Hosts Casey and Jarrod welcome special guest Kevin Rhoton, a seasoned CPA and MBA, to delve into the world of quarterly tax estimates. Listeners will gain valuable insights into why these estimates are crucial for practice owners, how to calculate them accurately, and common pitfalls to avoid
Casey Hiers:
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.
Hello and welcome. This is Casey Hiers back at the Millionaire Dentist Podcast, in studio with co-host Jarrod Bridgeman.
Jarrod Bridgeman:
Hey, that's me. I was like, "What's the pause there?"
Casey Hiers:
I'm just building up suspense.
Jarrod Bridgeman:
I love it. Hi, Casey. How are you?
Casey Hiers:
Doing well. We've also got Kevin Rhoton in the house.
Kevin Rhoton:
Hello.
Casey Hiers:
MBA, CPA generally nice guy. Kevin, you help with our tax team?
Kevin Rhoton:
Yes.
Casey Hiers:
Tax management, tax planning, onboarding, anything tax.
Kevin Rhoton:
Yeah, I'm with the accounting tax team, and I specialize with onboarding our new clients.
Jarrod Bridgeman:
He also specializes in barbecuing and smoking meats and making jerkies.
Kevin Rhoton:
I do. I do.
Jarrod Bridgeman:
It's very nice when he makes "too much" and he brings it in. I'm a big fan of when that happens.
Casey Hiers:
Jared loves a free lunch.
Jarrod Bridgeman:
I sure do.
Casey Hiers:
I probably owe you one, actually.
Jarrod Bridgeman:
I've taken so many meetings just to get a lunch out of it.
Kevin Rhoton:
I do have some. Do you want me to bring it in tomorrow?
Jarrod Bridgeman:
Yes, that'd be great.
Kevin Rhoton:
Okay.
Jarrod Bridgeman:
Thank you.
Casey Hiers:
It's paying off already.
Jarrod Bridgeman:
Paying off already. But as you said, Kevin is like a... He's like a CPA tax genius.
Casey Hiers:
It's like our Rain Man with numbers, but smarter on the front end, I guess.
Kevin Rhoton:
Again, I don't know how to take that.
Jarrod Bridgeman:
[inaudible 00:01:35].
Kevin Rhoton:
Is that a compliment or a-
Casey Hiers:
It was kind of meant to be a compliment, the Rain Man. Well, actually, it's from the Hangover when Galifianakis doing the Rain Man with the numbers going through the head and-
Kevin Rhoton:
That's right.
Casey Hiers:
Anyway, you're really smart. That's what I'm trying to say.
Kevin Rhoton:
Thank you.
Casey Hiers:
You're welcome.
Jarrod Bridgeman:
Yes. And you came here today to talk to us about-
Kevin Rhoton:
Estimates.
Jarrod Bridgeman:
... taxes, right? Estimates?
Kevin Rhoton:
Tax projections and estimates.
Casey Hiers:
What do we need those for?
Kevin Rhoton:
Well, if you do not like writing five digit checks to the IRS when you file your tax returns, then you probably want to listen to this.
Casey Hiers:
So if you're a practice owner who you pay your taxes all year and then you have to pay 10,000, 20,000, 30,000, 40,000, 50,000, 60,000 more...
Kevin Rhoton:
Still pay more.
Casey Hiers:
... and actually forget the refund, it's still bad. But we'll just talk about the estimates. Okay.
Kevin Rhoton:
Yeah. Yeah.
Casey Hiers:
Jarrod, drive us home today, pal.
Jarrod Bridgeman:
Okay. So in terms of estimates and tax projections, and if it's not handled well enough, as you said, some of the bad things that could happen is writing a large check...
Kevin Rhoton:
Yes.
Jarrod Bridgeman:
... at the end of the year. Why don't traditional CPA or accounting firms already do that for people?
Kevin Rhoton:
Yeah, most-
Casey Hiers:
Because they're lazy. Sorry. Go ahead, Kevin.
Kevin Rhoton:
Yeah. Most traditional CPA firms, probably a lot of practice owners experience this, where you really only talk to them once, twice a year leading into tax season. They'll get all of your information, prepare your tax returns, file them, and then you don't hear them for nine to 10 months. Do it all [inaudible 00:03:12].
Jarrod Bridgeman:
And they don't usually check in with you either.
Kevin Rhoton:
And they don't check in with you.
