Tax Reduction Podcast
Introducing your host, Boris Musheyev, CPA. In this podcast Boris debunks the tax code by teaching you simple and effective tax strategies, so you can keep the most of what you make. His mission is to help you cut taxes and build wealth using the power of proactive tax strategies. Every episode you will gain a better understanding of how the tax code is designed to be in favor of money-making entrepreneurs like yourself.
🆓 Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know: https://bit.ly/podcast7writeoffs
☎️ Schedule your FREE Tax Advisory Session: www.TaxPlanningCall.com
Tax Reduction Podcast
Episode 39. Dentist Salary vs Distribution
If you're a dentist making over a million dollars and you are NOT working with a Tax Advisor, you're definitely overpaying in taxes.
In this podcast with my wife Marianna, we're breaking down the EXACT tax strategies I use with my dental clients to slash their tax bills by hundreds of thousands of dollars. 🤑
Everyone in America wants to form an LLC but has NO IDEA how flexible they actually are (especially you busy dentists who barely have time to think about these tax strategies). We explain how your LLC can elect to file as an S-Corporation and why this one tax move alone can save you a fortune.
We also cover one of my favorite tax strategies...using real estate to create massive tax deductions. I'll show you what it means to be a "real estate professional" in the IRS's eyes. Marianna calls me out for making it sound "too simple" (she's my wife, so of course she does lol), but honestly? It IS that straightforward when you are working with a Tax Advisor. 🤝
Plus, we cover the retirement tax strategy my clients use when they come to me saying they want to write off something "BIIIIIIG" — and trust me, we're not talking about your basic 401k here (more like defined benefit plans for dentists that create huge tax deductions).
Oh, and that salary vs. distribution split most dentists get wrong? Yeah, we talk about what happens when you mess that strategy up. Spoiler: You either get penalized by the IRS or pay a LOT more taxes than you need to. Neither option is fun.
If you're tired of working hard just to hand half of it to the IRS, this is the video for you.
I've put together this FREE resource for you:
7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/?el=podcast&htrafficsource=buzzsprout
Ready to start saving money on your taxes?
☎️ Schedule your FREE Tax Advisory Session: https://taxplanningcall.com/?el=podcast&htrafficsource=buzzsprout
💸 Save 100k NOW 💸 - https://save100know.com/access-training?el=podcast&htrafficsource=buzzsprout
🤑 If you want a better payroll app to process and file payroll for your business. Check out Gusto, so easy to use and you get a $100 gift card for signing up using this link: https://gusto.com/r/boris466
P.S. When you sign up for Gusto, you get a $100 Visa gift card
*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this ...
What a lot of people don't realize, especially dentists, because they're so busy working and making good money. Thank God, you can elect how to pay taxes.
Speaker 2:How important is it to get the salary versus distribution split right? What happens when it's wrong?
Speaker 1:You pay a lot of taxes to the IRS or you get penalized by the IRS if it's wrong. I think a lot of people watch these videos online and they're like oh great, I can buy real estate, oh, I can do bonus depreciation, I can do cost segregation and I can save a lot of money on taxes. That is not 100% true, because not everybody would qualify for such a deduction.
Speaker 2:So what makes somebody qualified the?
Speaker 1:biggest problem, I find, is that a lot of business owners that are in medical profession very smart people. They never got the financial education so they don't know. They rely on their accountant that is not a tax advisor.
Speaker 2:If you have a tax preparer, you don't have a tax advisor, and that's really true, boris. So I'm looking at this next set of questions and it looks like they're coming in from really profitable dentists.
Speaker 1:Yeah, this looks very interesting. So it looks like we're going to be discussing a lot here for dental owners. So there's an S-corporation play like why is S-corporation, how is it? Reduced taxes for dental owners? The split I see a very interesting question, the split between salary versus distribution. This is actually really really cool. I have a story behind that for a dental owner that was paying himself $700,000. So I can definitely help you guys out with that. Then we also have a question from a high earning dentist about the real estate that he owns and he puts his dental practice. There's actually a really cool strategy about self-rental, so we're definitely going to cover that here. And, last but not least, we also have a question about advanced retirement strategies for dental owners. So this is going to be really interesting, so excited to get right into it. So, Mariana, I'll let you read off those questions. All right, let's go, let's do it.
Speaker 3:Welcome to the Tax Reduction Podcast for Money-Making Entrepreneurs with Boris Mushaev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. Planning and advisory the only way you, the business owner, can save money on taxes is by using proactive tax strategies, and this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.
Speaker 2:So, boris, I have some questions from a dental practice. Okay, so they're asking if they're making over a million dollars, how can structuring as an S corporation reduce their taxes and what are the common mistakes that dentists make with this kind of setup?
