Join hosts Casey and Jarrod as they welcome special guest Stevy Levy, CPA & JD, to dive into essential year-end tax strategies. From maximizing deductions to capitalizing on tax credits, this episode offers practical advice for individuals and businesses looking to optimize their tax situation before the year closes. Don't miss out on these valuable insights that could save you money come tax time!
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 and we have special guests, Steve Levey with us, he serves as one of our accountants CPAs here and also has his law degree. He's one of the good ones though. Jarrod, good to see you. Steve welcome.
Steve Levey:
Hello.
Casey Hiers:
Hey. So we wanted to do a year end podcast on just some housekeeping things that potentially could help our listeners. And Steve was gracious enough to join us today. He's actually playing hurt. He's calling in remotely, he wasn't feeling great and so did the office all a favor and stayed home, but yet called in to participate in a podcast. Thank you so much.
Steve Levey:
No problem.
Casey Hiers:
For digging deep today.
Jarrod Bridgeman:
And listen, we could not talk taxes like you.
Casey Hiers:
No, no. Jarrod and I tried to talk good tax talk and it just didn't ... it wasn't working. So we needed to call in the closer, so thank you, Steve.
Steve Levey:
Yeah, no problem.
Casey Hiers:
So let's just jump right into it for our listeners. We're going to cover a handful of topics today, but you know, what's the impact of the potential new tax law? Let's just get right into that. And what do our listeners need to know or be aware of as it pertains to being a practice owner?
Steve Levey:
There's been a lot of talk of what could happen with the latest bill that is going through the house and the Senate and all that and really it's nothing to worry about right now. There are different potential impacts of new tax laws. There's been a lot of talk of laws that might increase rates and laws that might increase rates on capital gains. With that, it's hard to predict the future and you don't want to have your planning done based on what could happen. You want to get something more or definite. So it's not something to really concern yourself with until there's actually something tangible coming through the pipeline.
Jarrod Bridgeman:
What you're saying is don't get scared about things that haven't even happened yet?
Steve Levey:
Exactly.
Casey Hiers:
Well, how about this headline? The fed doubles pace of taper now expects three rate hikes and 2022. What does that mean for practice owners? If there's potentially going to be multiple rate hikes in 2022?
Steve Levey:
Well, it could be that the same income that they're generating in 2021, if they have that same income generated in 2022, they'll be paying higher taxes just because of those rate hikes. Now, again, it's still indefinite and the way things are sitting now, there's been attempts to have those types of rate hikes over time. But again, it's not something to necessarily worry about until people have something in hand to consider as a law. There's lots of proposals out there. People have lots of ideas, it's tough to get anything through Congress nowadays with the division that exists.
Jarrod Bridgeman:
Thank goodness. I think our founding fathers put in enough steps so that not too much could get done, right? Everybody complains no matter who's in power. I think a lot of this setup was so that things happen slower and that they do gum it up. Is it fair to say that between inflation, potential new tax law rate hikes, things that are happening, if a practice owner produced $1.289 million in 2021 and had an income of $316 000 that that same production is going to render them less money.
Steve Levey:
Yeah. That is potential for sure. If the rate hikes do happen on really ... they're certainly considering the top rate for increasing from 37% to potentially higher back to maybe like the 39% of years back. I don't think they would make it go even higher than that, but maybe bringing more of the income into that rate. So those are the two potential impacts there.
Casey Hiers:
Gotcha. My take home is you got to be as efficient as ever, right?
Steve Levey:
Yeah.
Casey Hiers:
When you're looking at overhead and things like that.
Jarrod Bridgeman:
So you're saying not to worry about it, but would there be, if it's looking like that's going to be more and more the case with these price hikes happen ... these rate hikes happening. Is there something that the dentist should do to maybe kind of prepare for it, kind of like hibernate kind of situation?
