My conversation with Dentists Implants and Worms Part I

Welcome to “Dentists Implants and Worms” helping you navigate the world of Dentistry one vodka soda at a time and now your hosts Dr. Justin Moody, Gabe Olson, and Jeff Smith. Welcome to another episode of “Dentists Implants and Worms” helping you navigate the world of dentistry one vodka soda at a time. We are live from downtown Rapid City, South Dakota and Studio 1a here on Columbus Street. My name is Justin Moody and on the right I have the steady Gabe Olson and on my left I have the pasty gangster renaissance millennial Jeff Smith. So this is our first podcast back from our trip to Ecuador. You may hear more about that, we may just have to do a pod on that, I think we’re just gonna have to just spend an hour and just kind of tell it because there’s all kinds of stuff on that one right? So too much time. I do sponsor–or our one or only sponsor from the beginning it’s Pasty Episode 120 Boyd’s Wine & Spirits on Mount Rushmore. There I could tell you firsthand if you need a motorcycle picked up off your leg Boyd’s Wine & Spirits was there to help. He could keep his sponsorship money this month it will cover the tab price for sure. So if you’re in–if you’re in need of a tasty adult beverage at a absolute rock bottom price Boyd’s Wine & Spirits Mount Rushmore Road right here in Rapid City or if you knock a motorcycle over in your garage and you need help give me a call, We’ve got a great show for you today since we’ve just kind of gone through tax season I think there’s a lot of pertinent information to bring in on a CPA to talk about dental tax strategies and so forth. We’re lucky enough to have Craig Cody on the show. Craig thanks for coming on.

Well thank you very much for having me, psyched to be here.

What makes a dental office is slightly different than your average you know car lot retail store as far as taxes go.

Why does dental end up being just slightly different than those?

What we’ve seen is typically there’s a lot of you know equipment that they’re buying that no car lot would buy. Maybe dentists, a little bit more into you know, that taxes and what they’re paying and seeing what they can save but we’ve seen a couple of different things that we see like leasehold improvements not properly being accounted for, wrong entity choices with dental practices. Those are two of the big ones.

Well let’s  dive into the entity part first because we have a lot of young listeners, some of them are trying to get into dental school, some of them are in dental school and trying to get out, and some of them have been out for a couple years and one of the things I do hear not only from my own associates but across the board is, “What the hell am I supposed to be? Am I supposed to be a PC, am I supposed to be an LLC, am I an S Corp a C Corp?” Can you do a little explanation of those items to us?

Sure, well you know typically you’re not going to see a C Corp which is basically two levels of taxation so it doesn’t make sense. More often than not we see LLCs, sole proprietorships or S Corporations. A sole proprietorship is, you know, just basically have no protection; you’re set up as a business and everything shows up on your tax return. You’ve typically done no planning at all then you have an LLC or PLC depending on the state, which is a professional that the big difference there between a corporation and an LLC is self-employment tax. So in a corporation you have to take reasonable compensation. Everything above that flows through your tax return on a K1 and it’s not subject to FICA tax it’s also not subject to the net investment tax which is about three percent, so everybody’s situation is different depends on what their practice is like, what other outside income they have, how many partners they have, are they adding partners are they not anything? So that’s where the difference between an LLC and an S Corp comes in and what we typically see is there was never any planning that went into that, it was they went to the attorney and the attorney liked LLCs for liability reasons and they formed an LLC. The wonderful thing is if you are an LLC and we determine that it makes sense that maybe you should be an S Corp we can make it a late election and to have your LLC taxed as a S Corp. The best of both worlds.

I went down that route at some point so I think that’s a–I think that’s good advice. You know I remember getting out of dental school and I think I’ve said this a few times before, and I remember one of those senior classes one hour once a week they got economics at dentistry and they’re just like, “Hey you know when you get out of school you need to find a tax planner or you need to find a tax accountant, you need to find a good lawyer and a financial advisor and I was like well I’ve never done anything other than a 1040ez that I’ve been able to do myself and you know I haven’t been in any trouble so I don’t know what the hell I’d need a lawyer for and I’ve got like twenty dollars my checking account so I certainly don’t need a finance planner. Today, between my CPA and my attorney like I don’t really make any decisions based upon my business without consulting them, you know? So I think that this is very timely for you to come on, especially as these new grads are entering the world and trying to figure, you know, trying to figure it out. One more question on that. This is a question I get quite a bit from associates, is when they’re looking at contracts sometimes associate dentists are 1099 employees which would I presume would have to pay for their own taxes. Or their full employees, just– is there an advantage or a disadvantage of either one of those in your opinion?

As long as you could pass the hurdle of being an independent contractor which I would imagine most passed that hurdle there are definite advantages of being paid on a 1099 or through your own entity where you’re able to offset some of your income with certain expenses that are allowed.

Elaborate on that a little bit.

Well let’s just say you’re an independent contractor and you operate out of your home and you do all your paperwork for your business out of your home. You go into a different dental practice twice a week. So there’s certain costs that are involved in the administrative part of your business that you get to write off part of your home. If you have a home office you could actually deduct your travel from your home office to where you’re working that day. If you have a home office you could have a home athletic facility. An athletic facility can be your gym it could be your pool it’s for the use of your employees and their families so there’s a whole host of ideas that open up once you have that home office.

How about my car?  Can I write even part of my car off?

If you’re using it for business, yes. So there’s a whole host of things that go on there, then you get into the whole entity selection if you’re doing work for a dentist or two dentists should you be structured as an LLC? Should you be structured as a corporation? Should they pay your corporation? Which opens up a whole bunch of additional planning opportunities.

Well I think that’s great news because we were just talking to a dentist the other day that was like, “Oh I don’t want to be a 1099 employee like you know I might have to pay my own taxes.” But you know I kind of told him like, “Hey listen you know maybe you ought to think about it a little bit differently. Kind of like what you just said, there’s an opportunity in there too if you’re doing right.” The problem is a lot of–so many people in that age group and such are really just interested in getting their check and not worrying about anything. Sure you know so or let’s just get it done so I don’t have to think about it right?

Well I would have to guess though to a 1099 doctor that’s working as a you know junior associate maybe he’s making $150,000 I mean is this a $3,000-$4,000 tax bill at the end of the year to have the accountant figured it out, are you gonna save in taxes more than what your accountants gonna to be. I mean at some point there’s got to be a little bit of an ROI on what you’re doing now when you get to the bigger incomes. That percentage difference is probably pretty substantial.

It’s not as big a deal but I would say on a doctor like that we would want a 3-400% ROI on the first year and that’s what we would expect.

I’m just making that bit so if you charge $1,000 you should be able to save $4,000 before additional taxes.

Listen; if I could only save them four thousand dollars I shouldn’t be having this conversation.

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