Tax day came and went. Did you owe or receive over $10,000 when everything was filed? If so, there is a better way. CPA Kevin Rhoton joins Jarrod to discuss tax surprises, how to help prevent those, and to explain how you can double-check your CPA with a complimentary tax assessment.
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.
Jarrod Bridgeman:
Hello and welcome to The Millionaire Dentist. I am Jarrod Bridgeman, I'm your host today. Casey Hiers is out and about. He's down in Dallas doing one of our Top Golf events. Today I have special guest, Kevin Rhoton. He is our CPA and he is also an MBA. He is an onboarding specialist here at Four Quadrants Advisory. Kevin, how are you?
Kevin Rhoton:
I'm doing great. Thanks for having me.
Jarrod Bridgeman:
Kevin, can you explain to me what an Accounting Onboarding Specialist is and what you do?
Kevin Rhoton:
Yeah, so specifically with our new clients, after they come on board. I work with them very closely with getting all of their accounting, all of their taxes, QuickBooks, banking, credit cards. I work with them on getting all of that information transferred over to us.
Jarrod Bridgeman:
Let me ask you, on average, when you're bringing all that in and onboarding this new client, how long does that take?
Kevin Rhoton:
It's usually about three months. Some clients, the transition goes a little bit quicker. Some maybe takes a little bit longer.
Jarrod Bridgeman:
A lot of that would be because we are so thorough, right?
Kevin Rhoton:
Yes.
Jarrod Bridgeman:
And in the past several years that you've been here, every new client, every client has had to go through you at some point.
Kevin Rhoton:
That's right.
Jarrod Bridgeman:
That's right. You're the big gatekeeper, the bouncer.
Kevin Rhoton:
I'm am the gatekeeper.
Jarrod Bridgeman:
And I'm the key master. So this all works out. So Kevin, today we wanted to bring you on and talk about... It's very appropriate, taxes were due last week. We talk about this oftentimes on this podcast of a tax surprise being plus or minus 10,000 that you either owed or refunded. But I wanted to get your opinion on. Can you dive a little bit more into that? It's not just owing 10,000, right?
Kevin Rhoton:
That's correct. With our clients, a lot of times we have the quarterly estimates, things like that. So what we key in on is, when tax day comes, just happened, you should not be having a surprise of more than $10,000.
Jarrod Bridgeman:
That you're not expecting?
Kevin Rhoton:
Yeah.
Jarrod Bridgeman:
So it really doesn't matter, you still have to pay taxes.
Kevin Rhoton:
Right, right.
Jarrod Bridgeman:
It's not, at the end of the year, you're like, oh, I'm only owing a thousand dollars. That's not going to happen.
Kevin Rhoton:
Yeah. So we definitely don't want our clients to owe more taxes than they need to.
Jarrod Bridgeman:
Right.
Kevin Rhoton:
So we're going to look for every deduction, every credit that we can. But at some point, if you make money, the IRS is wanting their share of it. So yeah, we see so much in the practice owners, the prospects that come across my desk, of their taxes that come through.
Jarrod Bridgeman:
And would this be even before their clients? Is this part of the consultation process?
Kevin Rhoton:
Yes. I'll see in prior years they'll owe $50,000 or get a $70,000 refund.
Jarrod Bridgeman:
Has that actually happened?
Kevin Rhoton:
It has happened. And a lot of these practice owners, they don't have a dedicated, dental-specific CPA, that works with them throughout the year.
Jarrod Bridgeman:
They may have someone they know or might be a part of a bigger firm?
Kevin Rhoton:
Yeah. You have the major CPA firms, and they're pretty much just 1040 factories or 1120-S factories. Where you talk to them two, three times a year, you send them all of your stuff. At the end of the year they churn out your tax returns. They maybe churn out estimates. There's no customization, there's no analysis throughout the year.
Jarrod Bridgeman:
But they'll look at the practice, almost like any other business, not really dive into what's specific towards what they need?
Kevin Rhoton:
Right.
Jarrod Bridgeman:
As we said, every client and every prospect comes across to your desk. Let's say when you're looking at their previous taxes, is there anything you've noticed a trend, an issue or a problem that you've seen multiple practice owners out there kind of come across?
