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EPISODE 118: Business Personal Property Tax: What is it and Why is it Important

Steve Levy, CPA and JD, stops by to give Jarrod and Casey the lowdown on the Business Personal Property Tax. Learn how this tax affects your practice and your wallet.

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EPISODE 118 TRANSCRIPTION

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 Bridgman:
Hey, good afternoon.

Casey Hiers:
We like these podcasts. The expertise runs thick with Steve Levy.

Jarrod Bridgman:
That's right. He's our boy.

Casey Hiers:
Pipes.

Jarrod Bridgman:
Pipes.

Casey Hiers:
CPA.

Steve Levy:
Hello, hello, hello.

Casey Hiers:
CPA attorney. He does it all.

Jarrod Bridgman:
Just about everything, right?

Steve Levy:
Jack of all trades, master of none.

Casey Hiers:
Master of most.

Jarrod Bridgman:
Lawyering, doing things with taxes and whatnot, singing a song-

Casey Hiers:
So, Steve, we wanted to bring you in... First of all, thanks for joining us, but we wanted to bring you in to talk about business personal property tax. It's a mouthful. That is something that you'd said, guys, this is important for practice owners. Let's talk about it. Jared and I genuinely need to ask you a whole bunch of questions.

Jarrod Bridgman:
Can I ask it? Let me ask it. Okay. Yeah. What is it? What is business personal property? Because to me, my knowledge is those are usually two different things, personal and property or business.

Steve Levy:
Well, first of all, the tax is not one that people really think of much. You've got the income tax, mainly, that people focus on, but this is an additional tax. So business personal property, I'll describe it as something it's not, which is it's not real property. So if you take that out of the equation, what are you left with? You've got stuff. You've got equipment. You have furniture. Those are the biggies. I would say some specialized equipment. And it's usually not something that's necessarily attached to-

Casey Hiers:
So it's not land, it's things?

Steve Levy:
It's things. And we're not talking pens and pencils.

Casey Hiers:
How about a sports car that you drive to work?

Steve Levy:
Potentially. It depends on the state and county and some of the definitions of business personal property are different from state to state and even county to county. But I can tell you that it's not real property, but other stuff that's used in the business.

Casey Hiers:
Now, when you say not real property, what do you mean?

Steve Levy:
We're talking land. We're talking building.

Casey Hiers:
Okay. Not that?

Steve Levy:
Right. Correct.

Casey Hiers:
Okay. Okay. And so you see a lot of people mismanage this part of their tax situation sometimes?

Steve Levy:
At times. They don't necessarily understand, what is this, why do I need to care about it? I'm already paying enough taxes. What's this extra thing?

Casey Hiers:
So what are some really good examples? I know my sports car might not have been. But what are some common areas?

Steve Levy:
Well, the furniture in an office, anything that's not permanently affixed, that can be removable. So it really goes under that umbrella. So the dental equipment that you're using, the desk and cabinets that you have-

Jarrod Bridgman:
Or like a fancy cappuccino machine?

Steve Levy:
Exactly.

Casey Hiers:
Massage chair in the waiting room.

Steve Levy:
Massage chair. You name it. You're naming it. And it's-

Casey Hiers:
We're getting hot.

Steve Levy:
Going under the umbrella.

Casey Hiers:
We're getting there. We're getting there, Casey.

Steve Levy:
So that's generally business personal property-

Casey Hiers:
Big marble table.

Steve Levy:
Absolutely, sounds excellent. And that's included.

Jarrod Bridgman:
I like how we're just naming off random things as you think of them.

Steve Levy:
Keep it coming. Keep it coming.

Casey Hiers:
Lamp. I love lamp.

Jarrod Bridgman:
Yes.

Steve Levy:
So does the county to tax it.

Casey Hiers:
Rick, are you just looking at things and saying you love them? I love lamp. Sorry.

Casey Hiers:
So why should our listeners care about this? So we've sort of defined it. What is it that they should care about? And if we had to quantify it in any regards, what does this mean to them?

Steve Levy:
There needs to be a reporting to mainly their county, that their business is in, of the business personal property that they have during the year. And not every state has it. Like New York is not a state that has it.

Casey Hiers:
Art, another example.

Steve Levy:
Art is certainly-

Casey Hiers:
Sorry.

Steve Levy:
No, please. I'll say yes, most likely. So whatever you come up with, I'll say yes. So-

Jarrod Bridgman:
Free drinks later from Steve. Yes.

Steve Levy:
Yes.

Casey Hiers:
But yeah, and I get what you're saying, but again why should I care? What does it actually do to my dollar?

