A Conversation with Dr. Howard Farran

They can learn about common things that business owners as well as dentists make expense… tax expense… tax mistakes that they make, that cost them a lot of money. That basically no rocket science there. Okay. It’s just basic things that people fail to do. Like failing to plan.

On the internet you see when they started the IRS it was a one-page deal. Here’s your income and then I think it was a times three percent, and that’s a tax you owe. And now there’s people saying that the tax code is something like sixty thousand pages, is that true?

Yeah, it’s a big book.

So, why are taxes so complicated? Why did it… why is this… whatever happened to just a good old days were here’s what you make, here’s the percent, here’s what you owe. Why is there a sixty thousand page tax code,  and what do dentists need to know about that tax code?

Well the tax code is what it is because of government and what does the government really run that they run efficiently and there’s always special interest. So we don’t even get to get into why… why it is, what it is. We just figured what can we do to take advantage of all those little loopholes in there. So, what can dentists do? There’s a whole bunch of things that dentists could do. Number one, they could plan. Most…

Number one they can what?

Plan.

Most dentists and accountants when you talk to them about tax planning they say, ‘Okay. Yeah, we’re going sit down in December, figure out how much we made, how much tax I’m going to pay, how much I’ve paid, and what kind of tax payment I need to make by January 15’. That’s what they call tax planning.  Okay. What we call tax planning is sitting down early in the year and figuring out what you’re doing it, how you’re doing it, what ways can you maybe do it differently and save some taxes.

I think one of the… first thing I want to start on which I think is cruel and unusual, these dentists hire these young kids out of school then they simply don’t want to pay the FICA matching. So they say, ‘well, I’m going to hire you as an independent contractor’, which an independent contractor was more setup for more like construction. Like I’m gonna build a house and I’m not a plumber. I’m gonna bring

Craig Cody and who’s a plumber and you bring in your own materials, your own instruments, you do the plumbing. Then I get an electrician, I get a roofer.

But when you are not an independent contractor, when you get a job at a dental office and you’re using… the dentist is setting the hours, you’re using all their tools and equipment and all that. But since they don’t want to do FICA matching they pay him an independent contractor then this dentist thinks he’s making all this money, and he’s going out to eat, and he’s drinking, and he’s going to Disneyland, he’s having all this fun. And he’s not setting aside any quarterly or taxes whatever. Then he meets his accountant and accountant says, ‘You owe the IRS forty thousand dollars in two weeks’. And he’s like, ‘forty thousand dollars? I don’t have four hundred dollars”. What do you think of that? Do you think it’s an unethical scam when dentists hire other dentists as independent contractors?

There’s really a tough set of rules to be considered an independent contractor. And there’s a lot of control issues that, I would say, most people that are working in a dental practice aren’t going to meet that criteria. So they really are employees. and for the dentist himself there’s liability there. That if the IRS comes back and says, ‘no, these people are deemed employees. Now you’ve got to come up with that seven point six five of payroll taxes, and anything else that’s involved this… such as penalties. So, that’s a tough one to pass.

Well, I think you should write an article, or a column, or a blog on that because I know… I’ve been doing this thirty years, I’ve met… about three different times where some dentist hired an associate but paid him as an independent contractor. Had no idea that this guy wasn’t paying his taxes for five, six, seven years and then when he finally got popped by the IRS they knew he didn’t have the money. So they went to his employer and made him pay all the back taxes, fines, and penalties. And these guys had to go out and get a mortgage on their house and it’s like, ‘Well, dude it was not right to begin with’.

Well Howard you just gave me a great idea. I’m in the middle of writing my third book which has to do with dentists and tax problems. And I’m going to add a chapter on that.

Well, thanks. That’s because… and these young kids, I mean they come out of dental school, they don’t know anything about setting aside a tax, savings account and working with a CPA and all that stuff… that’s my next question. So, people that listen to podcasters, they’re thirty and under. People that are old and have grandchildren like me. Do you have any grandchildren yet?

No. No. No. Not there yet.

Okay. So you’re still… you’re still young. I got two grandkids.

Good.

A lot of these young kids they come out of dental school they got so much going on. They know they got to get disability insurance to get a job, but when should they get a CPA? Because most of the people you’re talking to right now are now under thirty. And my shows mostly, probably like twenty percent are dental students and the other eighty percent are under thirty. When should they get a CPA after they graduate from dental school?

As soon as they start working. Actually before they start working. It doesn’t have to be a very costly expense. Okay. And I like to tell people, ‘your CPA is really an income item not an expense item’. Because if you work with him and you do the proper planning he’s going to save you money.

And now what if she’s in Oklahoma and you’re in New York City, do you take clients outside of New York City?

We have clients all over the country. Luckily, I have a network of people all over the country where we could brush up on the individual state rules but, yeah, we work with people all over the country.

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