Maximize Your Dental Practice Tax Savings: Expert Strategies with CPA Kevin Rhoton

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 Bridgeman:
Casey, good morning. How are you?

Casey Hiers:
Anytime we get our expert, Kevin Rhoton, MBA, CPA, Mr. Letters, it's always a good day because he's going to give our listeners some technical advice that hopefully they're getting some from already, but if they're not, then there's your red flag. Kevin, welcome to the show.

Kevin Rhoton:
Hey guys. Thanks for having me.

Jarrod Bridgeman:
Kevin, you are a numbers accounting genius. You are one of the guys I go to personally just to ask the most random of accounting questions, and we wanted to start this new year with maybe someone missed some tax deductions or some way to maximize their taxes last year.

Kevin Rhoton:
Yeah.

Jarrod Bridgeman:
Do you have some major tips or points that maybe they should start looking at now and prepare for this year?

Kevin Rhoton:
Yes. We talk to practice owners all the time, especially going into the end of the year. They were like, "What kind of tax deductions can we take and what should I do?" And there's quite a few things that, well, you probably should have started at the beginning of the year.
It's a little bit too late, really too hard to go back and do these things. Maybe they don't have the cash to catch up on some of these things.

Casey Hiers:
Oh, you mean like go buy an $85,000 truck because your CPA gave you no advice throughout the year, and then the Hail Mary is for you to go spend a bunch of money on something, but don't worry.

Kevin Rhoton:
Yeah. We see that.

Casey Hiers:
But don't worry, it's better for your taxes-

Kevin Rhoton:
Sure.

Casey Hiers:
... by spending $85,000 on a new truck. Yep. That's the big plan.

Kevin Rhoton:
Yeah, and it's a huge-

Jarrod Bridgeman:
I mean, it's just future you problems if you just keep pushing it down, right, eventually [inaudible 00:02:12]-

Kevin Rhoton:
Yeah. Yeah, that's a great strategy, let me tell you. So I just wanted to just bring out some tax deductions, some things to do as a practice owner to make sure you get on top of here at the beginning of the year. Yeah, you might've missed out on some of these or maximizing some of these for 2024, but jump on it right now for 2025, and then you can definitely reap the benefits next tax season.

Casey Hiers:
When I talk to practice owners, I think what we're going to talk about today is one of their favorite topics, right? How can they get cute with deductions and employee gifts and some CPA magic trick, right?

A lot of people's minds are wired that they've got to do something cute or edgy, and so we are going to talk about that today because there are areas where yes, you can do some things to benefit you. But, Kevin, and I think you can agree, a comprehensive picture of everything, taking everything into account and then mastering the tax situation on a monthly and quarterly basis that's winning success.
This is a small piece of the pie that matters, and as important as they'll see it's all connected, but this isn't like, "Oh, I've just got to rearrange some things and all of a sudden my overhead EBITDA and income's going to be where I want it." Is that accurate?

Kevin Rhoton:
Right. If you put the time in, if you look ahead, get started right away, it's a lot easier to maximize a little bit at a time.

Casey Hiers:
Instead of playing catch up and then making a bad decision at the end of the year because you feel like you have to.

Kevin Rhoton:
Mm-hmm.

Casey Hiers:
All right, so deductions, retirement contributions, employee gifts, get out that magic wand-

Kevin Rhoton:
Yeah, sure.

Casey Hiers:
... and just go nuts.

Kevin Rhoton:
Well, I guess the easy one to start off with is make sure you're maximizing your retirement contributions, whether it's a 401k or a SEP IRA, simple 401k. Different vehicles for retirement for practice owners, but make sure you're planning to maximize those contributions.
It went up $500 to the employee contribution to 23,500. Make sure, go ahead and divide that by however many payrolls. Make sure that's what you're putting back each payroll. If catch up contribution is still the same, 7,500, so that's the-

Jarrod Bridgeman:
Catch up is over what age, 55?

Kevin Rhoton:
50.

Jarrod Bridgeman:
50. Then if I remember correctly, this year though, there is that super duper catch period from age 60 to 63 or something like that?

Kevin Rhoton:
60 to 63, and that is $11,250.

Casey Hiers:
Over the 31.

Kevin Rhoton:
Over the 23.5.

Casey Hiers:
Gotcha.

Kevin Rhoton:
And then overall, especially as a practice owner, look at your total contributions, the employer match, and that goes up from 69 to 70,000, so you can maximize that just with the employer contributions. Just make sure you get with your payroll specialist and have those numbers set for you.

Jarrod Bridgeman:
Kevin, let me ask you, you often are on some initial calls when we bring on new clients and things like that. When you have found or have talked to a prospect or a brand new client who may not have maximized their retirement savings correctly or all the way, what are some of the common mistakes you see you've seen them do?

