106: New Tax Rules Just Passed—Here’s What Dentists Need to Know

Welcome everybody to another episode of the Dental Boardroom podcast. It's Wes Reed, cpa, cfp, owner of practice cfo, coming at you with a summary of the one big beautiful bill, tax law changes. Now, this is truly one big bill because there are infinite, it feels like number of provisions thrown into this bill in order to get the votes from all the Congress people out there. And it was successfully passed over the, just, I think just prior to July 4th. So a lot of changes here. So I'm coming after you pretty hot off the press. And I'm going to distill these down into two main categories, the individual tax law changes and the business tax law changes. And all of this will be specifically focused on how these relate to a, to a, to a health care practice, private practice owner, a dental practice owner. So I hope you find this helpful. Why don't we go ahead and get started at the top. And just a reminder that this is only the tax law changes or provisions of the bill. I am not talking about any other provisions like the Trump savings accounts for newborns or anything else, just talking about taxes. All right, let's start at the top. Number one. Now I'm sharing my screen for any of you who are watching this on YouTube. Great. If you want to see what I'm discussing visually, hop on, watch it on YouTube. Otherwise I will just narrate this so you follow along as I go through each of these key tax provisions as they relate to a dental practice owner. Number one, the main change, the one that Donald Trump talked about repeatedly, was that there would be a significant tax hike if this bill was not passed. So the main feature of this tax law is simply to extend his 2017 tax cuts and Jobs act that he implemented in his first term. They were set to sunset, which means end by 2026, at which point the tax rates would all revert back to the tax rates before the 2017 tax cuts and Jobs Act. Now, it was claimed that that would be the biggest tax hike in history. Now, I don't know if it would have been or not because I don't know what the tax changes were like 40, 50 years ago, but it definitely would have been a tax increase. Now that said, it simply would have gone back to the pre2017 tax rates. And even at that time, historically speaking, if you look at the timeline of tax rates over the many decades here in the US they were already remarkably low. Again, that's relative. We all don't like paying taxes. So any dollar of taxes we pay usually is going to Come reluctantly, but we do it because we're all citizens and we deride benefits from living and having access to all the public things that we have and defense, yada yada. That said, is an increase. However, we are in a remarkably low tax environment. This is one of the reasons why a number of holdouts on the bill were concerned, is that we have a significant national debt right now and we continue to run an annual deficit which simply adds to that national debt. Since 2017, when these tax law changes were reduction was was implemented in his first term, we have increased the national debt by about 50%. At that point it was around 24 trillion. We are now at 36 trillion. That's a $12 trillion increase, which is a 50% increase. So Donald Trump had the largest increase ever in history in a term of a president. He had more of an increase in his four years than Obama did over eight years. And then Biden continued the deficit spending and ran up another roughly 5 trillion. So Donald Trump added about 6, 6.5 trillion in his four years and then Biden added another five and a half trillion or so. And so this is not a political issue, political party issue. This is just a political issue that we cannot spend beneath our means as a country. So at some point we are going to have to deal with that. And in the short term, this act should keep the market somewhat happy and everything going forward at its current pace. Who knows what the massive national debt will ultimately do. There's a lot of talk about devaluation of the dollar. We're now spending more on interest servicing that debt than we are in national defense, which many economists have said is a bellwether moment for a decline of that country standing monetarily. We will see. Who knows? There's a lot of things going on right now with AI and innovation and geopolitical tensions and just a lot going on in the scene of the world and politically. So this should be interesting to see how things pan out over the next four years. But bottom line here, there's no change to the current federal income tax brackets now that they are no longer going to sunset in 2026. So the way the bill says that they're going to extend these lower brackets permanently. Now, nothing is really permanent because you eventually get another president and decides to make them unpermanent by changing them. But all this means permanent. The term permanent simply means, is that there's no sunset provision now on these tax. Are you looking to buy or sell a dental practice? If you're a seller, how do you find a strong list of potential buyers. There's no MLS or Zillow for dental practice sales. In such a fragmented market, many dentists selling their practice feel discouraged. That's why I built practiceOrbit.com practice orbit is modernizing how dental practices are bought and sold. It's a platform technology. Y' all know them Zillow, Airbnb, Uber, and OpenTable, just to name a few. These technologies do two things. First, they help match buyers and sellers by centralizing the marketplace. Second, once the match between buyer and seller is made, these technologies help them navigate the sale to a successful close. Here are a few of the features inside a Practice Orbit users can determine a reasonable sale price for practice in just minutes. All they need is the most recent business tax return. Practice owners can use the directory to find important service providers like practice brokers, attorneys, accountants and bankers. Practice owners and their brokers can invite those service providers into the platform. So all parties are coordinating the sale together. Practice owners will have a beautiful digital listing of their practice, like a home on Redfin. And importantly, the listing will be anonymous and personal information like your address, name and pictures are only released after an NDA is signed and approved by you or your broker. Practice buyers can create saved searches to be auto notified when new listings come on the platform that fit their desired specialty and location. And hey, dental practice brokers, you can list all your practices on the site for free. By doing so, you'll get access to Practice Orbit's large pool of buyers, all of whom have created profiles and saved searches to be auto notified when new listings come for sale. You can use the platform to introduce your listings to a targeted set of buyers. Additionally, and optionally, you can use the platform tools such as a built in NDA, a customizable loi, and a workflow tool to navigate the sale from LOI to closing. In fact, you can manage all your listings on the system, from listing the practice to NDA to loi and finally to closing the deal. Create your free account today at www.practiceorbit.com.