Steve Levey:
So some of the things they can do are, that if they are considering purchases anyway, regardless of taxes and those purchases may be done in the year of a higher rate, certainly anything to bring down taxable income would be a bonus. So if they're considering, and we'll probably get into that later on, on purchases, but anything to increase expenses in a year with higher taxes would be a bonus.
Jarrod Bridgeman:
Perfect. Perfect. If we're going to move on to ... we're going to talk about purchases here in a little bit. So let's talk about what are some other things that a practice owner can do right now? What would be something that could really help them out throughout the year throughout life? Is there something maybe along with the 401k?
Steve Levey:
Yeah. 401k contributions are always a great idea. Taxes not paid now are always better than taxes paid later, based on the time value of money. So maximizing four 401k contributions is always a great idea to defer income and based on someone's age, it could be around the 19,000 point for the max you can defer, or it could be [crosstalk 00:06:25].
Jarrod Bridgeman:
19 500, right?
Steve Levey:
19 500, or it could be in the $24,000 range if they're 50 and over. So [crosstalk 00:06:33]
Jarrod Bridgeman:
Now that just went that ... those just changed last year, correct?
Steve Levey:
Yeah. They scale up each year. [crosstalk 00:06:39]
Casey Hiers:
They're fluent.
Jarrod Bridgeman:
Okay.
Steve Levey:
Based on cost of living, sometimes it doesn't change, but for instance, it's still only a $5,000 boost up for catch up, as they say, for those that are 50 over. Sometimes they'll be like a cost of living adjustment for those that want to put in more, really for reflecting how compensation levels increase over time. And if you haven't maximized 401k contributions, there is a way you could really kind of do that at the end. If you haven't already kind of done that over time, you can sort of do some maximization at the end of the year. So it's not too late until the year's actually over.
Jarrod Bridgeman:
I guess my question would be then if, Dr. X did not maximize throughout the year, they can do like a large lump payment into 401k by the end of the year?
Steve Levey:
Yeah. Kind of like a bonus. We like to certainly have it over time so that there isn't like a big cost impact and cash flow impact at the end of the year. But it certainly ... but it's money coming back to them and going into their 401k poppers. So it's something that is definitely doable.
Casey Hiers:
So here's a question. Somebody's 52, they can save, 24 and some change and they're at 19, they need to write a $5,000 check. Can they just write that out of anywhere? I mean, it's just a matter of dumping it in, does that to be taken out of, of income? What's what's that look like?
Steve Levey:
Well, you want to have a certain amount of compensation slightly above that. For instance, we have folks that don't have a large taxable income for compensation purposes, but they are contributing the max. So, that's something that can continue as long as there's a certain amount above the amount that they're contributing to 401k. It shouldn't be like the exact amount just slightly above if they're wanting to just kind of put it right into the 401k investment.
Casey Hiers:
Gotcha. That makes sense. Year in purchases. That's how [crosstalk 00:08:49].
Steve Levey:
Yeah. Purchases. Yeah. That's [crosstalk 00:08:50].
Casey Hiers:
Let's slide into Section 179. [crosstalk 00:08:51].
Jarrod Bridgeman:
What you're saying is ... Yeah. Section 179. So you're saying we should buy everything now and write it off the taxes, right?
Steve Levey:
Yeah. That's what the sales folks will certainly have you do, the folks that are trying to sell you some equipment and whatnot. They're really hyping the section 179. Even if, you don't necessarily need it ... need that equipment. Kind of the drawback is, do I really need this now? Or can I push this off? What we always kind of talk about at ... for quadrants is you never want to buy something just to chase tax dollars.
Casey Hiers:
Going into debt is a terrible tax strategy. Is that fair?
Steve Levey:
Yeah. Yeah. That's certainly fair. If you don't need it now go ahead and defer. Now, if it's something you need, let's say like we were talking about the tax rates are higher in a certain year, then by all means, go ahead and make that purchase so that you have that tax advantage, but don't be chasing tax dollars with dollars that you're not needing to spend right now.
Jarrod Bridgeman:
I wanted to ask. So it's a piece of equipment that they actually need, are they then better off to buy it on December 31st instead of January 1st?