Jarrod Bridgeman:
Okay.
Kevin Rhoton:
Anything like that. And...
Jarrod Bridgeman:
So as part of what a traditional CPA a firm does, this is a term I've heard thrown around. I'm going to be straight up honest. I get the concept. I'm not sure what it is. What is a safe harbor? What is it and how does that work?
Kevin Rhoton:
Yeah. So most traditional CPA firms will prepare safe harbor estimates when they prepare your tax returns. So given the example that we've just come out of, filed the 2022 tax returns, they automatically do maybe a safe harbor 2023 estimates, quarterly estimates.
And all safe harbor is the IRS says, "You need to pay 90% of your 2023 tax liability or 100% of your 2022 tax liability to keep you out of paying any underpayment penalties," and that's it. That doesn't mean anything about any type of fluctuations and-
Jarrod Bridgeman:
So if you had a really good year or a really bad year, or there was a medical issue and you were home a lot, it's just what happened, whatever you did two years ago or last year?
Kevin Rhoton:
Yeah, last year.
Jarrod Bridgeman:
Okay.
Kevin Rhoton:
Yeah. That's all it means. So yeah, you could have a $50,000 tax bill, but as long as you paid in a 100% of last year's taxes...
Casey Hiers:
Hey, I just tuned out. But is the answer is because they're lazy?
Kevin Rhoton:
Yes. Short and sweet, they're lazy.
Jarrod Bridgeman:
So this is more of a, "Let's prevent penalties" type of thing.
Kevin Rhoton:
Yeah, that's all it is.
Jarrod Bridgeman:
Why wouldn't they take into account again... Is it just because they touch one time a year? So let's say you're the traditional CPA over here. I give you my tax info. You see that, "Hey, you were up $200,000 compared to last year." Why wouldn't you adjust that or change that for... Or is it too late by that point?
Kevin Rhoton:
It's too late by that point.
Jarrod Bridgeman:
Okay.
Kevin Rhoton:
Because they're looking at your 2022 books in the first part of 2023.
Jarrod Bridgeman:
So before, let's say, because you work with us, obviously you work here and you work with all of our clients, do you find when people come in for the first time as a client or even in consultation, they're frustrated with those year-to-year swings?
Kevin Rhoton:
With a lot of prospects that come in, we see that a lot, fluctuations in taxes owed. From one year to the next, looking at prior year returns, they'll owe a whole lot one year and then turn around and get a refund the next year.
Jarrod Bridgeman:
And a refund is not always a good thing, right?
Kevin Rhoton:
No. It's just a poor use of your money. You're giving the federal government an interest-free loan.
Jarrod Bridgeman:
See, now these are things I didn't know before coming to work here too much, because I remember being in college and getting a nice little tax refund, and it went straight to booze. Let's be honest. But now, it's like I'd rather would have that money month to month or week to week, whatever it comes down to.
Casey Hiers:
Yeah. Kevin sees this firsthand as he's onboarding new folks that get to work with our firm. Most of the time, they start out thinking that their tax situation is okay or maybe not as proactive as they would like. And then ultimately, they get pissed off because a lot of times we find a lot of errors, mistakes, issues, things that they just didn't know, because they like their accountant, they're a nice person.
Jarrod Bridgeman:
Or it's been so many years, they think that's the norm, like this is what happens.
Casey Hiers:
They think it's the norm. And their other 14 friends who use the same CPA, they all have different degrees of mediocrity when it comes to their accounting. So they don't know any different until the proverbial blindfold's lifted off and they go, "Wait. What? You mean I didn't have to pay $60,000 and I can do this or that?" You see that all the time.
Kevin Rhoton:
All the time.
Jarrod Bridgeman:
So how do we here at Four Quadrants do that differently than, say, the traditional firm?
Kevin Rhoton:
So right off, we have, I guess, a leg up, you would say. We work with practice owners on a monthly basis. We reconcile their bank accounts, update their QuickBooks, and we're generating monthly financial statements for them.
Jarrod Bridgeman:
So you're elbow deep in the process.
Kevin Rhoton:
Yeah. Yeah. So we're able to provide up-to-date tracking on their taxable income.
Jarrod Bridgeman:
So you're in the practices accounts and their QuickBooks and all that stuff on a monthly basis. From there, where does it go?