Rates. Okay, so now let's go down to the next item. And that is the SALT deduction. And this is a, this is a big one, the SALT deduction. And it very much affects a lot of our clients, particularly those, or I should say uniquely those in high income tax states like California or New York. Now those ones are the highest, but you have some states that say have 5, 6, 7% state income tax. You know, California gets up over 11 or 12 at a certain level and New York about the same. So the higher your state taxes are, the more of a benefit you're going to get from this. If you are in Texas or Florida or Washington or Alaska and you're in a state that has has no state income tax, you could fast forward this part, to be honest. Doesn't really apply to you. It does a little bit. If you pay for your home property taxes, then this could benefit you as well. So keep listening if you do, even if you are in one of those states. The SALT deduction, SALT stands for the state and local taxes. And really the two main taxes here are your home property taxes for those of you that own own your house and your state income taxes. Historically, before the 2017 Tax Cuts and Jobs act, we could deduct essentially 100% of those. For the most part, there were some restrictions, but 100% of those on your personal 1040 tax return, what's called Schedule A. Now, your 1040 has two main pages with your income and deductions, and then it has these various schedules, Schedule A, B, C, D, E, F, et cetera. And Schedule A was where you got to deduct your state and local taxes along with your home mortgage interest and along with charitable contributions and certain medical deductions above a certain amount. And so most of my clients tended to itemize their 1040 tax return, which means they chose to take these SALT deductions, home mortgage interest and charitable contributions, instead of the other option, which is called the standard deduction, which is for single individuals, about $15,000. For married, about $30,000. And so if your salt deductions, your home mortgage interest, charitable contributions, if all those Schedule A deductions exceeded your standard deduction, then you would itemize. If they didn't, you would take the standard deduction. But because most of our clients who are practice owners own a home and most of them pay some level of state taxes and a lot of them pay charitable contributions, most of them were getting more benefit by taking the itemized deductions. Now, I really want to focus. I'm going to set aside the home mortgage interest deduction, which is the interest on your home mortgage that you pay. I'm going to set aside charitable contributions. Neither of those was affected by this bill. I'm only going to focus on one portion of your Schedule A, and that is the state and local deduction. So once the 2017 tax cuts and Jobs act was implemented, it limited that to $10,000, where before it didn't have a cap. Now many of you in certain states are probably paying more in your property taxes a year than $10,000. And if that's the case, you are literally getting zero. You're going to get zero benefit for paying your state income tax. Now let me zoom out just for a second. Make sure you understand how that works. I'm in California. If I pay $30,000 to the state of California for state income tax, I would have been able to deduct that federally. And let's say my federal tax rate was at 35%. Well, if I paid $30,000 in state income tax and I multiply that by my federal rate, my federal income tax bracket, that right there was going to save me $10,500 in taxes. That's a lot of money. I want, I want that $10,500. Well, when this new act came in place, it really caused a lot of people to lose that. So even though a lot of the brackets were lowered, those that lived in certain states didn't necessarily see a significant, if any, deduction or reduction in their annual taxes from the 2017 Tax Cuts and Jobs Act. I think it was a little bit of a way to penalize states that did not vote for Donald Trump because the states that did, largely these coastal, more blue states, were the ones who were getting a bigger benefit from salt. And he significantly reduced that benefit. Now, what happened was the state said, whoa, whoa, whoa, we are going to implement something to work around that for business owners. And many of you know, especially if your clients have practiced cfo, because we are neurotic about maximizing this deduction. And it is paying your state income tax through your corporation. And if you did that, you got to deduct it, just like paying Henry Schein or Patterson. And it would reduce your K1 income, which is the net income from your corporation. It would reduce that K1 income and flow through to your 1040. And you essentially got the same benefit. Not exactly, but essentially the same benefit benefit. That's called the pass through entity tax or pte. And different states have a different law that they apply that to. In California, it was called AB150, but that's called the pass through entity tax because you're, you're passing that through your entity and getting that SALT deduction. Now, what they did in this new bill is they increased the SALT deduction on your itemized tax deduction on your, on