Steve Levy:
Because whatever business personal property that you have and that you report, that amounts to a tax that the county will be assessing after you file the business personal property return. They will take it into consideration what you've filed. And then you'll get a bill usually around the same time as your real estate property bill, which happens in Indiana, that you get that same bill around the same time.

Casey Hiers:
Okay, so let's say you have $50,000 in art as personal property in your practice. By reporting it, you're saying you have to pay more taxes, or this will help you and reduce tax liability because you have these things?

Steve Levy:
No reporting it means you're going to be assessed on having the art in your practice.

Casey Hiers:
So it's just a way to pay... you have to pay more taxes?

Steve Levy:
It's something that you're responsible for-

Casey Hiers:
You know how many people just turn this off right now? Because they don't want to hear, they're like la la la.

Steve Levy:
They don't want to hear it. But an important part is you want to know what you have and what you don't have. So let's say you've got a depreciation schedule that has all your assets that you've purchased, the sizeable assets. You may have something on there that you don't have anymore. You may have a bunch of things that you don't have anymore. Get them off. And you're-

Jarrod Bridgman:
So it is ongoing. So even though I didn't purchase it this year or count that tax year, it still has to be reported each year?

Steve Levy:
Yeah.

Jarrod Bridgman:
Okay.

Steve Levy:
It's not just things purchased in a specific year.

Casey Hiers:
So if somebody steals a piece of art did that need to come of your personal practice list-

Steve Levy:
It's no longer there, so yes.

Casey Hiers:
Personal property. Okay.

Steve Levy:
Now I will say that the older things are, the older the personal property tax is that you have, the less assessed value it has and your property tax bill goes down as equipment ages.

Jarrod Bridgman:
So if you're going through, when you should do this every year, right?

Steve Levy:
Correct.

Jarrod Bridgman:
Is it new?

Steve Levy:
It's not new.

Jarrod Bridgman:
Okay. So how do you report it?

Steve Levy:
So each county where it might apply, for instance, Indiana has several counties that have this tax, there's usually a specific form to report.

Casey Hiers:
Do you know which... I'm just curious, a couple counties.

Steve Levy:
Hamilton.

Casey Hiers:
Really?

Steve Levy:
Hendrix, Marion, Boone, you name it. They're all governing it.

Casey Hiers:
So a lot of them.

Steve Levy:
Yeah. And counties on average, they say this tax accounts for 15% of the county's revenue. So it's real important for these counties to have this tax coming in.

Casey Hiers:
They're fleecing us enough.

Jarrod Bridgman:
So yeah. Let me ask you, what happens if you don't report?

Steve Levy:
Well-

Jarrod Bridgman:
How do they know?

Steve Levy:
They know that you have a business going on because you have reported it. You have organized with the state.

Casey Hiers:
So if you have a zero goose egg under this, that's going to be a bread flag. Is that-

Steve Levy:
Yeah, for sure. Because they can go in, and this might be jumping the gun, but they can go in and say, hey, you've reported zero, what's this, what's this in your office? I'm seeing a lot of stuff that you didn't report which you should have. And they don't like when you don't report intentionally.

Casey Hiers:
So is the lesson to report it or don't have anybody that works in the IRS be a patient? I'm joking. It's a joke. Haha. It's a joke. Report everything above board. Yeah.

Steve Levy:
Absolutely.

Casey Hiers:
So is there a range that's acceptable, kind of piggybacking off of what Jared asked you? A lot of people have between two and $5,000 worth of this stuff listed. Are there ranges, does that matter?

Steve Levy:
It does, in terms of... We're not talking about supplies so you're not going to report really minor supplies. Now some of the things that you're categorizing as small equipment, that might be something that should be reported, even though it might not be on your depreciation schedule. So you'll just have to see what large, tangible things you have hanging around.

Casey Hiers:
And then do these get paid the same time all taxes are due. Is this a special-

Steve Levy:
The assessment and the tax bill comes at a certain time every year for businesses, depending on the state and county. Now the filings happen really beginning in March, there were some filings in April and now we're in sort of an Indiana filing season for this. And then there's a few that are after that. But generally, they're between March and May when the state wants to see it,

Jarrod Bridgman:
What happens if you get audited with this?

Steve Levy:
Well, it's one of the more common audits that happen. Some people might not get audited at all for income tax, like for their business or their 1040, but this is a common audit that a business might experience. And what happens is you will gather lots of information for the auditor, the filings that you've done, you'll send them a general ledger. Hopefully, you'll request that they not visit you. And that's doable as long as you're giving them enough information to go on. And oftentimes there's no change, which is great. That-

Jarrod Bridgman:
How accurate do you need to be with your reporting? In terms of, I paid $685.13 or whatever, that's the value, do I need to round up, round down?

