been talking to, it's somewhere between six and a half to 7%, depending on what part of the country it is, whether you buy down your mortgage and all that kind of stuff. So it's 7%. What I can tell you is that that is not a ridiculous interest rate you're looking at. Oh, my God, it's 7%. It's ridiculous. I can't do that. Well, when when my wife, Lynn and I bought our first home, now she tells me this. This was in 1986, and I'm not going to tell the whole story because I told on the podcast. But we were able to buy our first home in large part through a gift from my mom, and primarily from the fact that my wife, Lynn, went on the TV show The Price Is Right in 1986 and won $10,000 in cash. And that was the impetus of our first the down payment for our first home in Huntington Beach, California, when when the dinosaurs ruled the earth and when I had more hair and it was much darker in color. But anyway, interest rates, she tells. She remembers 15%. I was looking back then and it was closer, I thought 11 or 12%, but that's what it took to get a home. Back then. That was the interest rates. So 7% or six and a half percent is not terrible. So I wouldn't go absolutely bat crazy because interest rates are at 7%. We'll talk about that in a second.
According to Yahoo! Finance, the median U.S. home price in January of 2023 was up one and a half percent from 12 months ago, and the median U.S. home price was $383,249 now. For my listeners in Southern California and Northern California who are listening and are about ready to, you know, turn off this podcast and say, Weiderman, you're an idiot. I will mention that the median home price is reported by the California Association of Realtors. In January of 2023 was $738,250. So just about double the national average is the median home price here in Southern California. So I understand that the value of homes in Miami, Florida, where people moving. The state of California lost two, I believe it was two seats in the House of Representatives, because for the first time, our population has gone down. People have moved out to California. The weather is wonderful, but it's really expensive to live here. The value of homes in Miami, Florida, grew 19.7% over the last 12 months. I mean, they're skyrocketing. Homes in Texas are similar numbers. People are moving to Texas. People are moving to Florida. They're moving to sunny, better weather states that don't have a state income tax. So I want to encourage you, if you don't own a home to buy one. Now, that's easy for me to say because most homes require a minimum of a 10% down payment, and that gives in to planning to save a down payment, or if you have it. I would go ahead if you can muster the down payment. Like I mentioned, six and a half to 7% is not ridiculous. It is more along the normal range of what these home mortgages are. But for those of you in your thirties, you probably can't remember a day back when your home mortgage interest rate was six and a half or 7%. So let me give you just an example. Let's say you go and get a $500,000 mortgage. And again, my friends in California, I know that's going to be a different conversation. But for a 500,000 mortgage for the rest of the folks in the United States, the difference between a 3% loan and a 7% loan is about 1200 dollars a month. Now, that sounds like a lot of money and it is a lot of money. But if $1,000 of that difference is interest and the government pays for 40% because you get to write your interest off, that saves you $400 a month. It's $800 a month in an additional payment that you have to make. And again, it seems like a lot of money, But there's a couple of things you got to remember. Number one, you're going to say, well, I'm just going to wait till prices come down. Well, here's what's going to happen, folks. Interest real estate runs in cycles. So when interest rates start coming down to six and five and four and 3%, what's going to happen? Okay. There are going to be more people going into the market. Oh, everybody's thinking now's a great time to buy a home because interest rates are low. Okay. So what happens when the demand goes up? And the supply goes down or stays the same, prices go up. So what you may lose in an $800 a month payment. Or, you know, what you may gain by not having that additional net $800 a month payment, you're going to lose in the fact that if you wait a year, that same hole might go up by 20, 30, $40,000. It depends on the part of the country you're in. Okay.
So I'd say get into a home now, because here's what can happen if the interest rates drop in a year or two. All right. So let's say you're paying an extra $800 a month for this House net of taxes, and maybe it takes 18 months for interest rates to come down to even 4%. What will happen is, is that you will be able to go in and refinance that debt, assuming you have good credit, which is another conversation, and you'll be able to get that loan for the rest of that term. 28 years, 29 years from 7% down to 4%. So I would encourage you, if you can buy a house, get into one now, because real estate runs in cycles. It went way up. Maybe it's coming down a little bit, but it depends on where you are. Talk to the realtor in your area that you plan on using. Start looking at property. See what it looks like. If you can't buy now, come up with a plan with your financial advisor.