Kevin Rhoton:
Yeah. So that leads right into being able to prepare a customized quarterly estimate for our clients. Each quarter, we actually have a proprietary tax projection method that we go through for every one of our clients. And it's really probably about a 10-step method that pretty much looks at every aspect of our clients. And anything that might affect their taxes, we take a look at that and incorporate that into their quarterly tax projection.
Jarrod Bridgeman:
And each time, if something pops up, you're right there to ask them a question like, "What is this? Where did this come from?"
Kevin Rhoton:
Mm-hmm.
Jarrod Bridgeman:
Okay. So if someone's trying to cook the books, we know.
Kevin Rhoton:
Sure.
Casey Hiers:
Well, more importantly, embezzle.
Kevin Rhoton:
Yes.
Casey Hiers:
I mean-
Jarrod Bridgeman:
Or embezzlement. Yeah.
Casey Hiers:
Yeah. When you, which is a practice owner, you probably shouldn't be spending hours of your time doing this stuff. But for our clients, when you have a team and everything all the time, there's no chance for embezzlement or 99.9% no chance of embezzlement.
Kevin Rhoton:
At least catching it early.
Jarrod Bridgeman:
Yeah.
Casey Hiers:
Yeah. No catching it right away. But from what I understand, most folks, they only get the safe harbor estimate, which is, "Last year, I did X divide by four. There's the quarterly payments. Best of luck. We'll talk to you November."
Jarrod Bridgeman:
Yep.
Casey Hiers:
The extra parts are we, with our clients, forecast out the next year. Correct? So we might say... Is that correct?
Kevin Rhoton:
That's correct.
Casey Hiers:
Yeah. So well, maybe one of our female clients, maybe they're going to have a baby. Well, guess what? You can actually plan and forecast for that novel thing.
Kevin Rhoton:
Absolutely.
Casey Hiers:
A lot of accounting firms won't do that because they're not talking, because they're getting nickel and dimed.
Jarrod Bridgeman:
Right.
Casey Hiers:
Don't get me started. But the safe harbor, a forecast, and then the monthly and the quarterly tweaking, changing, being in there, adjusting, that's the recipe. It drives us nuts because it's not the hardest thing to do, and so few people have a accounting firm that does that.
Kevin Rhoton:
Yeah. Think about all the swings that happen just in one year in practices. You have dealing with ups and downs with revenue, employee wages. They're mostly going up. But major equipment purchases, we have practice owners all the time, piece of equipment goes down, they do have to purchase that replacement. We've just seen all kinds of ups and downs. And then not to mention everything that affects taxes outside of the practice, personal investments, home sales, home purchases, kids, like Casey had said, all that.
Jarrod Bridgeman:
Gambling with crypto.
Kevin Rhoton:
Yes, actually.
Casey Hiers:
Well, yeah. And this all ties into right now there's people listening that in June have no idea that for the first six months of the year, something was not accounted for. And then when are they going to hear about it? In November.
Kevin Rhoton:
Not even Nove-... They'll hear about it in April of 2024.
Casey Hiers:
So with the traditional accounting firm, a lot of times people don't find out, let's say November of that year that there's been poor accounting done and that they owe a bunch of money. And so you have, what, five weeks to correct that? Well, that's not enough time. So then what do they say? Section 179, "Go buy some stuff. Go buy a $90,000 truck," because it's letting them off the hook.
Kevin Rhoton:
Yes.
Jarrod Bridgeman:
Or they go behind your back and get you a shareholder loan.
Casey Hiers:
We talk about those a lot, don't we?
Jarrod Bridgeman:
That's right. That's right. Kevin, doing it the Four Quadrants way and getting proper and methodical quarterly estimates done, besides maybe not owing a bunch come tax time, what are some major benefits that someone can see from that?
Kevin Rhoton:
Yeah, definitely. Two major ones besides just the fact of not owing a tax penalty is it helps avoid those tax surprises when you go to file your tax returns. Again, probably practice owners out there that every year they have that dread in the pit of their stomach of when their accountant calls, "I have your taxes done. You owe..."
Jarrod Bridgeman:
Right.
Kevin Rhoton:
... insert huge dollar amount.
Jarrod Bridgeman:
Right.
Kevin Rhoton:
They hate that time of year. So-
Jarrod Bridgeman:
And they're giving themselves ulcers just thinking about it.
Kevin Rhoton:
Yeah.
Jarrod Bridgeman:
Yeah. And then they're spending money at the doctor. That's more money.