Speaker 1:Yeah, so this is a great question, by the way, so a lot of dentists out there I work with a lot of dentists in our tax advisory firm and we save them like hundreds of thousands of dollars in taxes One of the biggest strategy that we're able to use for them is becoming an S corporation. Because you see, in America, first of all, it's like a new thing, right, everybody wants to form an LLC. Everybody wants to form an LLC, which is, by the way, a very smart strategy when you're first starting your business. Now, what a lot of people don't realize especially dentists, because they're so busy working and making good money, thank God. What they don't realize and they don't know their accountant doesn't tell them is that LLC can be so flexible. You can elect how to pay taxes and how to file, exactly, right. So if you're an LLC which a lot of dental practices they are or some states require them to be a professional liability company, like a PLLC, because they're professionals Usually it's for doctors, attorneys and accountants okay, but that LLC can make an election to file taxes as an S corporation.
Speaker 1:What happens if you don't? If you don't, then the IRS says look, legally you're still an LLC, you're legally protected from the creditors, but your entire net profit is going to be recorded on your personal taxes, on what's called Schedule C. And why is that a problem? Because not only are you going to end up paying federal taxes, but also state income taxes, especially if you're like in California and New York, which is like a very, very high income tax state. You're also going to pay what's called self-employment tax, which is Social Security, medicare tax double that. Let me explain to you what that means. You ever had a W-2 paycheck?
Speaker 2:job? Yeah, I did. What's your background? I used to be a teacher before.
Speaker 1:So introduce yourself, right, guys. This is Mariana, my wife, okay, so she's not here just to look pretty. She's here to ask me questions that you guys ask. But you were a teacher and if you remember those days when you received your paycheck, there was Social Security Medicare withholdings, right, yes, so did you know that every time they withhold Social Security Medicare tax from you, the employer, the school that hired you, had to Withhold exact same amount?
Speaker 2:Well, I learned only Much later right.
Speaker 1:You learned much later, after watching all my videos right yes From your husband.
Speaker 1:So that's what happens when you report your net profit on your Schedule C, not only are you paying Social Security and Medicare tax as an employer by employing yourself, but also as an employee employing yourself, right? So if you're a dental practice owner and you have really high profits and you are filing your tax as an LLC, not as an S-Corp, you are missing out on that strategy right there where you are paying self-employment tax double on the entire profit. Now, if you become an S-Corporation, what's going to happen is that you can stop and you can stop when I say stop, you can stop paying that self-employment tax on that entire net profit. What do you do instead? So you pay yourself a W-2 salary. So let's say we've got a dental practice making $800,000 in net profit, okay, you can pay yourself $150,000 reasonable compensation.
Speaker 1:Again, that depends on what state you're located, what type of work you do in the dental practice. You know you're not a hundred percent dentist. That day you could be picking up phones, you could be doing billables, you know all of that stuff and you only pay self-employment taxes. And that $150,000, the entire thing of $650,000, not subject to dividend taxation, because there's no double taxation with an S corporation and not subject to payroll taxes. And, shockingly, a lot of people don't realize that, yes, it is your money in your S-corporation and you can take it out as a distribution. So that's the strategy about S-corporations for our dentist clients.
Speaker 2:That was great.
Speaker 1:Yeah, thanks. What do we got next?
Speaker 2:Okay, boris. So here's another question. We have a high-earning dentist who's using real estate Okay, and he owns his own office.
Speaker 1:Nice, love this. Okay, keep going.
Speaker 2:He's creating extra deductions and building wealth at the same time, and he's asking if he can do that.
Speaker 1:Yes, he's asking if he can create extra deductions and build wealth. Yes, so this is really cool strategy for dental practices so owning your own building where you're going to put your dental practice. So we have like, for example, we are in an office building for our tax advisory firm, but you know, one day we want to buy a building for a tax advisory firm. Why? For the same reason I'm about to explain why this dentist can actually do this because it is a great tax strategy. Now what's?
Speaker 2:the tax. It's a great opportunity for them.
Speaker 1:Yeah, that's okay. Don't be shy, mariana. It is a great opportunity, right? But no, but in reality, though, let me just explain something. A lot of people watch these videos online and they're like, oh great, I can buy real estate. Oh, I can do bonus depreciation, I can do cost segregation and I can save a lot of money on taxes. That is partially true. That is not 100% true, because not everybody would qualify for such a deduction.
Speaker 2:So what makes?
Speaker 1:somebody qualify so let's talk about this for a second right. So let's say, mariana, you go out and buy real estate and you bought a property, right? And we're going to tie this back by the way, how this dental practice with its own building can use this strategy. So hang on with me, you're going to go out and you're going to buy a building right now, or a single family home, whatever you want, right? It's one thing you probably wouldn't maximize your deductions. The biggest thing that you can do right now with a big, beautiful bill is also use cross-aggregation to accelerate depreciation Now what does that mean?
