Join Casey and Jarrod as they sit down with tax specialist Steve "Pipes" Levy, JD, CPA, to uncover essential year-end tax tips that can benefit you and your dental practice. Discover key insights on minimizing tax liabilities and maximizing returns in this insightful discussion.
Announcer:
Hello, everyone. Welcome to the Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry, finances, and business practices to help you become the millionaire dentist you deserve to be. Please be advised we do speak with an honest tongue and may not be safe for work.
Casey Hiers:
Hello and welcome. This is Casey Hiers, back at the Millionaire Dentist Podcast in studio with co-host Jarrod Bridgeman.
Jarrod Bridgeman:
Hey, what's up?
Casey Hiers:
And special reoccurring guest, the one and only, Steve Levy, aka Pipes.
Steve Levy:
Hello there.
Casey Hiers:
And he's been resting his pipes this season. He's so in demand in so many areas of life, especially in all things accounting that he's... Your performances are... you're taking a little hiatus?
Steve Levy:
A bit, but I'll be back for them.
Casey Hiers:
I like it. I like it. Well, we wanted to bring you in for kind of a year-end roundup, if you will. For our listeners, what's important, what should they keep in mind.
Jarrod Bridgeman:
I like wrap-up better.
Casey Hiers:
You like what?
Jarrod Bridgeman:
Wrap up.
Casey Hiers:
Wrap up.
Jarrod Bridgeman:
You said roundup.
Casey Hiers:
All right. Year-end wrap-up, Jarrod, nice cardigan.
Jarrod Bridgeman:
Thank you. I bought it myself. Listen here. So I reached out to Steve and I was like, "Steve, you're the tax man." As in, you know a lot about taxes, not so much you go around collecting them, you're not...
Steve Levy:
No, I'm the good guy.
Jarrod Bridgeman:
You're not Sheriff of Nottingham. So I wanted to talk to you a little bit about holiday bonuses, and how does that work with reporting?
Steve Levy:
Well, we've got a lot of practices paying holiday bonuses, whether it be gift cards or checks or whatnot. Now, there's no such thing really as a gift to your employees. It's compensation to them because of the employer-employee relationship. And so because of that, those holiday bonuses need to be reported on their payroll.
Casey Hiers:
Whoa, whoa, whoa, whoa, whoa. What's wrong with just putting some cash in an envelope and handing it out?
Steve Levy:
Well, that is not an uninterested gift. It is really...
Casey Hiers:
It's an interesting gift.
Steve Levy:
It's an interesting gift.
Jarrod Bridgeman:
I'd like it.
Steve Levy:
But the problem is you're their employer and you're essentially still kind of paying them for providing the services.
Casey Hiers:
Greedy Uncle Sam wants his cut, let's cut the shit.
Steve Levy:
That's correct. That's correct.
Jarrod Bridgeman:
Does this count for gift cards as well?
Steve Levy:
Gift cards as well.
Jarrod Bridgeman:
And what about something like an object? Like a purchased gift?
Steve Levy:
An object like wine, or? Really, in the IRS's mind, there's no true gift to your employee, so it would need to be reported on payroll.
Jarrod Bridgeman:
Can I fire you first and then give you a really nice present?
Steve Levy:
Then the relationship does kind of stop so you got a point there.
Casey Hiers:
There might be legal ramifications, which that's your other expertise.
Steve Levy:
Yeah, but it is compensation. So those that are paying these should let your payroll provider know so that it does get included on their W2 for the year.
Jarrod Bridgeman:
I do want to ask you this, does it take effect to when the gift is given or when the gift was, let's say, purchased? Because sometimes some places may have their holiday party early January, for example.
Steve Levy:
It's really when it's given because that's sort of the payment to the employee. So while it might be an expense earlier, the actual payment is when the compensation is given. So it's something to watch out for. It's something that needs to be done.
Casey Hiers:
How about if you're in Orange County, California and you do like a three-hour yacht party, Christmas party cruise, you have it catered, you've got a bartender, it's just gorgeous, and maybe you spend $25,000 on this? How does that come into a holiday party tax? How's that treated?
Steve Levy:
Well, a holiday party is kind of a carve-out for a lot of rules in that, for entertainment expenses, those can't be deducted except for the holiday party. So if you're talking about the yacht and everything and you're bringing some cool artists.
Casey Hiers:
A large vessel.
Steve Levy:
Large vessel?
Casey Hiers:
80 to 90 feet.
Steve Levy:
Okay, okay. I'll run with that.
Casey Hiers:
Some call it a boat, some call it a yacht.
Steve Levy:
It's kind of the bot or... I don't know. So entertainment expenses, meal expenses, those are all slam dunk a hundred percent deductible. So if you want to go for it.
Casey Hiers:
So if you spend 20K on a holiday party, how much can you deduct?