your Schedule a for from 10,000 to 40,000. Now, for a lot of people, they're no longer going to need to do this workaround. A lot of our clients will no longer need to do this workaround by paying it through the corporation. That said, you have to choose one or the other. You either take the deduction on your schedule A and pay it personally, not out of your corporation, or you pay it out of your corporation and you take it as a PTE deduction. So you're electing PTE over taking it on your 1040 Schedule 8. You have to choose one or the other. Now this is why tax planning is so important. Because if your state, if your state income tax is above that $40,000 and keep in mind that's above what is the 40,000 less your property taxes. So if your property taxes are $10,000 a year, that leaves you 30,000 to deduct for your state income taxes. Hopefully you follow me on that. If your property taxes on your house are 10,000 for the year and the cap of salt is 40,000, then that only leaves 30,000 to deduct your state income taxes because the SALT is your state income tax plus your home property taxes. And so that's why you got to do a forecast. What are my property tax going to be? How much room is left to take it on my schedule A? And if there's not enough room and I'm a business owner of a flow through entity like an S corporation or a partnership, then I'm going to instead not elect to pay it personally and I'm going to pay it through my corporation or my partnership and thereby maximizing my tax deductions. This is why good tax planning makes a big difference. Because you don't want to leave tax deductions on the table. And there's no way you're really going to know this for many of you unless you do a really good tax forecast during the year. I mean a really good one here at practice cfo. As you know, every time we meet, we do a cash flow forecast. We really get into the numbers in that forecast and as a part of that, embedded within it is a tax forecast. And out of that tax forecast comes the decision of various tax choices that you have to make. This is going to be a really important one. Do you take the pass through entity election or do you take it on your schedule A? Now that's a. It's a critical point. The fact that they did not eliminate the pass through entity election. I think it was the Senate that was trying to where the House was trying to get rid of the pte because what they were saying is hey, we're going to increase it from 10 to 40,000 that should benefit most Americans and then we're going to get rid of this complicated PTE element to it. But thankfully, at least, thankfully for many of you dentists who will have more than 40,000 between your home property taxes and your estate taxes, you should be grateful that we still have this pass through entity election. I don't see anything in the discussion out there to remove that. So that's really important to be able to do that. Okay, that is the state and local tax deduction. If you're a client of practice cfo, just know we got this covered as a key part of our planning for you. Now there is a phase out with this. If you are married filing joint, I'm just going to mention married filing joint, single file is basically half of this amount. But if you make over in your adjusted gross income, which is sort of your kind of net take home taxable income, if it's over 500,000, you start to lose this benefit on your Schedule A. And if it's over 600,000, then you completely lose that additional benefit. That's why if you're doing over 500,000, we're probably going to elect to do a pass through entity rather than take it directly on your Schedule a of your 1040. So again, some really key decision making around this one to maximize the benefit. I predict that there's going to be a lot of business owners who leave money on the table simply because they didn't know about this or they didn't plan for it or their CPA simply wasn't proactive in doing the numbers. Okay, let's move on now to the next item. It is the child tax credit right here. The child tax credit has been increased from 2,000 to 2,200 and that goes through 2028. So slight increase if you have kids and if you make under 400,000 married, 200,000 single, after that it starts to phase out and it's probably somewhere around 450 to 500,000 that you completely lose that. Now a lot of our clients are above that and so they end up not getting a child tax credit anyways. But this is why there's a little bit of a, of a tangent here. But, but this is so important. A lot of, you know, at practice cfo, we are huge proponents of having a really good, a really well designed 401k safe harbor profit sharing plan. And if you're a little bit older and a little bit older than your staff and you have really good income, maybe you've paid off your debt and Your cash flow is very strong. We'll set up what's called a defined benefit plan, AKA a cash balance plan. If you're younger or you have a lot of staff or you don't have a lot of surplus, ignore the cash balance plan and just focus on the 401k side. But those two things, 401k DB, which you can have both called a combo plan, is so important. Here's why. Not only does it lower your income tax, but if it lowers your income tax to get or dip down into