We at Eide Bailly can help you with all that to save for your down payment for when you're ready to buy. Let's talk about your dental office. I truly believe, doctors, that your dental office is absolutely the number one priority. If you can own one in your career now, if your dental practice is located in Newport Beach, California, if your dental practice is located on 56th Street in Manhattan, if your dental practice is located in downtown Chicago, yeah, that might be a problem. But for many of you, many of you, you could have the opportunity to buy your dental building. And if you do, I would absolutely look at that. One of the things that the dental lenders have taught me is if you have an existing practice and you have an opportunity to buy your dental office building, that in some cases you can take the equity from your dental practice and use it as a down payment on the purchase of a dental building. Now in dentist and to buy a dental office building. Most conventional financing will require 15 to 20% down. If you go SBA, which is a more expensive loan, that is a 10% down payment. But again, if you have equity in your practice or you're buying a dental practice and you're getting a decent price on it and there's some equity in that practice that would allow you to buy the building we have a doctor right now is buying a practice and it's about a $2 million deal and he's buying the practice and the real estate and he's going to own the real estate. And the advantage of this as a cornerstone of your retirement plan, doctors, is if you can own your real estate, you control your own rent and mortgage payment. And down the road, if you are 40 years old, you can plan to pay this mortgage off in 20 years so that when you're 60 years old, you have a mortgage, you have no mortgage, your dental building is free and clear, and now you sell your dental practice and you lease the office to the buyer of your dental practice, which gives you monthly rental income. Now, you know there's downsides of owning commercial real estate folks. There's maintenance, there's upkeep, there's repairs. But at the end of the day. As a dental practice broker. I've dealt with lots and lots of landlords and I would much rather be my own landlord than not be. And if you buy your dental practice building, you will have building or condo suite. You can generate some really nice tax deductions, especially if it's a freestanding building through what's called a cost segregation study. And if you bought a building in the last 20 years and you are depreciating that building over 39 years for the whole thing, give me a call because I can go back retroactively through our cost segregation group and save you a bunch of tax money in one year and it gives you total control. So I want to encourage you to buy a home. If you own a home and you're looking to go up. It wouldn't be the worst time. But again, you get to sit down with your financial adviser. And if you can build or buy your own dental office building, I would strongly encourage you to do that. All right.
So the last thing we're going to talk about, we're going to touch on some tax issues today. So I'm going to just give you some basic rules of the road. The CPAs of the world are in deep tax season right now. It is as we speak. Today is Sunday, March the fifth. And just from a time frame, corporate tax returns for S. corporations and partnership tax returns for LLC is LP's or general partnerships are due on March 15th. So the CPAs are scrambling to get them done and get them out to their clients. If you're a C corporation, your C corporation tax return is due April 15th. Most of you assuming that you are a calendar year taxpayer and your individual tax return is due on April 15th. So we want to remind you of a couple things that we want you to do. Number one, make sure this is this is be kind to your CPA month, my folks. Okay? Your CPAs are working long hours. They're working long hours for you. Have a little patience for them if they don't call you back in 15 minutes. You know, I remember the days when people would ask me how many hours a week would I work during tax season? And I said that. Whatever it takes. I don't count hours. I mean, 60, 70, 80 hours, Saturdays, Sundays, evenings. I mean, it's it was it was absolutely crazy. So, you know, it's be kind to your CPA month, but please, we would respectfully ask that you do that and send them your stuff. If they ask you to send it in, please send it in. Organize it as best as you can. If your CPA asked you to do an extension, a filing extension is not the worst thing. Doctors. Let me share with you that Arthur and Lynn Lederman have been married 38 years, and I do not remember the last time. If I have ever filed by April 15th, I always file an extension. I filed an extension on my corporate returns. We extend just about everything because, again, I want to deal with it in the summertime when it's not as crazy.
I do want to talk about one little thing that you need to be aware of, and it is called the salt deduction. Work around and let me explain how that works. So back in 2017. When the Republican Congress and the Trump administration passed the Tax Cuts and Jobs Act, one of the things that they did was they limited the deduction on an individual tax return for state and local income taxes. That is your state income tax. You pay to the 41 states that have a state income tax to real estate taxes you pay on your home or investment property, your DMV fees, those taxes where you could deduct them in an unlimited amount before 2018, if you will. Now, they were limited to $10,000. Now, for people that live in the state of Nevada or Tennessee or Washington or Florida or one of the nine states that doesn't have a state income tax, I really couldn't care less. But for those of us who live in the high tax states, California, Illinois, New York, those high tax states, people were really hurt by that. I mean, you know, if you're a dentist and you're making $250,000 a year, your state income tax might have been 20, $25,000 a year, it's costing you thousands of dollars. And if you're a specialist making seven, eight, 900,000 a year or you have a spouse that makes a lot of money that, you know, we would see people losing deductions of 70, 80, $90,000 paid in state income tax. What if you sold a piece of property and you don't get to deduct that? So. They came up with what we call the workaround in California. It's called AB 150 and there's about 20 states. I'm not going to name them all off approximately, give or take 20 states in the United States that have enacted legislation that's been supported by the federal government that allows you to work around that. And let me be clear, the only dentists that can work around that are dentists who operate either as Partnerships LLC, LLP, if you will, in California, the you are not allowed legally, you don't have the legal protection, let me put it that way, to operate as an LLC, as a dentist or an LLP. So we don't generally do that unless it's a partnership of corporations. But in most states you can't. So you have to either operate as an LLP or an LLC or an S corporation. So C corporations, if you're a C corporation, you can take a break, go get a cup of coffee because this doesn't apply to you. Also, individuals who operate as sole proprietors, this does not apply to you.