Kevin Rhoton:
Yeah. There's probably two or three of them that generally we'll see this as common. One is their income structure. And what that is, based on their [inaudible 00:04:41] type, their income structure being their W2 wages and their distributions. That's what we consider their income as a practice owner, what they get through W2 earnings and what they bring home through tax-free distributions. With that, we see that they don't maximize their income through there, and they also don't maximize their deductions. Whether it's retirement savings, maximizing their 401k, maximizing their company match.
Jarrod Bridgeman:
Most of the people listening would know this on some level. But for example, when you're putting your money to a 401k that's taken out before taxes. So that lowers your tax base at tax time, right?
Kevin Rhoton:
Yeah. It lowers your taxable income tax. And then, even for practice owners that implement profit shares, that's an expense to the business. That's money that's going into your retirement for retirement savings, and an expense for the company itself. Which then lowers your taxable income.
Jarrod Bridgeman:
And so some people may not be utilizing all the maximizations of these deductions and things like that, and are essentially paying more than they should?
Kevin Rhoton:
Yes. That's exactly right.
Jarrod Bridgeman:
And that could add up.
Kevin Rhoton:
You could be talking thousands of dollars a year, tens of thousands of dollars over many years.
Jarrod Bridgeman:
If you're a practice owner for 30 years. Wow. I mean that really can really add up, and that's part of what we do here is find ways to get you more of that money.
Kevin Rhoton:
And it's a double whammy where you're not maximizing that tax break, and you're not maximizing that retirement savings.
Jarrod Bridgeman:
Does any of this have to do, you said with income structure, is that the same or related to, I believe it's S-corp and... I know it's not a C-section, but it's...
Kevin Rhoton:
There's C-corps, there's S-corps, there's sole proprietorships that file a Schedule C on the 1040. There's partnerships.
Jarrod Bridgeman:
And each one of those can vary on your what you pay.
Kevin Rhoton:
Right. And there's different tax laws, there's different tax benefits to each type of entity.
Jarrod Bridgeman:
And that's also something that we look at as well?
Kevin Rhoton:
That is.
Jarrod Bridgeman:
Is that your second point, did I steal your thunder?
Kevin Rhoton:
That was my second point is... In fact, over the past 12 months or so, a few of the ones that come across my desk, those prospects looking at their taxes, we see ways that they can change maybe their entity type, maybe their C-corp, make an S election. We look at what would be the most beneficial to them. Maybe for this client it would be this certain plan. Another one would be this certain type of entity.
Jarrod Bridgeman:
Now you said there was two or three things. Do you have a third kind of point for me here?
Kevin Rhoton:
Yeah, actually...
Jarrod Bridgeman:
Can you get to the point, Kevin?
Kevin Rhoton:
Something else that we see is just downright errors on prior tax returns.
Jarrod Bridgeman:
Forgot to carry the one?
Kevin Rhoton:
Forgot to carry the one. Sometimes that does happen. The practice owners, again that we talk to, that we see. They'll say, yeah, it's a family friend, or they did my dad's parents' taxes. Or it's a family member of one of my employees that's helping me out. I don't want to put them down or anything, but just a little bit out of their league. You need more detail-oriented, dental-specific tax advice.
Jarrod Bridgeman:
Someone who understands your line of business and understands the laws that tie into that.
Kevin Rhoton:
That's exactly right. I've seen things where there's a deduction called the Qualified Business Income Deduction that's filed wrong. They've made mistakes there. There's something called the Net Investment Tax. I've seen where that was implemented wrong.
Jarrod Bridgeman:
Do you have a nice point of, Hey, here's a really cool case where we were able to recoup or save a dentist a large amount of money or a decent amount of money.
Kevin Rhoton:
Yeah. Going back to that entity type. There's one whereby reorganizing, we'll actually be able to save them in income taxes, over $19,000.
Jarrod Bridgeman:
Wow. In just one year?
Kevin Rhoton:
In just one year.
Jarrod Bridgeman:
Someone's listening to this. They just filed their taxes or they're pretty close to it. I know there's a couple cases out there where they may have to file an extension because they haven't gotten all the stuff they need from everybody else. But let's say they filed, they knew they were going to pay something, and it ended up being, oh, nice, I'm paying 10, 20, 30,000 more than I thought. Is there something we can do to help somebody out?