Speaker 2:I was just going to ask you that.
Speaker 1:What does that mean? If you buy a building for a million dollars, right? So let's just say it's building net of land a million dollars, okay, about net of land a million dollars, about 25% of that roughly can be deducted in the first year, but it's going to produce really nice losses for you, mariana. Can you take those losses? The answer is depends. Are you a real estate professional by the IRS definition? So what is that? What is a real estate professional? Just in a nutshell for the purposes of this video, that is, if you're spending more than 50% of your time in real estate and at least 750 hours, and of course you have to actively or materially participate in that property that you own, like managing. Managing, you have to meet the hours 500 hour participation rule, material participation. But you, mariana, won't be able to take that loss because you have a day job, for example, shooting videos with me like this and asking me questions. You do this more than 50% of your time. But this dental owner that's asking this question this applies to you, by the way. But if you buy your own building in which you're going to house your dental practice, like if he does that, then guess what those passive loss rule limitations do not apply. That's it. So you can now buy a building, be your own tenant. So buy it in a separate LLC, pay rent to yourself, you pay rent to yourself. Now you can do accelerated depreciation using the cost segregation. The bonus depreciation became even more accessible, so to speak, with a big, beautiful bill that was signed into law on July 4th.
Speaker 1:So a dental practice owning his own practice I mean, excuse me, yes, owning his own practice, owning his own building, being his own tenant in that building can now basically file taxes. And you've got to have a competent tax preparer. If you don't have it, get yourself a tax advisor. Because when you do this, what you're basically doing legally with following the IRS tax code, of course, and properly filing tax return you're going to what's called combine these two activities your real estate and your business and you're going to put a statement on the tax return that says hey, I am electing, so combine both of these activities. So the loss from this real estate, the cost segregation which you own your dental practice in, can now be deducted against the net profit of your dental practice. So that is one of the great ways to create yourself Create. See how I use the word create. Create yourself additional tax deductions. All right, I hope that was helpful.
Speaker 2:That was helpful. You make it sound so simple.
Speaker 1:I wanted to be a professor. Believe it or not, I know well. Not a professor, but like adjunct professor. Right, that's what they're called.
Speaker 3:Like somebody who's not a professor but teaches.
Speaker 1:But then I realized that, no, I think I want to make a lot more money than an adjunct professor.
Speaker 2:I think you're educating a lot of people now on tax strategies and I think that puts you just right up there.
Speaker 1:Thank you To my wife. Of course she would say it, I mean it. All right, let's go to the next question. What advanced right? What do we got here?
Speaker 2:Okay. So what are the advanced retirement strategies that dentists can use to save on taxes while aggressively building for retirement?
Speaker 1:Wow, okay. So I want to be very, very clear on this, because if you're a dentist especially like I've got a client right now, a dentist he's got five employees I think it's him himself he's got five employees. And he's like Boris, I want to write off something big, like big, give me something big. Right, I'm like okay, I'm like 401K. He's like yeah, I love 401K, I want to do retirement. I'm like but you want something big. So how about we do defined benefit plan? He's like oh, what is that?
Speaker 1:Defined benefit plan is basically 401K and steroids. Yes, so with a 401k you can max out your employee deferral, which is whatever you put away from your W-2 paycheck $23,500, plus whatever the company matches you. Okay, if you want to start matching yourself more, you have to do it for all the employees. It becomes a little costly. The benefit is not there, but the fine benefit plan basically says you know what? Let me give you an example. This could be a good example. So big companies right, let's just use Apple. I don't know if Apple does it, I'm sure they do it, but just going to use a company like Apple, right, they have their own pension fund. A big company has their own pension fund, meaning say it's not a 401k, it's their own pension fund. They've built that pension fund right. So defined benefit plan is something where you build your own pension fund, so to speak for your employees.
Speaker 1:Later on you can. Of course it could survive, not survive whatever it is but you're building that pension plan. It's like its own separate thing. You can put away up to $225,000 for an owner. So my dentist client found that super helpful. Actually, we just did it also for a pharmacy client. He's like man, this is great, it's pretty big. Yeah, it's pretty big because now you've got employees, now you have to match a little bit more for your employees. You have to give more money to the retirement for your employees, but that's okay. You reward them, you open up a nice benefit package for them, but overall tax savings on what you're putting away for yourself and for them, it's still a lot more than what it costs you out of pocket to also cover your employees, because you cannot discriminate.