Steve Levy:
20K.
Jarrod Bridgeman:
Oh, it's a hundred percent deductible.
Steve Levy:
A hundred percent.
Jarrod Bridgeman:
Looks like I need to throw a holiday party.
Casey Hiers:
When should a business owner/practice owner maybe say, "Huh, I need to have an extra big one, an extra expensive one because that would help me." Does that tie into Section 179 where it's not a good tax strategy to just blow money?
Steve Levy:
Yeah, I would say you kind of want to see, maybe consult your accountant to see what your tax situation might look like and see what kind of real benefit you're going to get out of it. Obviously, there's a huge benefit to company morale, but you'd still want to see if it's going to really benefit.
Casey Hiers:
As long as there's no career-limiting actions that occur at said party.
Steve Levy:
Yeah, you don't want... those are killers.
Casey Hiers:
Have you seen Office Christmas Party with Jason Bateman?
Jarrod Bridgeman:
Yes.
Steve Levy:
No.
Casey Hiers:
Oh my gosh. If you're a Christmas movie freak, but you're kind of getting tired of the run-of-the-mill ones. Why Him? is a suggestion, James Franco. But Office Christmas Party, talk about some career-limiting moves. Amazing. That's just my public service announcement. So you can deduct your holiday party.
Steve Levy:
You certainly can. A hundred percent. It's the carve-out for not being able to deduct entertainment expenses.
Jarrod Bridgeman:
Let me ask you, in terms of the holiday party, is there a timeframe in which the party must happen?
Steve Levy:
No, really, it's... And it doesn't just have to be a holiday party, it can be any company party.
Jarrod Bridgeman:
But you can only do one?
Steve Levy:
No, not necessarily that either. As long as it kind of falls within that it's a gathering with your employees and having a big party, whatever entertainment, maybe like a summer sort of event, you can certainly do that as well.
Jarrod Bridgeman:
Okay. And then Casey kind of brought up the end-of-year purchases and how people may think it's a good idea too, "Let's just buy some things now so we can try and write it off." And you said that's not always a good idea.
Steve Levy:
Yeah, it really isn't. You're trying to chase taxes with purchases that... and a lot of vendors are coming for you and saying, "Hey, get that tax write-off."
Casey Hiers:
Can I share a story?
Steve Levy:
Yes, please.
Jarrod Bridgeman:
We look at a lot of information, a lot of data, and we were talking to somebody who... they may be ripe for $125,000 tax surprise. We looked at their data for, oh, I don't know, an hour, and figured out some of these things. And that was the first they were hearing of it, that's probably why they were engaged in our vetting process to change. But literally word for word was, "You might want to go out and make some business purchases," and acted like the onus was on them to correct this $125,000 tax additional bill that wasn't accounted for because the standard of care at this accounting firm was crap, which is most of the time that we see.
Steve Levy:
Wow, that is unreal.
Jarrod Bridgeman:
Is that what you're talking about?
Steve Levy:
That's what I'm talking about. "Just spend money, you'll get deductions really at like 30% or so, but spend it. You don't need it but go ahead and shell out money for that tax deduction." Yeah.
Casey Hiers:
Does that make you sad or does it piss you off? Because I feel both emotions.
Steve Levy:
Both. Really both because it's just people being... their own accountant saying that just disgusts me. I can't handle that.
Jarrod Bridgeman:
So should we have a cage fight? You versus other accountants?
Steve Levy:
Yes. Let's do it.
Jarrod Bridgeman:
All right, all right.
Casey Hiers:
A sing-off.
Steve Levy:
Set it up.
Jarrod Bridgeman:
A sing-off, yeah.
Casey Hiers:
Well, and then we've mentioned that Section 179 deduction before, and again, unless... when industry comes knocking as a suggestion to buy some equipment at the end of the year, unless they have your full tax picture, they have no right giving you advice on what to buy for a tax reason. Accurate?
Steve Levy:
Absolutely.
Casey Hiers:
Now, when a tax firm or a CPA firm who actually has just a bunch of EAs doing the work, not actual CPAs, public service announcement, check that just because a CPA owns the firm, who's actually doing your taxes? We're seeing a lot of EAs on those taxes, enrolled agents, which is a massive red flag. But ultimately, if they're looking at your full tax situation, they haven't done a good job with your taxes and there's a discrepancy at the end of the year that's large, what a lazy way for them to just, "Hey, go buy some stuff."
Steve Levy:
Yeah, that's...
Casey Hiers:
Lazy.
Steve Levy:
Lazy and borderline unethical right there.
Casey Hiers:
Well, I guess if your CPA is married to a rep who sells equipment, that's very unethical.
Steve Levy:
Very much so.
Casey Hiers:
What we're talking about, eh, it's a gray area, but it's certainly terrible professionally and to try to be good at something in accounting, that's just a terrible standard of care.
