THE MILLIONAIRE DENTIST PODCAST

EPISODE 10 TRANSCRIPTION

Announcer:

Hello, everyone. Welcome to the Millionaire Dentist Podcast brought to you by Four Quadrants Advisory. On this podcast, we breakdown 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. Now, here's your host, Alan Berry.

Alan Berry:

Hello, everyone and welcome to another episode of the Millionaire Dentist Podcast. I'm your host, Alan Berry and joining me in the studio, today is our head CPA at Four Quadrants, Kathy Collins. How you doing?

Kathy Collins:

We've been doing very well. Good morning.

Alan Berry:

I know that Christmas season is coming up. Do you got any big plans?

Kathy Collins:

I do not right now. Just having some family in, making a little bit of turkey.

Alan Berry:

Sounds good. Me, too. With it being at the end of the year, I think an important... Actually, Kathy you brought this up to me and thought that this would be a good subject matter for a podcast is, it's good to be prepared for January and February and March and April. Get ready, now. I believe you've come up with a couple different tips that we're going to talk about, that would help some of our clients and some of our perspective clients and really just really anybody in general that's in the dentis field to get prepared to wrap up out 2017 tax year. You've got a couple of tips for us. What's the first tip?

Kathy Collins:

First, see your CPA. Talk to them, let them know where you are year to date with your net income, so you're not shell shocked come 2018 with how much tax you might owe.

Alan Berry:

I'm sitting in front of my computer, I'm about ready to send my CPA an email. What do I send him or her?

Kathy Collins:

Plan a time to get together either in person or on the phone and discuss where you are at that point in time. Too many people will try to do their own accounting, which is not a good thing to do. You need a dental specific accountant who understands your business, your industry, how your cashflow runs because if you owe a lot of money and you've made more money than you did in 2016, you're probably up for a tax surprise.

Alan Berry:

I don't think anyone likes to hear that, but it's probably better to know now than later. Basically, if I reach out to my accountant and say, "Hey, we need to talk about these things," he'll know the questions to ask me, so I can tell them where I'm at financially.

Kathy Collins:

If they're dental specific, they should understand what is specific to your needs and ask you to get your financial information for the prior year or at least year to date 2017 through, say November and they can look that over to see where you stand right now.

Alan Berry:

You brought up an important distinction that I'm learning. I keep hearing this term the, "dental specific accounting." Now, if some of our viewers were sitting at home and they know that they have an accountant, but they're not a dental specific accountant, what's the difference and why should dentists have dental specific accountants?

Kathy Collins:

There are different issues that affect dentists that don't affect other industries. One is that their production tends to go up and down based on the various times of the years and a dental specific accountant understands that and of course, every dentist is going to be individually different as well. They also understand the cash needs and cash flows, ebb and flow, differently and come January, that tends to be a short time for cash for dentists. If you have waited all year long to fund a 401K or pay in any additional taxes due, now you're in trouble. You start planning, now. It's a little lat, now, but it's not too late. At least you'd have an idea.

Alan Berry:

Right, so it's like a Mercedes Benz car. It's probably better that you take it to a Mercedes dealership than some car place that deals with multiple different types of cars. You're going to get more specific attention. Is that fair? Is that analogy good?

Kathy Collins:

That's very fair. Also, along those same means, a dentist will be inundated with salesmen coming in trying to sell equipment in the month of December and they're all going to tell you, "Hey, I can save you all kinds of money in tax dollars if you buy the equipment before December 31st."

Alan Berry:

Is that true?

Kathy Collins:

It can or can't be, but the salesman has no idea. They don't know your specific tax situation, so you cannot get sucked into that mode of sale by these salesmen. Dentists seem to get hit pretty hard because dentists are not businessmen. They don't understand and a lot of dentists like the toys. They like getting new equipment and they think, "Wow, if I can get it and get this great tax break, let's do that."

Alan Berry:

Well, it is Christmas time, so I understand why people want toys. I want toys. I think we all do. Now, I'm just glancing at our notes. So far, you're saying they need to reach out to their accountant and get clarity of what the accountant needs to see where they're at financially to make sure that they're not going to have any tax surprises and then another tip of yours is to, hey when these salesmen come around and they're trying to sell you some toys and they say that you're going to save the money on the taxes, that that's not always true because the fact that those sales people don't really know your tax situation. Only your accountant knows that. Is that what you're saying?

Kathy Collins:

Yes. That is correct and it doesn't make sense to spend $10,000 on a piece of equipment just to save $3,000.

Alan Berry:

Now, what if the dentist needs the equipment and it's a good deal and they pass it along to their accountant? Can they still go ahead and buy that equipment, depending on the situation?