the sub 500, sub 450, sub 400, you recapture a lot of these credits and deductions that you are phased out. So it's a double benefit. So let's say your income would have been 600,000 without a 401k but you implement and maximize a 401 safe harbor profit share plan where you drop in, let's say 100,000 and 80,000 goes to you and your spouse and 20,000 goes to your team. It's 100% tax deductible from an income tax standpoint, federal and state. And so let's say your combined income is 45% between federal and state. You just save $45,000 in income tax. Now let's assume that that extra $100,000 takes your taxable income on your 1040 down to 500,000. Well now if it's down to 500,000 now, you might start getting some of this back. Or let's say your income would have been 500,000 and that dropped you down to 400,000. And now you get these child tax credits and you get also more of this SALT deduction and then another one which I'll mention a little bit later, which is the qualified business income tax deduction where you might have just now because of that 401k not only saved yourself 45% for every dollar you put into it, you might be saving yourself 55% for every dollar that you put into it. And it's going to grow tax deferred for you and your spouse. And when you can compound the tax benefits of through these well organized, well designed 401k safe harbor profit share plans, that is a way to dramatically catapult your financial independence. I can't emphasize that enough. And this is why good tax planning is so important, because it isn't just one dimensional. Oh, the SALT deduction saves me 20,000. No, the SALT deduction or not the SALT deduction, really the 401 or other deductions or timing of your Payments near the end of the year and the beginning of the year. Implementing a defined benefit plan, implementing when and how to use your Section 179 depreciation deduction, which I'll mention here in a minute, when you take all of these and how you take them has a significant compounding effect of one plus one equals three if it's done right. Especially and most powerfully if your net income is around that phase out range which starts at 400,000 and sort of goes up to 500 something 600,000. And when you get to 600,000 now you're in the tops tax bracket income tax wise. But if you're in that range, all of these extra levers that you can pull this, I call it casting a wide net around all of your tax deductions can just have a significant increase or effect in reducing your tax liability. So child tax credit increase 2,000 to 2,200 per child and it begins to phase out for 400,000 for joint filers. All right, let's go on to this auto loan interest deduction introduced. I don't think this has ever been a tax. Part of the tax code is a private buyer of a car that takes out a loan can deduct up to $10,000 annually for the interest on that car loan. This is nothing to do with the business deduction or business vehicle. This is just personally if that is a US made car. So we'll see, we'll see how many fully US made cars. What exactly does a US made car mean? Can they still get most of their parts internationally and is this still considered a domestic car if it comes off the assembly line here in the US I don't know exactly the provisions of that but what I will tell you is most of our clients are not going to qualify for this because it's only applicable for joint filers with AGI adjusted gross income of under $150,000. Now most the vast majority of our clients are well above that. So they're not going to get a benefit. If you're single, it phases out at $75,000. So again you're just not going to get much out of this.

Do you ever feel lost in your practice finances? And how about your personal finances? Ever wonder where your hard earned money goes and why you're not seeing the financial progress you've worked so hard for? If so, listen up. As a dental CPA and financial planner, I've created our customers company practice CFO just for you. With almost two decades of experience practice CFO integrates great CPA services like accounting and tax with customized financial planning, both business and personal. Think of it this way. Our dental focused CPA services give us the x rays we need to clinically plan your global finances and be effective financial planners. It's a highly competitive, customized approach we call the CFO model. Historically, having a CFO or Chief Financial Officer was an advantage of large corporations only. But today Practice CFO gives that same advantage to private dental practice owners. As a client of Practice cfo, you'll be assigned one of our dedicated CFO advisors. You'll receive insightful financial reports each month, have regular financial review meetings, reduce, reduce taxes, grow your wealth and feel more in charge of your numbers. Because we believe that in the competitive landscape of dental practice ownership today, you have to be an effective business owner, not just a capable clinician. Reach out to learn more at www.practicecfo.com/ and as I put here, those of you watching note that Practice CFO continues to recommend paying for auto expenses, including the purchase of that car or the lease payments through your corporation to ensure maximum deductibility.