So let's take a mathematical example and well, first let's talk about concepts before we do that. So the concept is you're an S corporation, right? And you have adjusted gross income in three or $400,000 a year and. Let's say you have a oh, I don't know, let's call it a $300,000 s corporation Net income. Your practice grosses $1.2 million. You take 150,000 salary, you drop 300,000. The bottom line, you have 300,000 and you're in California and this is called AB 150 or in California. So $300,000. And again, I'm not going to go through all the nuances of all of this, but the way this works is at $300,000, you would make a 9.3% payment if that's going to be your net income. So 9.3% of $300,000 times 0.093 I'm doing my calculator is $29,095. Let's call it $30,000. So you're going to write a check to the state of California for $30,000 in 2023, let's just say. And in California, you have to pay at least $1,000 by I believe it's June 15th. Check with your CPA on. Make sure you follow all the rules here. So you're going to write a check through your S corporation. It's going to be a federal deduction to you. So instead of your S corporation income being 300,000 is now going to be $270,000. So that's going to drop right to the bottom line. And if you're in a 25% federal tax bracket, that's going to save you $7,500. Now, in California, you're going to pay a 1.5% California tax, which on, you know, $300,000 is 40 $500. So you're going to save you know, you might save 70 $500, but you're going to have a net tax of 4500. You're still going to be a head, $3,000. And you've got to run the numbers with your CPA. But definitely, this is a huge advantage for someone who sells a piece of real estate I'm sorry, not sells a piece of real estate, but who has got a large S Corp income or maybe who is selling their practice in 2023? Because you might want to put you have an S corp, you're selling your practice and you're getting $1,000,000 for your practice. And if that goes into your corporation, that is going to be taxable through your S corporation and that could allow you to write a check for $93,000 and basically deduct that. And by the way, the check in my example for $30,000 is going to be a credit to you, and you can use it up to the amount of your tax liability for that year for the state that you're in. And the rest of it, I believe, carries over again. Check with your tax advisor. I'm just giving you the overall rules. Now, if you have a large s corporation income or a large partnership income and you have not been contacted by your CPA about this AB 150 in California or the SALT State and local tax workaround, give me a call and we'll walk you through it and we'll help you with it. And again, it may not be applicable to you in your state, but California, it is definitely, definitely, definitely, definitely something that you should be looking at.
Let me talk also just about philosophy of paying taxes and what you should be thinking about now. I'm probably going to regret, regret this. But I do need to share with you that in the state of California, the federal government, the state of California, because of all of the rain that we had in California in December, January, February, I guess it was I don't have the meteorological plan here in front of me, but that's about when we got a lot of rain. Some areas got a lot of rain. We here in South Orange County, we got rain, but it wasn't it wasn't life threatening. No mountains removed that I'm aware of. My house is still standing here in South Orange County. But the federal government, the state of California, has given most taxpayers extensions for filing their 20, 20 2022 tax returns and making estimated tax payments. With that said, okay, I want to make a recommendation to you that even though you have the ability to do that, I would suggest that you just go on paying your taxes as if nothing happened. At least it's California, and I believe it's some parts of Georgia and Alabama are the states that have some of this relief. But go out and pay your taxes, because many of my clients, if they want to say, oh, well, I'm just not going to pay my taxes and I'll make all my quarterly payments. October, what's going to happen in October if you haven't saved the money or something comes up or your practice has, well, I've got this extra money to pay my taxes, I guess I'll figure it out later. Don't do that. Pay your taxes as if nothing happened in these states for the rest of you. It's business as usual, folks. Your federal income tax return is due April 15th for your individual return. Your state returns as your business returns are due March 15th and April 15th. If you extend remember, folks, an extension is an extension of time to file but not to pay. So if you are going to file an extension on April 15th for your personal return, you need to go through and send your CPA the information. Don't just say, well, I'm filing extension. I call up, say, Oh, art, just file extension. Now, it doesn't work that way because we have to calculate what your tax liability is going to be and you have to pay it. Now. You don't have to pay it. You're going to owe interest and penalties if you don't pay it. And you ultimately owe tax money when you file your tax returns between April 15th and the deadline of October 15th, that's the six month extension that you would normally get. Again, if you have any questions about that, get a hold of me. I'll put you in touch with one of our tax partners or managers. They could walk you through the whole thing. So I'd recommend for all of you if you are doing a paying your taxes through withholding. Check with your CPA. You might want to wait till after April 15th. Give them a chance to have a break, a breather, a couple of days off, give them a call and say, Hey, listen, you know, I listen to your podcast and I want to make sure that we're on track for 2023 to make sure that I'm not going to have a surprise next April. And well, how's your practice doing? Oh, my gosh. It's gone through the roof. We're up 40%. Well, you know what? For many of our clients, we see your stuff quarterly, but we don't see it every month. And we don't talk to you every day. So you need to let us know if you're doing better or. Oh, I. Well, you know, I sold this property I've owned for about 30 years and I got $2 million. Oh, well, we don't know that unless you tell us that. So, you know, we don't read minds. We try. We try our best. I promise. We try our best to read your mind, but we can't. So talk to your CPA. Talk to them. You know, hopefully you've talked to them at the beginning of the year.