Kathy Collins:

Oh, absolutely, but I know at least at Four Quadrants, we ask them to talk to us first, so that we can tell them exactly what they're going to get and whether it makes sense to buy it this year. Is it a good deal? Again, being dental specific, we know what these costs should be, so we can help them decide whether it's a good financial decision and tax decision.

Alan Berry:

Well, I'm over on the marketing side, so I don't know a lot of the things that you guys know over in accounting and the brains behind the operations and things they know. Do they know about the different ins and outs of dentist equipment? Do they know what things go for price wise and what's a good deal and what's not a good deal?

Kathy Collins:

Oh, yes. Absolutely. We can help them decide, and more importantly, in December there are a lot of good deals out there. That's absolutely true. That doesn't mean you need the equipment right now. Again, it depends on your cash flow and that's what we look for, is your cashflow sound enough to afford to make that purchase now?

Alan Berry:

Oh, I get it, now. That's why you say you need a dental specific accountant in all these cases, because of the fact that if you just had Jim Smith Everyday CPA, how in the world is he going to know what an XYZ machine is going to cost or shouldn't cost right? They're not going to know the value of any of those things.

Kathy Collins:

Exactly and they're not going to reach out to you to see if you're looking to buy it. So often, the dentist will go ahead and just buy it without any kind of input, whether or not he gets a tax benefit, whether the cost is right, whether the financing terms are right and then he's stuck with hit.

Alan Berry:

All that small print, when you go to buy big pieces of equipment, I would have no clue what that stuff says and I'm sure in there there's financial information that you need to know, one, to make sure that you're going to be able to write it off and two, what's the long term commitment that you're making to that financial contract? Do dental specific accountants look at those things before they tell their clients to sign them or not to sign them?

Kathy Collins:

Absolutely. We will ask them to give us three sets of terms that the salesman is willing to offer and different rates, different years and then we will decide what makes the best sense for this particular dentist.

Alan Berry:

You do, do the small print reading?

Kathy Collins:

Oh, absolutely.

Alan Berry:

Wow. That's pretty good. All right, so we got two great tips so far. This is really good stuff. Is there anything else you want to suggest to all the dentists out there for tax season coming up?

Kathy Collins:

I think the really important part is be prepared in advance. In December, make sure that you have the W9s for all the independent contractors because from 1099s will have to be filed by January 31st by your CPA and if they're waiting until the last minute, they won't get filed accurately and that comes back on the dentist because there are penalties out there if the correct 1099s are not filed. It's more important than you think.

Alan Berry:

You're saying that it's not the independent contractor's responsibility. It's you as the dentist and you'll get fined if you don't do this correctly?

Kathy Collins:

That is correct.

Alan Berry:

Tell me the W9s. Slow it down a little bit. Tell me exactly what the W9s are again.

Kathy Collins:

The W9 is a piece of paper that should be given to every independent contractor that is hired and it just basically asks for their social security number, their name, their correct address and that should be collected from them before their first check is issued to them.

Alan Berry:

I would imagine some people don't get that done right away, so now they're playing catch up. Is that-

Kathy Collins:

Correct. Then, the majority of the time it is not done right away and by the time December rolls around, it's hard to find that contractor again. Now, the liability is on you, should you get caught for not reporting the information.

Alan Berry:

What if you hem hawed around in the beginning, you didn't get it done, now you're scrambling trying to get this W9 signed. You find the person that was the contractor, you give them the W9, but they're not getting the W9 back to you, whose responsibility is that?

Kathy Collins:

It's still your responsibility.

Alan Berry:

Oh, wow. This is probably one of the biggest things you should be making sure you have done.

Kathy Collins:

Right. At least start now. At this point, there's nothing you can do. If you've reached out a couple of times and you cannot get the information, there's probably not much you can do and just hope the IRS doesn't catch it, but it's not too late to at least start looking, now.

Alan Berry:

I don't think... I'm not a fan of trying to hide stuff from the IRS, just in case the IRS is listening. I'm a big fan of the IRS as I'm sure you are, too.

Kathy Collins:

Oh, absolutely.

Alan Berry:

Yes, we want to follow the rules. Anything that they say to do, we do that. These are excellent tips. We were talking earlier and I guess President Trump... I know I sound like an idiot because I don't pay attention to a lot of these tax things, but this is your area. This is your specialty, so I'm sure you're going to know. We were talking about President Trump. There's some bills, there's some laws that they're introducing that may or may not affect taxes or something like that. Can you give me some light on that, if I need to worry about what's coming down the road with President Trump's next moves on taxes?