Moving on to solar and electric vehicles now this was a big one. I suspect this may have a little something to do with the feud that has emerged between Elon Musk and Donald Trump. The bromance is now long gone, deep in the rearview mirror as they debate this. Now, as you know, Elon Musk was more focused on the effect to the national debt. I tend to agree with Elon on this. The national debt is astronomically out of control and we are going to have to deal with that ugly thing at some point. And that's why he called it the big ugly bill. Or it can be big or it can be beautiful, but it can't be both as Elon stated there. Interesting to see how that relationship has evolved. But I suspect, and Elon doesn't say this directly, although Donald Trump does, the fact that Elon is going to lose the new EV tax credit is going to have an effect on him and all other electric cars. In fact, it's estimated that there's going to be a sharp and dramatic reduction in the purchase of electric vehicles because they cost on average 9,000 more to make and 9,000 matters a lot to most Americans. And that is going to disincentivize Americans, I will say, your average American, from buying an electric vehicle going forward. So this is where the that side of the Red Party, of the of the Republican Party that does not really concern itself with with climate change and electric vehicles and all that stuff they want out here and they want out big. Because most of the both business and personal clean energy credits and incentives, mostly gone. Mostly gone. So the EV tax one's going to be big. This will be interesting to see. Now this ends really fast. I mean this is abrupt. September 30th of this year is when it ends. So I suspect there's going to be a pretty significant momentum in purchasing EVs between now and September 30th. What are we right now? We are, we are early, early July, mid July. So we got August and September. That's basically going to be about two, two and a half months to go. Buy yourself an EV if you want to get that credit. Now there is income phase outs on those as well. I don't have it on the screen, but I think it's around 400,000. Let me just see. EV tax credit phase out. What are you looking at?

EV tax credit phase out.

It's pretty low. You won't qualify for the EV tax credit if you're a single. So it's about 150,000 for single. It's probably around 300 for married filing joint. You know, let me just go to chat GPT, Just chat GPT just does such a better job answering these things. What is the phase out for EV credit?

All right, bada boom, bada bing. We got the phase out.

Is.

Income limits. Yep. 300,000 for joint, 150,000 for single filers. Yep, that's exactly right. So a lot of you weren't going to be eligible for that anyways. What some of you did, like my brother did this, he actually bought his daughter a new Model 3 Tesla because after the credit it ended up being.

Relatively, I won't say cheap, but compared to other cars it was pretty low. Or another friend bought their child a used.

Tesla that had the unlimited charging. It was, I think pre2017 Teslas got it for like 15 grand and got a $4,000 used EV credit and it has free charging for life. If you think about that, that is actually an incredibly low cost over the lifetime of that vehicle. And so you can't, can't argue with that. Other than the fact that your child, your 16 year old child is driving a Model S Tesla into their high school parking lot. That feels a little bit crazy to economically and strangely actually wasn't a bad thing to do. But a lot of this is going away. In fact it's all going away come September 30th of this year. So farewell, at least for now. For The EV tax credits. Now also solar is another big one, which is going away. The residential solar credit, which historically has been 30%. So if you paid $100,000 for a ton of solar on your house, now that's, that's, that's a large solar project right there. But just for the sake of numbers, that would have saved you $30,000 in tax savings. So if you got, let's say $50,000, which is more realistic, then you would have saved $15,000. That's all gone at the end of this year. So if you're going to get solar, make sure it's up and installed before the end of this year. Okay, that's solar and EVs. Let's move on to Social Security income deduction for seniors. I'll make this one really quick. If you're a taxpayer age 65 plus, you can deduct up to $6,000 of your Social Security income from taxable income. Now, up to this point, most of it for most Americans was not tax deductible. There was a certain income level, I think it was right around 45, $50,000, where if you made less than that in total income, your Social Security wasn't taxed really anyways after that it got taxed up to I think 85%. Now you can deduct more of your Social Security. However, that also gets phased out. Phased out beginning at 75,000, just gross income for single and $150,000 for joint filers. Now most of you listening are not older than 65. So I'm going to move past this one. Capital gains tax rates. So you know when you hold a stock or bond or capital asset, piece of real estate as an investment property, anything that's held for more than a year gets the lower 15 or 20% federal tax rate. Now most states don't distinguish between capital gains and income tax. Federal incentivizes people to save and so they have. That income is called capital gain income. When you sell that stock after owning it for 12 months, that's long term capital gain paying tax at a lower rate. So bottom line, nothing there changes. It is completely the same. So keep investing for the long term and you'll ultimately pay lower taxes when you sell that asset. Moving on to a state and gift tax. Now this is interesting. It doesn't apply to you now, but historically it did apply to you. Many of you, I should say, as you know, there's a death tax. Now I'll do this in a quick nutshell. Ultimately, it's called A transfer tax. And if you transfer it before you die, it's