We all do salary schedules for our clients, for our incorporated doctors, make sure that we, you know, set them upfront a schedule, maybe check in mid-year, and then do a thorough a thorough patient exam of your taxes at the end of the year, October, November, December. So make sure that you, you know, follow the rules. So here are the rules. If you're doing withholding, your withholding is considered paid. Ratably throughout the year. If you are required to pay in the lesser of 90% of your current year's tax or 100% of your prior year's tax, unless your adjusted gross incomes over $150,000, in which case you have to pay in 110% of last year's tax. And again, there are certain rules in California. The rules are a little different. If you have income of over $1,000,000, you've got to give them your firstborn child on a weekly basis. I mean, that's kind of how it works. But you have to check with your accountant on this. So if you pay your taxes in either through withholding or through your spouse's withholding or both, if the withholding is not enough and you've got other income, you might want to make quarterly estimated payments. I would recommend they are due April 15th, September, June 15th, September 15, January 15th. And if those days fall on a Saturday or Sunday, it's the next business day. So you want to make sure you check with your CPA, but don't get behind on your taxes. Wouldn't it be nice? It was like during the pandemic, people got behind on their rent because they lost their jobs, they got laid off. They did have money to pay the rent and the landlords gave them, you know, six months of deferment of your rent, a deferment of your taxes. Well, we don't have that in paying your federal or state income taxes. The government wants their money and they want it when it's due. And if they don't get it, they're going to let you know about it and they're going to be really, really upset if they don't get it. It's really, really important. So we recommend that you continue paying taxes as if there was no mudslides and no rain and no nothing. And make sure that you pay your taxes on time on a quarterly basis. I'm the type of person, even though I extend my returns, I set myself up in the beginning of the year and I check how I'm doing when I own my own business. Just like all of you who own your dental practices, I own my own CPA practice. We had ten employees. We had, you know, I had income, I took a salary, I had s corporation. That's what I was. So I had the same issues that you guys had. And you want to make sure that you're planning so that you don't owe or get back. This is what I like to do. Some people want to hold the government's money until the last possible second. I am not giving those people a dime until I absolutely have to. That's okay. As long as you have the wherewithal and the structure in your life to not spend that money. I have clients who just say, well, aren't. If I don't have to pay that until that extra 40,000 until April next year. And I say, No, Joe, you've been my client for 30 years and you can't hold on to $2 because as my late mother used to say, it burns a hole in your pocket. You have to spend it. So let's put that money aside. Let's make sure the government gets paid. Nobody likes to pay taxes. Nobody. I don't like it. You know, every time I see some of the things that happen in the government, then again, this is not political. Sometimes I just look at my tax and why why am I doing this? But again, this is the greatest country in the world, in my opinion, and it is what it is. And we have to pay our taxes and we want to do everything we can to legally cut our taxes. And again, for those of you who are doing really well in your practice and you don't have a retirement plan, look at setting one up. If you set up a simple IRA, you have until October 1st to do that of 2023. You can't do it after that because of the rules. If you wanted to set up a profit sharing or a401k plan, you have until pretty much the end of the year to do that. But I would recommend looking at this now if you are doing well in your practice.