Steve Levy:
If it's that small, then they're not going to worry about it. So they'll look at your depreciation schedule. They'll look at what you've reported in these filings. They'll dig around a little bit on your general ledger to see, okay, this was expensed, this was undersupplied, but it was a pretty big thing. So we're probably going to capture that and assess that.

Jarrod Bridgman:
So this is probably a good reason why we often tell our clients, you can't just lump everything under one heading, just supplies only.

Steve Levy:
Right. Exactly. And it's also a reason why you should break out. If you're buying a practice, a lot of times the agreement will just say equipment. Well, how are you going to know... so say for like 300,000 that was the price for the equipment that you bought from another practice. How are you going to know if you're getting rid of things or you're adding things, but especially how do you know if you still have something? So it helps to be detailed on what you have and what you don't. It's just a quick inventory. What's gone from this list? And something that we send our clients is the depreciation schedule sometime during the year. What do you have? What don't you have? And this is the main reason why we do that so that we can bring their business personal property bills down.

Jarrod Bridgman:
So that depreciation schedule, is that just an average number that's used across the board? If it's equipment versus art versus furniture, is it all-

Steve Levy:
It's really whatever their cost was.

Jarrod Bridgman:
Okay.

Steve Levy:
So they give us the invoice and we have support for that and whatever the cost was for that particular item, that's what's on there.

Jarrod Bridgman:
Okay.

Steve Levy:
So-

Casey Hiers:
This sounds like something that can trip people up, which I think answers the question, why is this important? It's a detailed matter that you're not going to get some big refund for this, but something like this can trip up and cause an audit, which is the last thing people want. Is that the spirit behind this? It's just a detailed part that you need to make sure you're hitting because if you don't, you're vulnerable, you're opened up to potentially an audit or not being completely thorough? Is that-

Steve Levy:
Yeah. That's exactly it. And especially if you're not reporting, if you're not reporting your business personal property, then it could be penalties added and-

Casey Hiers:
You're being derelict in reporting. There's not a big gain to it.

Steve Levy:
No.

Casey Hiers:
You're just opening yourself up to being audited, which most people would rather be mugged on the street than to be audited by the IRS.

Steve Levy:
Right.

Casey Hiers:
And if an IRS person's listening, I'm sure you're great, but-

Jarrod Bridgman:
We love you.

Steve Levy:
So a lot of counties have this audit farmed out to a company called TMA, not to be confused with TMI, but it's Tax Management Associates and it's common in Indiana. And it's common in a lot of different counties. These guys, that's all they do, is these audits. So they know what they're doing. They know what they've seen. They know the rules.

Jarrod Bridgman:
If you're not already reporting, how do you find out if you need to because you said different counties and different states may or may not have-

Casey Hiers:
Email your CPA.

Steve Levy:
Right. It's just awareness. Hopefully, you've gotten enough information when you're starting up that it's reporting. Sometimes the counties will give you a courtesy saying, hey, congratulations, you've started your business, don't forget about this filing. They'll give you a courtesy mailing.

Casey Hiers:
Well Steve, thank you. It kind of makes sense now. I was under the impression, hey, this is some great way to reduce massive tax liability. Nope. This is a way to stay out of the crosshairs of the IRS for something that's just pretty basic. And if you're unsure again, email your CPAs and find out, and we've mentioned this before, as them, if you have a shareholder loan, this is another thing. Hey, is my personal property tax situation documented, and where we all want it to make sure we're not open up for an audit? And hopefully, they're like, absolutely. And if they go, oh, that's a great point, fill this out, there's your sign. There's a red flag. You might need to take a look at that. But thank you, Steve. As always, I appreciate the information. It's technical, it's important. And I know our listeners appreciate it. And we do.

Steve Levy:
Absolutely.

Jarrod Bridgman:
And folks don't to forget that we have some upcoming events. We're going to be in Salt Lake City. We're going to be in Omaha. Make sure to go to our website at fourquadrantsadvisory.com. There's an events tab. You can check that out there. Also, follow us on any of our social medias. We've got Twitter, Instagram, Facebook, and LinkedIn, make sure to like and follow us. Each like you give let's me talk to you more. Isn't that nice?

Casey Hiers:
Look at the big brain on you.

Jarrod Bridgman:
That's right. Thank you.

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.