called a gift. If you transfer it after you die, it's called an estate tax. But it's all a transfer tax. And so they call it the estate and gift tax, estate slash death tax and gift while alive tax. And that got all the way down to $1 million. So if you died where you gave a gift of more than a million dollars collectively to any number of people, if the total was more than a million dollars, this is back in the day. I don't remember what year. I think it was back in, I don't know, 2007, 2008, sometime around there. If you died and your total assets, everything you owned, was more than a million dollars less. The debt, of course, was more than a million dollars, you were going to pay that transfer tax, which could be up to 40% or more. So it was really steep. Historically, it's been hovering closer to around 5 million. Over the past, I don't know, it's been a while, a decade or so, it's been at almost 14 million, specifically 13.6 million per person. So most people and even most of our clients that would pass or gift were under this amount, especially if they were married. Then it's twice that. It's at 27.2 million per couple. Now, this is probably going to stay this way through Donald Trump's presidency, depending on who gets in office. A Democrat is definitely going to want to lower that. Most likely, Republican will likely keep it. But this has fluctuated all over the place from zero all the way up to where I think this is maybe the highest exemption at 27 million, meaning that if you're married, you and your spouse can die and have less than 27 million and there's no death or transfer tax. Then your beneficiaries, let's say your kids, inherit that and they get what's called a step up in basis. So if all these assets, like your houses or rental properties or stocks that you've been holding for decades or are all now appreciated by 1000%, your kids receive that and their new basis is at that higher valuation upon the death, the day to death valuation. And that step up is a huge tax savings. It's a huge tax savings because now it completely escaped income and capital gain taxes. Because if they, if the kids went to sell it the next day, they're not going to pay any taxes because it's as if they bought it at the date of death value and that's their purchase price and their Gains are only what they sell it for above that price. So this is, this is a big, big benefit for very wealthy people who have significant amount of assets when they die. And a lot of those have built in gains because they never sold them. It's just appreciated in value over the many, many years that they've been holding those assets. Then the kids can get it, sell it and pay no taxes. So that's a big, that's a big increase when that happened. And the new one, big beautiful bill basically keeps it locked in and it adds in an indexed amount for inflation as well. So really no change on that, which is kind of a big deal. All right, now let's go down to the business. So that's all the personal stuff. There's nothing in there that I can think of that really would apply to a dental practice owner and the sort of anatomy of your tax return. So I'm going to now move on to the business changes. And for the business changes, the first one I'm going to mention is what's called the qualified business income deduction. And this is now made permanent. It was scheduled to be sunset, it didn't go away. And this was a nice little tax deduction for practice owners. And basically the way it was calculated is you took the net income from your corporation, I'm going to assume you're an S corp. And for those of you that were a partnership because you have a partner, hopefully you held your interest in the partnership through your own wholly owned S corporation and not directly, in which case you be able to control your taxes much better in that structure. But either way, as long as you're a flow through entity as a partnership or an S corporation, you got this qualified business income deduction. And let's say your net income in your dental practice corporation or partnership was let's say 400,000, 400,000. I'll use a simpler number. I'm going to use 100,000 just for the sake of math. You could then deduct 20% of that. So 20% of that is $20,000 and that becomes a deduction. You're not saving 20,000. It's a deduction of 20,000, which means it's 20,000 times your marginal tax rate. And so if your marginal tax rate is 30% of $20,000, that just saved you $6,000 in taxes. That's the way the, the math all works out. The bottom line, the QBI was really nice and a lot of our clients got some benefit. Now it phases out at $383,900 joint and $191,950 single. So that phase out still applies. So if you're a really profitable dentist and we can't get your income down, your taxable income down to 400,000 or so, you're going to start to phase out of this. Now, it's not phased out immediately, it's phased out over, usually around 100,000 above where the phase out starts. So if the phase out starts at 400,000, it progressively gets phased out as you get to the full phase out amount of 500,000. That's how these phase outs work. Well, there is a phase out here with the QBI deduction as well. And many of you will not get this just because you're just too much of an income producer. And credit to you on that. I will always say it's better to pay a lot of taxes if you're still taking home dramatically more than somebody in a lower tax bracket because at the end of the day it's how much you're keeping. Now there is a disincentive. For every new dollar, once you get above about 5 or 600,000 of taxable income, there is a marginal reduction in benefit of earning every new dollar just because it's taxed at such a higher rate. It's called the declining marginal utility of that extra dollar. That's kind of the economic term for it. And that said, and going back to what I was stating earlier, hence the importance of trying to stack all these other tax deductions from 401ks or timing at the end of the