Kathy Collins:

Well, we're getting close to them hopefully passing a bill. It will not be affective until 2018, which is nice. It will not be retroactive to 2017. There's been a lot of discussion as to who this is really benefiting and it says it's going to hurt the middle class and I'm not completely sure I agree, but at this point, there's nothing being completely ironed out, but they do widen the tax brackets. They've not necessarily lessened them, but they've widened them. For example, if you made $400,000 in 2017, it will be taxed a slightly lower rate in 2018.

Alan Berry:

Like you said, so this is something that's a ball of clay right now and it could still be molded any which way and we really don't have a true factual way of looking at it just yet. Is that right?

Kathy Collins:

That is correct. I think one of the biggest things that we're going to see that I think will go through in some format, though is the big push on reducing corporate tax. If they reduce the corporate tax, that will also reduce the pass through income tax, so basically many dentists operate as an S corporation. That gets taxed at their own personal tax rate, which typically for a successful dentist is almost 40%. This new tax with all your pass through income, which again for dentists is a significant amount of their income, would only be taxed at a max 25% rate. That would definitely help the dental industry.

Alan Berry:

An S corp is the same as just corporation, right?

Kathy Collins:

It's basically a corporation, but the income is taxed on your own personal tax return.

Alan Berry:

What about an LLC? Is that similar?

Kathy Collins:

Yes.

Alan Berry:

Right now as it stands, if it is what we think it is, it may actually benefit a lot of dentists, this corporation tax cut.

Kathy Collins:

Absolutely.

Alan Berry:

Okay, I guess it's time for me to form a corporation then, right?

Kathy Collins:

Absolutely.

Alan Berry:

Could you do that? I guess you could do that, right?

Kathy Collins:

Absolutely. Sure.

Alan Berry:

All right.

Kathy Collins:

It's also why you need to talk to your CPA in 2018 once this gets passed, because you need to plan for your 2018 taxes, your estimates and your withholdings based on what actually gets passed in legislation.

Alan Berry:

Yeah. Just sitting here talking to you, I would say about probably 55% of what you say goes over my head. I get glazed eyes and I'm like, "What? Am I just dumb? I'm not following it." I think that your most important advice is to make sure that you have a qualified accountant that specializes in the dental field, right? That's the takeaway?

Kathy Collins:

I think that's probably one of the biggest takeaways. The second one is you need that dental specific accountant to be monitoring your books, your taxes, throughout the year. I would not recommend any dentist do his own QuickBooks, do his own accounting throughout the year, hand it over one time in February to his accountant and expect miracles.

Alan Berry:

It sounds like the temper in your voice is telling me that you've had clients come forward that have done this and they've paid that cost.

Kathy Collins:

Well, before I worked at Four Quadrants, I had that 90% of the time and that's a very difficult situation to be in because at that point, there's nothing I can do.

Alan Berry:

They just have to pay that big tax.

Kathy Collins:

They pay a tax surprise and you say, "Well, I'm sorry. There's nothing I can do."

Alan Berry:

If they would have had you looking over their books as opposed to themselves or a spouse looking, an accountant would have caught that a lot earlier.

Kathy Collins:

Absolutely. At least here, we do monthly bookkeeping and that's where there's no big tricks in tax planning and accounting. It's a matter of being prepared, preparing monthly financials and living in your tax gray area each month and handling things as they come, not waiting until the end of the year.

Alan Berry:

You're talking about do your due diligence with your business, but then we come back to that circle equation of saying most dentists don't like the business aspect of their practice. What you're saying, too is make sure you're tending to your practice's business. Is that correct?

Kathy Collins:

Absolutely. Let someone else worry about the financial parts. You just pay your bills and work dentistry.

Alan Berry:

I think that's great information. I'm looking at the clock and it looks like we're about out of time. If people at home or in their car or wherever they're listening to this and they have some questions for you, of course, any of our clients could call 24/7 and Kathy and her team will be happy to answer any questions. If there's someone out there that is not a Four Quadrants client, is it okay if they give you a call and just ask you a couple questions?

Kathy Collins:

Oh, of course. We're available. That's what we do, everyday.

Alan Berry:

All right. Excellent. Email Kathy at-

Kathy Collins:

Kcollins@4quadrant.com.

Alan Berry:

All right, Kathy. Was there anything that we didn't talk about, any information that you want to pass along or did we get it all in there?

Kathy Collins:

I think there's a lot to discuss, so I can't get it all in here right now, but if you have any questions, feel free to reach out. I think that's all I have for now.

Alan Berry:

All right. Well, thank you for stopping by, Kathy. I appreciate your time, appreciate your effort. I hope you and your family have some good holidays coming up. Everyone tuning in and listening to the podcast, I thank you for stopping by and taking a listen. If you get time, I'd really appreciate if you'd subscribe to the podcast and give us a rating.

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.