You know, here's another thing to think about Doctors. You bought your practice ten years ago and your note just paid off and it was $7,000 a month. So now as you get down to the end of the note payment, most all of that payment is principal and not interest. So when that so you're not get much of a write off for it anyway. You wrote it all off in prior years through accelerated depreciation and all the interest paid. So now the ten years is up. So now what do we do? Oh God, I get the $7,000. I'll just take it and spend it. No, no, no. Here's what I want you to think about. I want you to take that $7,000 a month, and instead of writing that check to X, Y, Z bank, I want you to write that to X, Y, Z brokerage, and I want you to invest it for retirement. And I want you to either give me a call or give a third party administrator a call. Let's set up a retirement plan. And if you can go ahead and save that 80 for 7000, but is $84,000 a year. And if you structure a profit sharing in a401k plan correctly, you can get. In many cases, 85 to 90% of that money will go to you and your spouse if you're married and the rest of it will go to your team. And it's just a wonderful tax deductible, tax deferred way to save for retirement. I have I cannot tell you how much I believe in the power of compounding interest on a tax deferred basis. I don't have to take that money out until I'm 72 years old now, whereby I'm eight and a half years from there. So I'll have to start taking that money out by then. But the fact of the matter is, as doctors, if you're in your thirties and in your forties, I am going to continue on this platform that I have with the thousands and thousands of people that listen to me every single month. I'm going to pound on you to save money, save for retirement, so that if you wake up one day and you can't move your arm or your shoulder starts to hurt, or you just wake up and just say, I don't want to manage people anymore and I'm tired of this and I want to go. I want to travel, I want to do this. The sooner you can start saving, the better. That is my message that I'm going to take to my grave, folks, is I want you to save for retirement. I want you to enjoy your life. You went to dental school. You went to dental school because you want to help people. You want to improve their health. And that's why you went to dental school. But you also, by going to dental school, you have earned the right to be in the top one or 2% of wage earners, of income earners in this country, and people who work hard and who go to get advanced training and become dentists, physicians, architects, attorneys, own companies, whatever it would be. You have the right to have more money because you've earned it. That's how this society works. But I want you to be able to not get to the finish line in 35 or 40 years and come to me and say, Art, I have $200,000 in my in my IRA and I want to retire because I can't practice anymore. And I'm tired and I don't want to do this. And I'm going to say, I can't help you, I can't help you. And I have clients in that boat and I don't want you to be one of those. If we can help you at Eide Bailly through a financial plan, please give me a call. 6572793243. Awierderman@EideBailly.com. I am passionate, repeat passionate about getting my doctors to fund their retirement plans. And I just talked to one of my specialist clients the other day and he's got about $6 million in his retirement plan. And he says, Yeah, Art, you beat me over the head to start a defined benefit plan when I was 45 and now I'm 60. And I said, Yep, the magic of compound interest. It doesn't get any better than that, other than a 200 yard five wood that draws into the green to within ten feet for an eagle, that's pretty cool too. And I am working on my golf game more than you'd ever know today. I did a really good job at the range of shifting my weight and I'm working on my coach and it's just a passion of mine. I love it. Yeah, Maybe someday I'll see one of you guys out on a golf course. I if if you're ever in doubt, let me know. I'd love to get out of the course with you.
Well, with that, I think I've covered what I want to talk about today. Doctors. Just make sure that you take action. Make sure that you do, you know, keep moving yourself forward and your financial plan and your practice. Work on your practice, not just in your practice. Work on your personal finances. Have a plan so that when you get to retirement age, you can take a step back and say, you know what, I had a great career. I helped lots and lots of people and now it's my turn. It's my turn to do what I want to do. I want to have fun. So with that said, I want to thank my marketing partner again, Decisions in Dentistry magazine. I cannot say enough nice things about them. www.DecisionsinDentistry.com great clinical content and 140 continuing education courses for a very very reasonable price. Go to WW w dot Decisions in Dentistry dot com again if you need my help. It's awiederman@EideBailly.com and my phone number is 657-279-3243. I want to again thank all of you for the honor and the privilege of your time and for listening to me for these years and all the kind emails I get every week from many of you, if there's any topics that you're interested in. Moving forward. We're going to have my good friend from the California Dental Association. We're going to be talking a lot about, you know, PPO plans. When should you join a PPO? What if you want to get out of a PPO? How does it work? What are the choices? It's all choices. Okay. We're going to be talking about do you sell your practice to a DSL? What does that look like? We're going to have some guests talking about that. We're going to have some of my management consultant friends coming on. We have a lot of really good stuff in 2023 to help you to make good decisions in your dental practice. So with that said, that will do it for this edition or episode or time. Looking at the computer on the microphone for the Art of Dental Finance and Management with Art Wiederman CPA. God bless all of you. I hope you have a wonderful, wonderful week coming up. And we'll see you next time. Bye bye.