Steve Levy:
Yeah, it really is.
Jarrod Bridgeman:
Steve, with the new year coming up, there's oftentimes changes in terms of taxes and tax brackets and things like that. Is there anything like that we need to know for 2023?
Steve Levy:
Yeah, one particular one. You mentioned tax brackets. There is some good news on the horizon there. I'll step back. The federal tax system and some state tax systems are based on graduated tax rates, which means that there are certain amount that are taxed at a certain rate. And then as you go higher typically, that income as you go higher gets taxed at a higher rate. And so for instance, if you're married, filing joint, up to 89,000 is taxed at 12%. That's sort of how the graduated tax rates go.
Now, the good news for 2023 is that there is more taxable income pushed to the lower rates than ever before and that's based on cost of living adjustments. So for instance...
Jarrod Bridgeman:
So if you're making, let's say, the same amount this year as you were last year, and you're maybe right on that threshold, you could be getting taxed for less.
Steve Levy:
That's right. Your overall tax bill might be less because more of your taxable income is being pushed to the lower bracket.
Jarrod Bridgeman:
Got it.
Steve Levy:
And to the tune of 30 to $40,000, so that's not small change there at all.
Casey Hiers:
What's your favorite cola?
Steve Levy:
Favorite cola? I'm going RC, actually.
Casey Hiers:
Whoa.
Steve Levy:
Right?
Casey Hiers:
That's old school.
Steve Levy:
I know.
Jarrod Bridgeman:
I mean, cherry RC's pretty good.
Casey Hiers:
No Tab?
Steve Levy:
Now we're really hitting it hard.
Jarrod Bridgeman:
[inaudible 00:11:28]?
Casey Hiers:
You put something on this post-it that I'm looking at that says, "2023 401(k) COLA increase."
Steve Levy:
That's correct.
Jarrod Bridgeman:
What's a 401(k) COLA? Is that a [inaudible 00:11:37]?
Casey Hiers:
I'd like to know what COLA means because I don't, from a tax perspective or a 401(k) perspective.
Steve Levy:
Cost of living adjustment.
Casey Hiers:
Oh, look at the big brains on there.
Jarrod Bridgeman:
That took me way too long. In fact, I had to be told, that's how long it took.
Casey Hiers:
So speaking of 401(k), big changes there as well to the tune of $2,000 more that you can defer for your 401(k), and your catch-up if you're 50 or older, it goes from 6,500 to 7,500. So there's some pretty significant jumps. It usually nominally jumps, maybe 500 or so, but we're talking 2000 for the deferral and a thousand for the catch-up.
Jarrod Bridgeman:
So adding 2000, what does that put us to?
Steve Levy:
Well, we're at 22,500 for the total you can defer for 2023 and we're looking at 7,500 for the catch-up contribution if you're 50 or over. So we're looking at a solid 30K overall.
Jarrod Bridgeman:
Wow.
Steve Levy:
Not bad. There's also a big increase in the amount that can be considered as compensation for the match. Usually, not all of your compensation can be considered for a match [inaudible 00:13:01] for say like 4% or whatever your match is. That boosted up from 305,000 in 2022 to 330,000 in 2023. So the match can be really up to 4% of that 330,000.
Jarrod Bridgeman:
And by match, you mean whatever the company's matching?
Steve Levy:
Correct.
Casey Hiers:
You just said 305 to 330?
Steve Levy:
That's right.
Casey Hiers:
Woo. It was just 285 a few years ago.
Steve Levy:
Right. It's jumping super fast. Another COLA adjustment.
Casey Hiers:
Ooh. I like what you did there, Mr. RC. Steve, thanks for coming in and sitting down with us at the end of year just to, again, give our listeners some things to think about, maybe a list if they don't work with us to ask their CPAs. Unfortunately, a lot of things do slip through the cracks, especially for practice owners. You don't have a normal tax situation. It is unique. It is specialized. Unfortunately, most don't have a specialized team and so, unfortunately, you need to be aware of these things and potentially be asking the right questions.
Steve Levy:
Yes, please do.
Jarrod Bridgeman:
And what's crazy is if you're not for sure what's really going on with your numbers that way, we are offering a complimentary assessment on fourquadrantsadvisory.com/assessment. It is free. You can sign up and you can pick one of the eight topics we have listed, so check that out.
Also, we will be on the road in January and February at various places. So visit fourquadrantsadvisory.com/events. Check us out. A lot of free events at Top Golf where you can swing a club, have some food, have a couple drinks, and talk with Casey, which is amazing.
Casey Hiers:
We have people swing clubs and heels. You don't have to be good at golf. Thanks, guys. Thanks, Steve. Merry Christmas.
Steve Levy:
You too. Merry Christmas.
Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dentist Podcast is brought to you by Four Quadrants Advisory,. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why year after year they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.