Kevin Rhoton:
Yeah.
Jarrod Bridgeman:
That's a whole thing here.
Kevin Rhoton:
And tons of the prospects that we talk to, they hate that, "Yeah. I had a tax surprise. Yep. I hated it. More money out the door."
Jarrod Bridgeman:
Was anybody ever surprised they had to pay taxes in general?
Casey Hiers:
One of the lines I hear is, "Well, it's not really a surprise because it's always jacked up some way."
Jarrod Bridgeman:
Right.
Casey Hiers:
If it was, "Hey, you owe 475 extra dollars," that would be the surprise, because it's never very consistent.
Jarrod Bridgeman:
Right.
Casey Hiers:
And taxes get people to move. That gets people frustrated. And when they wake up and realize that it shouldn't be like that, then they make a nice change. Some people, their tax situation, maybe it's not as glaring as we're talking about here. But Kevin and his team do a good job finding details, getting in the weeds, finding minutiae, things that can just be better.
Kevin Rhoton:
Yeah. And I guess a little bit to toot our own horn is every year there'll be a couple clients, a few clients that we'll get probably within a hundred dollars of zero on filing their return, whether it's owed or refund. We can get that close.
Jarrod Bridgeman:
Will you do my taxes, too?
Kevin Rhoton:
Absolutely.
Jarrod Bridgeman:
Absolutely. What's another great benefit that we can see? I feel like it may have so to do with having just more cash in hand throughout the year.
Kevin Rhoton:
Absolutely. So talked about avoiding tax penalties, talked about avoiding that tax surprise, but also on the other end is helping with cash flow if we are able to lower your estimate. Who wants to give the government an interest-free loan?
Jarrod Bridgeman:
Yeah. I wouldn't. So what could be done with that money instead?
Kevin Rhoton:
Main thing is put it in retirement. Let it earn interest for you. Or if you need it for new equipment, I know plenty of uses a practice owner would... Just in the practice or personally, maybe there's a home improvement that they're wanting to do or...
Jarrod Bridgeman:
Kevin, I want to thank you for coming on. Is there any last words you have, not like a death sentence, but is there anything else that you want on your tombstone?
Kevin Rhoton:
So, yeah. Right now, the second quarter tax estimates are due June 15th.
Jarrod Bridgeman:
And quarterly, it'd be every three months.
Kevin Rhoton:
Yeah. So-
Jarrod Bridgeman:
So after June 15th, when would you say the next...
Kevin Rhoton:
September 15th is quarter three.
Jarrod Bridgeman:
Hey.
Kevin Rhoton:
Quarter four will be January 16th, and then of course you're 1040 is due on April 15th of 2024. And really, my last comment would be if you're not talking to your tax preparer around those dates, then come talk to us.
Jarrod Bridgeman:
That's right. Visit our website or give us a call. We do offer free tax assessments if you just want to come on and see. We'll spend a little bit of time.
Casey Hiers:
Hold on. Why would we do that?
Jarrod Bridgeman:
Honestly, I would say the goodness of our hearts.
Casey Hiers:
No. That's a lie. Two reasons. Number one, so many people's tax situation is not very good, even when they think it is. But number two, when we point that out with a little bit of information and a little bit of time, that builds credibility for people to go, "Well, crap. If they just found that..."
Jarrod Bridgeman:
In 30 seconds.
Casey Hiers:
"... imagine what they can do to help us in a broader way. Let's investigate if that should happen."
Jarrod Bridgeman:
Right. And we're at a-
Casey Hiers:
That's why we do it.
Jarrod Bridgeman:
That's right.
Casey Hiers:
But we do find a lot of issues in taxes and we offer that complimentary as a springboard to potentially talk to somebody, right? That's full disclosure.
Jarrod Bridgeman:
Right.
Casey Hiers:
We're pretty straight juice here.
Jarrod Bridgeman:
That's right. And listen, again, it's free. Reach out, and we would love to take a look at your stuff and see what we can do to help.
Kevin Rhoton:
Yeah.
Jarrod Bridgeman:
All right.
Kevin Rhoton:
I'll take a look at it.
Jarrod Bridgeman:
Kevin, I want to thank you so much for being on here and-
Kevin Rhoton:
Thank you.
Jarrod Bridgeman:
... laughing at my jokes. It's always appreciated. Casey, you did amazing as usual. Much love.
Casey Hiers:
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.