Steve Levey:
Yeah. I mean, the determining date is not necessarily when you buy it, it's when you put it in place. So if you haven't ... if it's like sitting in a box right now, but you purchased it, it's really the date it's placed in service. So you've got to, if you're going to buy in December 31st, you better have someone to install that thing.
Jarrod Bridgeman:
Okay.
Steve Levey:
Or, it's going to go into the next year.
Jarrod Bridgeman:
So I wanted to ask you, this is something that actually affects me, is the child credit payments that, we get every month and have, since, I don't know, mid-summer I'd say.
Steve Levey:
Right.
Jarrod Bridgeman:
Last I checked, I believe this is the last month, December is?
Casey Hiers:
Right.
Jarrod Bridgeman:
Okay. So is there any more or news on if that's being continued or what the case with that is?
Steve Levey:
This has been pretty much a 2021 program. Now the impact of that is that this is an advanced child tax credit, and so you're getting the money ahead of time instead of waiting until the filing a tax ... of the individual tax returns. So you shouldn't plan on having that credit also, and having that help with say a refund, when you file the taxes. Like I said, it's an advance of that tax ... child tax credit.
Jarrod Bridgeman:
Which was increased, correct? I mean, on top of the [crosstalk 00:11:40]
Steve Levey:
Right, it absolutely was, which is great. Now there are some that really weren't eligible to receive it and then are actually receiving it. So for instance, say you are ... they're basing it mainly on your 2020 taxes, and let's say your income increased greatly as many probably have from the 2020 year, that 2021 looks way better. So you may have been eligible based on 2020, but your 2021 year, you're not eligible based on certain income. So you're going to basically have to pay that back, come tax time when there's sort of a reconciliation done on that tax return. So that's something that I would just basically watch out for.
Jarrod Bridgeman:
So that would then play into the return of the kiddie tax, right?
Steve Levey:
Yeah. So with kiddie
Jarrod Bridgeman:
K I D D I E and not like a cat.
Steve Levey:
Yeah. That's how they call it, K I D D I E. So, that's something that it used to be where you could ... your child would have income and it would be ... and they would file a tax return and like capital gains or investments mainly would be taxed at the rate that they're at, the child. But recently, really since 2020, that hasn't been the case any longer where you have what's called a kiddie tax, that income is taxed at the parent's rate, which is obviously going to be higher than the child's rate and so, as we've seen in starting in 2020, the child would have to pay higher tax or even tax at all, because a lot of them, their income was below the threshold for even filing a tax return or paying any tax.
Casey Hiers:
Is there any other parting thoughts you'd have for this end-of-the-year wrap-up on taxes?
Steve Levey:
Just that in the coming year we'll sort of see what's going to happen. There's a lot of insecurity on what might happen. We know what will ... we know the case in 2021, so we know what can be done, especially in 401k contributions and maybe year-end purchases and things like that. So we want to plan with the definite law in place and not worry so much about the future until it actually comes.
Casey Hiers:
Nice and public service announcement, if your accounting firm is constantly filing extensions, that's a terrible standard of care. Would you agree, Steve?
Steve Levey:
I would, there's really not a whole lot of reason to necessarily do that. Now it's not a IRS audit situation by finding extensions, because it's done all the time, but you're deferring things to the future where you really don't need to.
Casey Hiers:
Yeah. Hey, well, thank you for calling in. I know you're a bit under the weather. Little bit of medical advice, Dr. Jack Daniels could potentially help out a little bit.
Steve Levey:
Okay.
Casey Hiers:
Steve, we appreciate your time. Get well, Jared as always.
Jarrod Bridgeman:
Yep.
Casey Hiers:
It's a pleasure.
Jarrod Bridgeman:
Thanks, Steve. Thanks Casey.
Steve Levey:
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, for Quadrants advisory to see if they might be a good fit for you and your practice, go in over to Four Quadrants Advisory.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.
