What would you say would be the third biggest mistake you see people making?
Tax Paranoia, People think that if I do something, it’s going to create an order. Well, if you’re doing tax planning and it says you’re allowed to do it in the tax code, so let them ask you about it as long as it’s documented while you’re doing it and how you do it, you’re okay.
The IRS sends out thousands of letters every day and more times than not they’re wrong lead anyway. But if they want to know why you did something and you did it for the right reasons and you have a documented, that’s okay. We’re not talking about going to tax court over something where there’s a gray area. We’re talking about strategies that are recognized that by the IRS and there’s case law to support them.
Someone once gave me an analogy that stuck in my head because I did have tax paranoia at one time too. He basically said, think of your taxes is kind of like a toll bridge, right? Tax evasion would be blasting right through that toll bridge, not paying the toll.
Tax avoidance would be taking side streets legally around that toll to getting to your destination. It’s a total legal proposition, but blasting through not paying your toll, which would obviously be envision. For some reason that’s always stuck in my head and resonated with the fact that like it’s really about code and playing the rules and yes you have to play the rules of the IRS.
I think it’s interesting how you touched upon like how many millions of returns or generating each year and then how many audits are done and then how many? There’s different tiers of kind of, I guess people being prosecuted. Can you touch on that? I think it’s pretty interesting.
If you’re being prosecuted, you’re doing things that are way off base. When we do a plan, quite of what you get is you actually get like a binder with each strategy and where it says, and the tax code and the reference to the tax code that says you can do it.
We’re not talking about gray areas in the plan. We’re talking about things that you’re allowed to do. Listen to Donald Trump, warren buffet. They will do it. Why can’t you?
Totally agreed. I think a lot of people have that fear of like getting locked up. You’re like, oh man, I got caught on my taxes, I’m going to jail and that’s just not the case.
If you’d, like you said in your book, if you lose, you’ll get a deficiency notice and I guess some people have to write a check, but it’s simply a bill and you can still appeal that and justify it and go through all the process of that.
The people that you see in the news that are getting locked up, they’re not reporting income. They are not just taking they’re really just not reporting income.
It’s egregious violation.
Extremely egregious. That’s criminal stuff.
Bottom line, just never be afraid to take a legitimate deduction.
Is the issue documented? You can take it.
If you have any. I know you mentioned in your book and if you have, if you’re a tax professional, is making you shy away from those legitimate advantages, then you should have them explain exactly why they say so. right?
Is it because sometimes I think, and I hate to say this, but it’s not, I’ve had CPAs who didn’t really want, it seemed like a lot of work for them, you know what I mean?
Like it was almost easier to just tell me, hey, don’t do that because you don’t want to do that. That’s a gray. Really wasn’t a gray area. It just was a lot of work for them.
Right, and if you’re only meeting with a professional when it’s tax time, that professional, probably the way his business may be is he’s dealing with all his clients and his three month window, so he needs to get that stuff out the door versus the professional that’s dealing with you throughout the year and making sure you’re doing everything right.
The fact that you’re doing a podcast in April with me and you have such a calm, cool and collected manner means that you are totally proactive.
Yes, we proactive-
Most CPAs I know are literally going crazy right now.
Right, well it’s a different practice. I guess I’m lucky.
I mean there’s, I don’t really believe so much in luck, but yes, you’ve planned appropriate and you speak and you walk the talk, right? You mean you do what you say. It’s obviously evident by us being here today on this podcast in April 10th a matter of fact.
All right, give me the next one Craig. This is good.
Let’s see. How about the wrong retirement plan? Maybe you want to look at the different retirement plans that are out there? People have staff, maybe they want to cover the staff. Maybe they don’t. Maybe they want to have a 401k where they have to put away a little bit for staff and then they could do their $18,000 a year deferral.
Then you have the defined benefit plans and stuff like that when you want to put away a lot, but you have to look at what were your staff fits into it, but rather than not looking at that and put a couple thousand dollars into an IRA, if you look at that and skive your employees, the opportunity to put money into a 401k, everyone comes out ahead.
What if they’re not contributing? Right? Like I been in a situation in the past where no one really cared. No one really contributed. It ended up being very quote unquote expensive for me.
They just didn’t seem to be much interest and I went all the through all the time of setting this up and then maybe I didn’t create the value and show the benefits or my planner didn’t. Or my organizer. I don’t know. I’m not using the right word. Administrator.
Administrator, so before you set up a plan, you need to see what you’re employee’s level of interest though is. Then from that, you need to decide, okay, what kind of a plan am I going to put together? If it means you need to put money away or not, and, you’re in a 33% bracket and it’s going to cost you 5%, well kind of makes sense.
What are some of the common plans that would be applicable to the dentist? What do you see?
I mean, we see the 401k plan.
That’s just the traditional 401?
Traditional 401k where people can defer up to 18,500 and an extra 6 if they are over 50 years old. Then they can add profit sharing version on top of that if they want to put money away at the end of the year and then it’s done with an actuary and he figures out how much you need to put away for your employees.
Sometimes when you compare that to your tax bracket you’re able to put money away for your employees and it’s still costing you less than it would have cost you in tax. You just have to really do the homework and plan and figure out whether that’s the simple IRA? Is it a self employed pension plan? Is it a defined benefit plan?
You have to see what type of employee buying you have. How much money you really want to put away and go from there. It’s not a matter of calling up fidelity and say I want to set up a 401k because there’s no planning there.
Honestly, this has been a complicated subject for me as well. I mean it just seems like there’s so many things and almost like kind of like the entity of setting up your organization. That this is where I started to glaze over too with all the choices and oh we need to do this and I think I actually had the safe harbor plan and that’s when people didn’t contribute.
We actually end up having to get rid of that plan. Let’s go back to kind of the young audience, like what would you say would be sound advice? I mean, is there anything, I guess maybe just educating themselves on this or discussing with a professional. I mean we’re trying to give some DIY kind of hints like, if they want to do it themselves and want to do the heavy lifting and want to look into it. Obviously they can’t set up the plan, but like how would you recommend that they become versed in this language?
I would say talk with your CPA and ask him who do that it will take the time to lay out the different things that are available to them. As a CPA I am getting pitched probably three times a week by investment advisors. They should know a number of people that they could set you up with that they’ve worked with before, that they trust that or give you, these are your options.
They could walk you through those options and maybe you’re not ready to do something today. But, the good thing about being a dentist is the perception is you may not be making it today, but in 10 years, do you expect it to be making it? The investment advisor is willing typically to invest the time to have that future clients.
They’re investing in you early on and if someone blows you off just because you don’t have the highest revenues, then, that obviously is not, they’re not a good fit because they’re not looking at the big picture long-term play.
Correct, and you Should have a team and that is willing to take the time and take the call from each other to help you do what you need to do.
That is vital. I didn’t have that until later in my career. I didn’t feel like I for some reason could demand that of everybody oh, how am I going to get everyone to coordinate my attorney and this and that. Like they’re never going to do that. But that is just a huge saver for everybody.
It does strategize so much better when everyone is on the same page. You’re the quarterback telling everybody kind of how you want to operate. Yes. Obviously there some guidance from the coaches per say, but like you’re literally the one running the ball down the field, so you should be … Your vision should be supported by them.
By them doing that, it’s actually good for them because they build more relationships with other people that are potential referral partners for them. If they’re smart they going to do that.
YOU SHOULD REVIEW THE THE NEW TAX LAW CHANGES WITH YOUR CPA BEFORE IMPLEMENTING ANY TAX PLANNING STRATEGIES.