year, maybe holding money until January 1st or accelerating expenses in December, getting kids on payroll, spouse on payroll for the 401k, all these extra things you can try to do to get you down within or before the phase out limit so that you recapture the child tax credit, the QBI deduction, the SALT deduction, yada yada, all these other deductions you can get if you can get back down to that level. That's why, gosh, I can't emphasize it enough. Good tax planning has a huge compound one plus one equals three effect if done right. So a lot of our clients come to us and yeah, we charge more here at practice cfo. I am not shy about saying that we charge probably twice to three times as much as you're going to pay a bookkeeper doing general books down the street to any old business. We're going to charge a lot more than that. It's the difference between a CFO model And a historical bookkeeping or a historical accounting model. The historical model is just to do the numbers in order to give you a P and L and file the tax return. And there's very little conversation and analysis, planning and forecasting in order to make decisions that can then help you to end off in a much better situation. So I'm always emphasizing whether you're with practice cfo, considering us, or another similar firm that's really good at being proactively involved. The key thing there is how much more is in your pocket at the end of the year because of that influence, because of that strategy, that consulting that service. That's the question. Now it's very hard for prospective clients to sort of visualize that. And we do the best we can by doing a free analysis of their tax return and running some numbers to show that just from good tax planning alone, generally speaking, we earn our costs. The cost that you pay is just from really good tax planning. Because if you're a dentist producing some good money, especially if you're in a high income tax state, you're probably your marginal, your marginal tax rate, which is the rate at which your next dollar of income is earned, is probably close to 50%. And then if you can structure your cash flows in such a way to recapture these various credits like the QBI and child tax deductions, it can be even more than that. It's just so significant what good tax planning can do. And it's always so, I don't know, disheartening when I get new prospects and I look at their tax return and I'm like, wait, what? You forgot to elect the PTE? Wait, you, you designed your four 1K that way? Well, that was completely unproductive and did very little for you as an owner. And it was just an expense in your P and L instead of a wealth building tool for you as the owner and a tax planning tool. I see so many simple, low hanging fruit that is missed. Why? Because CPAs think, I mean, dentists think that their CPA is proactively structuring all this to maximize tax deductions, when in reality, no offense to my colleagues out there, in reality, most of them are just not trained to do that. They're trained to file a tax return and to get it done on time. That's what they're there for. And they have very, a very compressed timeframe to get all these tax returns out the door, which structurally prevents them from, from doing a thorough analysis. That's why the CFO model is we are Tax planning all throughout the year. So if you meet with us three times a year, four times a year, two times a year, five times a year, it doesn't matter. Usually we're about three to four times a year. In every single meeting, we are revising that tax plan in order to get all those levers structured optimally to minimize your tax situation. All right, let's go on to the 100% bonus depreciation. This helps some of you. A bonus depreciation is just saying, hey, I bought a new dental chair or I brought a, bought a CAD cam or a cone beam, or I did, you know, I bought some other equipment, whatever that is. You can take standard depreciation, you can take bonus depreciation, or you can take what's called a Section 179 depreciation. Now, between all three of these, you're getting plenty of deduction for what you buy. Little tax 101 here, accounting one on one. When it comes to buying these things that are equipment, not supplies, these are what are called fixed assets and they are something. The way the IRS would define it is you bought this dental chair or you bought this X ray machine and you could go resell that. Now, your supplies, like your cotton balls and things like that, you're not going to go resell those, but you could resell a really nice, I don't know, prime scan. You could resell that on ebay, whatever. So the IRS calls these things fixed assets. Assets is something that goes on your balance sheet, not your P and L. Your P and L is where you put your supplies. Your balance sheet is where you put assets. And so let's say you buy a CAD cam and you pay $100,000 for it. Now, if you're not a CAD cam user, ignore that. You just bought a piece of equipment for $100,000 from your supplier and you put it in service. Now, in year one, you're not going to get a whole lot of deduction for that. You might get, say a $10,000 deduction for that $100,000 purchase. What the tax code allows you to do though, is to take what would have been the full deduction of $100,000 that you would have deducted over a five year period, little by little, dripping it from your balance sheet as an asset into your profit and loss statement as an expense through what's called depreciation. That's what depreciation is. It's dripping that fixed asset purchase, that big purchase in to get a little bit of deduction each year. Until it's fully deducted $100,000 over a five year period. Now, for most of you, a tax deduction today is more valuable than a tax deduction in five years. Just because the value of a dollar is going to go down over five year periods just because of inflation. Inflation erodes the real value of your dollar, which means that a dollar today is worth more than a dollar in five