Is it something like they wait till the end of the year and, "Shoot, I need to dump an entire paycheck into 401?"

Kevin Rhoton:
Yes.

Jarrod Bridgeman:
Okay.

Kevin Rhoton:
Yeah, we see that often. They've under withheld and maybe they wait and do just a bonus. They just pay themselves a little bit throughout the year and then do a year-end bonus payroll where they pay in all their taxes, catch up on all their 401k withholdings and contributions and things like that.
We have heard and seen that, "Yeah, that's stressful, but that's how my accountant that they see once a year said to do it," and that's just not the best for-

Casey Hiers:
Well, there's strategy out there to make it very consistent and predictable.

Kevin Rhoton:
Yeah.

Casey Hiers:
But high level around here, we always say, if somebody's collecting over a million dollars in dentistry, well, why aren't you saving a hundred thousand dollars a year? Because they should be. But ultimately it ties into everything else.

"Well, my overhead's high, my insurance adjustments are challenging." How all this is connected is really important because people tell us, "I just don't know how I can save anymore." These are just minimum benchmarks that you'd be a damn fool not to take advantage of-

Kevin Rhoton:
Yeah.

Casey Hiers:
... not to mention saving via brokerage, another vehicle, but the whole, "Well, I don't have any money to save." Well, there's a deeper problem then within the practice and the way incomes are structured, entities structured, all taxes are managed, cash flows managed.
You can't just say, "Well, I can't." I mean, I'll get off my soapbox, but we hear that a lot. And then somebody goes from saving 45 a year to 145 a year when they get this right. And that's fun for us to see for people that we're helping.

Jarrod Bridgeman:
I think it's fun for the clients too.

Casey Hiers:
Yeah, they to-

Jarrod Bridgeman:
To enjoy.

Casey Hiers:
... enjoy that, but that's the overarching. Don't just settle for, "Well, I can't," or "I don't." Well, then there's other issues you need to solve, but Kevin will get back into what is the best way to master this.

Kevin Rhoton:
Yeah. And actually before we move on, I want to hit on a couple other items. The health savings account contributions.

I know it's just a little bit of an increase, but for a lot of practice owners, they have a high deductible health plan and make sure you're contributing to an HSA. If you have one of those, I mean, that's easy. It's went up to single 4,300 for a family, 8,550.

Casey Hiers:
Just don't forget about it. Make sure you use it.

Kevin Rhoton:
Yeah, definitely.

Casey Hiers:
That's my Mr. Obvious statement for the day, but if you're not organized. I mean, the thing, right, people don't organize. They don't know their numbers.

Jarrod Bridgeman:
Yeah, sure. It's an easy one to forget.

Casey Hiers:
And then they do that, and then 10 months later, don't forget about it.

Kevin Rhoton:
It's amazing how, well, on both ends of it, but it's amazing how many practice owners have a high deductible health insurance plan and don't contribute to an HSA. I mean, that's easy tax savings, that's an easy deduction. You're paying for health expenses anyway. Throw that money into health saving's account and then pay from there. Just an easy thing to get a $8,500, 8,550 tax deduction in 2025.

Jarrod Bridgeman:
For something you're probably going to end up needing to use at some point anyways.

Kevin Rhoton:
Yeah. Something you're already doing.

Jarrod Bridgeman:
Or your kids or somebody.

Kevin Rhoton:
Yeah, just structuring it correctly.

Casey Hiers:
Yeah. How about employee gifts? Everybody wants to shower their employees with joy.

Jarrod Bridgeman:
Speaking of which guys, I'm still waiting on my Christmas gifts.

Kevin Rhoton:
Yeah, so this is an interesting one because a lot of practice owners don't realize that the IRS is actually very strict on tax deductible gifts to employees and really to anyone. They have a limit set, a max set at $25 per person per year.

So if you're giving a employee a $100 gift certificate or even a gift that's valued more than $25, only $25 of that is, per the IRS, tax deductible. The rest is non-deductible.

Casey Hiers:
I call that government overreach.

Kevin Rhoton:
Yeah, there's-

Casey Hiers:
How about a gym bag full of cash.

Jarrod Bridgeman:
Unmarked bills. Non sequential.

Kevin Rhoton:
The first $25 of it is tax deductible.

Jarrod Bridgeman:
In terms of pre-planning and thinking about this for maybe the next, someone's an expert there or the next Christmas holiday, whatever, is this because some practice owners maybe have gotten a small tax surprise in terms of they owed more than they thought because of the situation?

Kevin Rhoton:
Yeah. Because if a CPA is doing what they're supposed to, they will mark those as non-deductible expenses on their financials, on their tax return. That might take the practice owner by surprise that, "Wait a second, what are all these non-deductible expenses?" And that can really mess with your tax situation.