Kevin Rhoton:
Yeah. I believe we are implementing a free tax assessment.
Jarrod Bridgeman:
What? Free? Just call and say, where's Kev Dog?
Kevin Rhoton:
Something like that. Yeah, sure, go ahead, try that.
Jarrod Bridgeman:
Here's the deal. I'll repeat it again later at the end of the episode, but if you go to fourquadrantsadvisory.com/taxes, we're going to have information on there as well as a form and a phone number you can call. It's not going to be as deep of a dive as our full-on consultation is. But we'll take a high-level view and maybe may be able to point out some things. So Kevin, can you kind of walk me through the process of what this tax assessment is and what we're looking for?
Kevin Rhoton:
It's just a fresh set of eyes. Sometimes you get into that rut. If you've had a CPA or an EA or whoever doing your tax returns for a few years, they get into that rut of this is just what we do. Not asking questions. If you want that fresh set of eyes, just take a look. Many of these examples that we talked about was for our prospects. I took a look at those tax returns and right off the bat saw those areas that we could make changes to and they could save on taxes.
Jarrod Bridgeman:
What can someone expect? If they sign up, fill out the form and get in contact with them. What are some things they can expect to have to send in?
Kevin Rhoton:
Their practice tax returns and their personal tax returns, really. Most of the time we look at just their federal. A lot of times just states have a lower tax rate.
Jarrod Bridgeman:
And each state has their own kind of deal?
Kevin Rhoton:
Yeah. And many states just piggyback up off of what you report to federal. Federal, you do all your adjustments to your income, adjustments off, credits and things. And then they'll be like, okay, just tell us what your AGI was for federal and we'll go from there. So there's not as much low-hanging fruit on state returns, but for federal, for sure. So definitely look at federal, personal, and practice tax returns. And these prospects that have come across, I would say three-quarters of them, at least, where I can say, we could go back, amend, find some money. Or there's some changes you can make going forward that would save you on taxes and help with the cash flow. There's a lot [inaudible 00:12:32]
Jarrod Bridgeman:
That's a big chunk of people that you've talked to that have had an issue, that at the end of the day, make differ thousands of dollars.
Kevin Rhoton:
Thousands, tens of thousands over years. Another horror story, one that I hate to see, is this kind of gets into distributions and shareholder loans, things like that.
Jarrod Bridgeman:
We've talked about shareholder loans before, but those can be...
Kevin Rhoton:
An IRS red flag. Really. And a lot of times we'll see these practice owners be like, what shareholder loan? I have $120,000 shareholder loan? Yeah. On your balance sheet says you owe your practice a hundred.... No, I don't. Yeah, yeah, you do. And without getting into the weeds, IRS red flag, we don't like to see that. We also don't like to see things like capital gains on distributions. And that just comes from lack of dental-specific accounting.
Jarrod Bridgeman:
And maybe the accountant not explaining clearly what's happening.
Kevin Rhoton:
Clearly, what's going on. Distributions for an S-corp owner, practice owner, distributions should be tax-free. If they plan right, if they have somebody like us to help them, you can pull that money out tax-free. If you don't do it the right way, it can be taxed. And that's something I see from time to time. It's one thing to defer taxes and that's great, but to pay taxes on money that you shouldn't have to just because of not getting advice at all from your right accountant, CPA. It just hurts.
Jarrod Bridgeman:
Well, Kevin, I really appreciate you coming on here. This was your first time, I believe, being a guest on here. Were you nervous?
Kevin Rhoton:
I was a little bit.
Jarrod Bridgeman:
You scared a little bit? Yeah. Is that why you're holding my hand right now?
Kevin Rhoton:
Dude.
Jarrod Bridgeman:
Anyways, thank you Kevin for being on here. I really appreciate all the time and effort you put into this. Folks. Don't forget, we're going to be all over the country all summer long and the rest of the year. Go to fourquadrantsadvisory.com/events and check out where we're going to be. Thanks, Kevin.
Kevin Rhoton:
Thanks.
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.