years. Meaning a dollar today has more purchasing power. It will buy you more things than a dollar in five years. Therefore, a tax deduction today is going to be more valuable to you than a tax deduction in five years. This is why most of the time we will accelerate the depreciation through these different provisions called a bonus depreciation or a Section 179 deduction, or those are the two primary ways that you take your normal depreciation and you, you front load it. And normally we're just doing a Section 179 deduction. But these two things are a little bit different in the way that they play out on the tax returns for, for tax planning purposes. Now, what gets people in a lot of trouble is the following. If you've been listening to my podcast, you know, I harp on this a bit because it is a, it, it, it is a trap. It is a tax trap. It is a tax spiral that a lot of doctors get into where they buy that cat cam for $100,000, they finance it, so they come out of money, they come out of pocket almost nothing in the year of purchase, and then the CPA will take 100% deduction on that. A hundred thousand dollars. So they had no money go out of their bank account and they got $100,000 tax deduction. CPA looks like a hero and they save a decent amount in taxes that year. Problem is, in all the ensuing years when you're making the loan payments, you're getting almost no tax deduction. So it reverses, it reverses cash out of your bank account with no tax deduction. And that hurts because then you see a significant increase relative to your cash flow in the following year, your cash flow is less because you're paying the loan on that equipment and your taxes just went way up. Less income, less cash flow, higher taxes, not good. End of the year, CPA says, oh, you're going to see a massive tax hike. You don't have the money for it. Supplier comes to you and says, I can save you. Why don't you buy this cone beam? Why don't you buy these set of eight dental chairs Brand new, polished, sparkly. And then your taxes will be saved yet again. All you did is you kicked the can and made it bigger down the road to the following year. Now you have double the trouble. This is why I typically recommend that you time the tax deduction of depreciation with the actual outflow of cash so you don't find yourself in this deceptively positive situation which will only reverse that pendulum swing hard the other way and hit you right in the butt. And there have been many, many dentists who have been caught by this unexpectedly because their CPA was not proactively involved. And their supplier, who. I'm not dissing the suppliers out there, but don't discuss the fact that it's not that you're getting this out of a black hat tax deduction by buying this equipment from them. It's simply accelerating the tax deduction of that purchase into the current year. And because you get to finance it in that one moment in time, everything looks great, but like a drug, it comes back. And the consequences are usually bigger than the benefits. They're more painful than the benefits. So really good. Again, tax planning like here isn't just about saving you taxes. It's about managing the flow and expectations around when and how much you pay in taxes. That's a very important concept that I call the depreciation tax trap. All right, so 100% bonus depreciation is restored. There's no income limit. In other words, if we want to take 100% tax deduction on that fixed asset that you bought, we're going to be able to do it one way or another. If you bought it all in cash, we are absolutely going to do that. If you didn't buy it in cash and you still want to take it, sure. But we're going to inform you very carefully what we need to do in the following years to make sure we don't get behind in our tax payments. Also, there was an increase to the Section 179 deduction, again, which lets you front load all that depreciation in the current year. And, and that was increased to 2.5 million. However, where it was before, I don't even remember, but it was well above what any of our dentists are ever paying for fixed assets in any given year. I think it was like a million, I don't know, a million million and a half. But very few dentists are ever paying more than that in new equipment for a, for a year. And 179 doesn't really apply to build outs. So Build outs have their own distinction when it comes to depreciation. That's where the bonus depreciation can be helpful there. Okay. And lastly, there have been no changes to payroll or self employment taxes. Payroll taxes are fica and that is Social Security, Medicare, those are payroll taxes. Now in certain states, there's some unemployment insurance that's paid as well. But when it comes to payroll taxes, really what we're focusing on there is Social Security and Social Security is 6.2% employer, 6.2% employee, that's 12.4%. And then it is 1.54% for Medicare employer and 1.45% for the employee. So that's of their W2, by the way, of their W2. So an employee getting $100,000 is going to have to pay 15,300 in payroll taxes. Half of that 7,650 is coming out of the pocket of the employer and $7,650 is coming out of the pocket of the employee as a payroll deduction. So there's no change to that as well. And that in some ways a good thing. Although Social Security is getting closer to that cliff, it is getting remarkably close. I think it's 2032. This, this may accelerate that even to sooner when it is going to be underfunded and we're going to have to figure out how we're going to pay our beloved senior citizens on this issue. So that, that'll be interesting. Okay. There are many other provisions in this tax bill, but these are the key ones that I think are applicable to dentists. We will make sure to weave this in to our tax planning. We've already been working it into our tools to make sure that we can optimize, optimize tax deductions for you. Thanks again everyone, for listening to another episode of the Dental Boardroom podcast. Until next time.