So it's important to run those through payroll. IRS wants you to run any of those gifts through payroll. If you do that, there's a little bit of tax will be calculated on that employer and employee payroll taxes, but that makes the whole amount tax deductible.
And if you set that expectation at the beginning of the year with employees that, yeah, and you can pay them cash. If you like giving them $100 or whatever it is, you can still do that through cash. It just needs to be reported, at least reported through payroll.

Casey Hiers:
Yeah. Well, let's get back to the big D-word, deductions. What are some other areas of note?

Kevin Rhoton:
Yeah, this is, I've seen through various practices, practice owners giving charitable donations. I don't want to get too much into the weeds, but you can give charitable donations through the practice or individually.

When it's ran through the practice, we'd prefer you to do it personally, but that runs through itemized deductions. Charitable donations are if you give $100 to the American Heart Association.

Casey Hiers:
I got two examples. You sponsor a little league team or you go to a silent auction for a dental overseas group that does good work and you buy something very expensive-

Jarrod Bridgeman:
Like an autographed jersey or something.

Casey Hiers:
... an autographed jersey, a trip, something. You drop 1,200 bucks at some event. Little league team or I mean, is all that you can throw under deductions or are those-

Kevin Rhoton:
You can, they're separate. I mean, yes, they are, but they're handled separately. So take, for example, going to the banquet or whatever, silent auction. You buy something, the amount that you pay over the value of the object is a charitable donation.

That flows through to the schedule A itemized deductions, which maybe you can itemize, maybe you can't. The standard deduction's so high these days.

Casey Hiers:
So that changes my view when you're doing a silent auction. If you get a good deal,-

Jarrod Bridgeman:
Right.

Casey Hiers:
... then it doesn't help you from a tax perspective. If you buy a thousand dollars package for a suite at a NFL game and it's-

Jarrod Bridgeman:
You pay $800 [inaudible 00:13:39]-

Casey Hiers:
Well, if you pay double, then that can potentially help you tax-wise. Okay.

Kevin Rhoton:
Yeah, the standard deduction for 2025 is 30,000. So we won't get into the weeds of all the things that apply under itemized deductions, but if you're taking the standard deduction, charitable donations don't help you.

So that's maybe the first question, am I getting the standard deduction or am I itemizing? If you're doing the standard deduction, definitely go the local sponsorship route because you're paying for advertising, whether it's a banner at the local little league field or your name in the band concert.
The key is to make sure that you get some sort of advertising in return. Your name on the program or banner or mention, if that's the case, or your name on the t-shirts or whatever.

Casey Hiers:
So any other tips, just get ahead of it.

Kevin Rhoton:
Sure.

Casey Hiers:
Don't do end of year Hail Marys.

Kevin Rhoton:
Really the last one, the last big one is start tracking your mileage. Easiest way to get auto expenses in the practice is to track your mileage.

Your commute to and from the office from the house doesn't count, but anytime you are doing any business runs, whether it's to the bank to get supplies. Maybe it's a continuing education conference that you're driving to, those miles count.

Jarrod Bridgeman:
Does it matter if the car is under your personal name versus a company car in terms of-

Kevin Rhoton:
That's if it's a personal car-

Jarrod Bridgeman:
Okay, okay.

Kevin Rhoton:
... so it's different. The IRS, that's a good thing to point out is the IRS says that for it to really be a business vehicle, company car, you need to use it for 50% or more business usage.
Sometimes it's hard for a dentist, practiced owner, to get that hurdle because you're mostly in the office. The rest, a lot of times the vehicle's used more than 50% for personal use, so that's really the baseline.

Casey Hiers:
So we're going to the Yankee Dental and we're having multiple events, but one of them is in one of the suburbs at a nice steakhouse. So people that are coming to that could keep track of that mileage.

Kevin Rhoton:
Track that mileage.

Casey Hiers:
These are little things, I mean, but-

Kevin Rhoton:
Sure.

Casey Hiers:
... I think the point is you're paying your CPA. Hopefully it's not just an H&R block situation. You're paying your CPA some money. They need to be keeping track of this and helping guide you.

Kevin Rhoton:
Overall, just better record keeping, be more diligent at these things. Make sure you're on top of them at the beginning of the year and you won't have to be scrambling around trying to find, "How can I squeeze one more tax deductible dollar out of my situation."

Jarrod Bridgeman:
Kevin, thank you so much for coming in today. If you need more help or you should be talking to your CPA, if you don't have a team behind you or if you're very unhappy with your current team, visit our website, fill out a form, give us a call and maybe we can sit down and talk and then maybe see if we can help you. Guys, thank you so much for stopping in, and we'll see you next week.

Kevin Rhoton:
Thank you.

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.