Speaker 1:So that I would say speak to your financial advisor or honestly, like I don't even know if financial advisors are always the best for this, because sometimes they start pushing other products within that. Anyways, let's not get started on that. I think what you need is a tax advisor. Speak to the tax advisor, be like hey, I've heard Boris and he said to do this and just do that. All right, cool, I, he said to do this and just do that All right.
Speaker 1:Cool, I think we can squeeze in one more. I see the next question from a dentist and I think this question I definitely want to cover today.
Speaker 3:If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Bora's put together a free PDF for you, the business owner Seven tax write-offs every S-corporation business owner must know. In this PDF you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.
Speaker 2:So this dentist is making over a million dollars.
Speaker 1:Ooh, Another million dollar. Dentist Love it.
Speaker 2:And he wants to know how important is it to get the salary versus distribution split right?
Speaker 1:Yeah.
Speaker 2:And there's a follow-up, like what happens when it's wrong.
Speaker 1:Yeah, you pay a lot of tax to the IRS so you get penalized by the IRS if it's wrong. Okay, now let me tell you a story of a dentist client. So I got a dentist client recently enrolled to work for a tax advisory service with us and he made about $800,000 take-home pay last year. I'm like great. So I'm looking at his S-Corporation tax and he's an S-Corporation. That's good. We already talked about an S-Corp, right. So he did that part correct and his profit is zero. But he took home about $800,000. How does that make sense? Yeah, so I'm like then I look at his W-2 and I see an $800,000 W-2.
Speaker 1:I'm like, whoa, what is going on? I'm like why do you pay yourself so high? He's like I don't know, that's what my accountant tells me to do. And I've seen If you've got that local accountant that you've outgrown you started working with when you were first doing it. You sent 40 taxes and now you opened up your business and this happens to a lot of business owners. He's like, yeah, this is what my accountant kind of recommended and he said leave $0 in a business account, take no distributions.
Speaker 1:I'm like, well, what's the point of becoming an S corporation? Might as well file as a single member, llc, right? So I said we need to redo this. He's like well, boris, wait. He got worried. He's like Boris wait, can I? What's going to happen if I'm going to pay myself? I think his salary was like reasonable compensations, like in New York. I think it was $240,000, if I remember correctly. He's like what about the rest of the money? Like I need that money. I know he likes to live luxuriously, so he drives a Ferrari, I believe last. I remember right. Don't ask me how I know that it's not on his taxes. Don't worry, it could be. We could put it on his taxes legally, legally, right, of course.
Speaker 3:Of course.
Speaker 1:He's got to have a business purpose, but anyways, that's besides the point. That's besides the point. So he's like, boris, I need all this money. I'm like you can take out distributions. He's like, well, is it allowed? I'm like, yeah, he's like, and what about taxes? I'm like, yeah, you'll pay quarterly estimated taxes, but you're not going to pay that additional medicare tax on that money. I mean, think about it. I think it was that we're left with about 600,000 to play with the medicare tax on that between employer and employee, if it's in a W-2, is 3%, 2.9%. You multiply that by about $600,000. That's $18,000. It was just like just changing that little thing on a damn W-2. And you've just got to pay yourself a reasonable compensation, like it's in the IRS tax code. If you have an S corporation and you're making a buttload of money which is good for you, the IRS says you don't have to take it all out as a salary. Reasonable compensation is good enough.
Speaker 2:I think people also don't realize that the money is still there. It's theirs, yes, it's their money.
Speaker 1:Yeah, they don't realize, but they don't know. You can't blame the business owner for this. The biggest problem, I find, is that a lot of business owners that are in medical profession they are very smart people, Very smart. My brother went to medical school. I think he's even smarter than me. It's super smart, but they just work. No, they're in medical school so much and then they get into the hospitals whatever they do rotations and into the field right, the financial. They never got the financial education so they don't know Right and they rely on their accountant. That is not a tax advisor, Right? So if you want to get your finances straight, if you want to pay less money in taxes, you want to be proactive. You want somebody to help you achieve that goal. You got to get yourself a tax advisor.
Speaker 2:There's a line you always say and I love it If you have a tax preparer, you don't have a tax advisor, and that's really true.
Speaker 1:That's correct A hundred percent. If you have a tax preparer, you probably outgrew him. He's not a tax advisor, he's not doing tax planning, he's not being proactive. He is speaking to you once a year and when that tax preparer is busy during tax season, you'll get lucky if you get a reply from him once a week. Yep, all right. Ladies and gentlemen, I hope this was helpful for our dentist audience over here. And yeah, till the next time, till the next time, thanks so much, it was great you asked excellent questions.
Speaker 2:Listen, they ask the questions, we just answer them.
Speaker 1:All right till the next time, Thank you.
Speaker 3:That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.