Top 5 Things My Healthcare CPA Wants You to Know with Jeremy Kilbert, CPA

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September 06, 2022

When I started my medical practice I quickly learned that there's much more to accounting than quickbooks.  My CPA firm, with its extensive healthcare experience, has served a phenomenal business advisors. In this episode of The Private Medical Practice Academy,  Jeremy Klibert CPA and I discuss some of the pressing questions that private practice physicians have.

  • Are you wondering what the right structure is for your medical practice? 
  • Do you know the difference between cash and accrual based accounting? 
  • Are you trying to figure out whether you should buy or lease equipment? 
  • Do the depreciation rules confuse you? 

Jeremy Klibert is a Tax Partner with Faulk & Winkler, LLC.  He is responsible for providing tax return review, tax research, tax planning, and consulting services for the firm. Jeremy works with a wide range of clients and focuses his efforts on serving high net-worth individuals, nonprofit organizations and closely held small businesses including medical practices. In his client relationships, Jeremy provides invaluable insight on tax, accounting and consulting issues.  You can reach him at [email protected]

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00:00:00 Hi, it's Dr. Weitz. Thanks so much for joining me for this episode of the private medical practice academy today. I'm so excited to have Jeremy Kleber my CPA from Faulk and Winkler with me to talk about everything you need to know in a medical practice to ask your CPA. So Jeremy, thank you so much for joining me today. Hi Sandy.


00:00:21 Happy to be here. So I have been using Faulk and Winkler, for the past 25 years because when I first moved to Baton Rouge, everybody in town said, oh, you have a medical practice. Faulk and Winkler is the group that does medical practices. And so one of the things I learned very early on is that there's a huge difference between being a garden variety,


00:00:47 CPA, that you know, all of us use to just do our regular taxes and then the nuances of meeting a CPA for a medical practice, because there are a bunch of things that go on in the medical practice that have tax implications, structure implications, and then in the long run, you know, just implications in terms of partnerships in terms of distributing money in terms of retirement.


00:01:17 And so I asked Jeremy here today to really give us the top five things or more about what is somebody who is thinking about running a medical practice and needing a CPA needs to think about Sandy. Thanks for having me a few things off the top. First. I think the main thing, whenever you're start starting to practice is how are you going to set up?


00:01:47 You know, generally we do advise an LLC. Now, everybody here's LLC, you asked a question, you know, ask the question, how do you file your taxes? Oh, I'm an LLC. Well, that's a big misconception. LLCs is really just illegal formation. So it's a legal entity. There could be three or four different types of LLCs that you file for tax purposes,


00:02:10 S corporations, C corporations, a partnership, or a disregarded entity in which you report your income when your individual tax return off the cuff. If you're starting by yourself and really have no envision of, you know, having partners or additional members down the road, probably want to start out with it as an LLC, taxed individually on your, on your income tax return,


00:02:37 you can always visit later and it's a lot easier to switch to another entity type in and then say, elect an S-corporation off the cuff. A lot of people will elect S-corporation in year one without thinking about the ramifications of that, as corporations are great for a lot of entities, but not so much for medical profession, reason being, you cannot allocate income with multiple members,


00:03:04 how you want generally with medical practices. When you have more than one member, it's almost, you know, you eat what you kill. So what partner a may produce, 80% of the revenue for the business, the partner B may produce 20%, but if you have two members that are 50 50, when it's not really fair that, you know,


00:03:25 they split the profits. You know, the one that produced 80% probably should get 80% of the revenue with an S-corp. You really can't do that. It's baby. You gotta pay your distributions out based on percentage of ownership. So, you know, one thing we generally recommend is on the cuff start as a regular LLC, with the intent of, if you bring additional partners on to elect,


00:03:48 to be a partnership down the road, partnerships allow you to allocate income any fashion you'd like, so it, it can, you can cut, cut the pieces of pie in several different ways. Just a couple thoughts on, on entity structure. So let me interrupt you for a second and ask a couple of questions about that, and I'm sure everybody's going to want to know,


00:04:11 first of all, if I put it on my tax return as just a simple LLC, can you talk briefly about what a pass through entity is and how is it that I get to put it on my personal tax return? And I don't need to file a separate tax return. Good question. If you're an LLC disregarded, which means you report everything on the individual return,


00:04:35 then it goes with on what's called a schedule C of your personal tax return form 10 40, and everything gets reported there. Now, as far as a pass through a tax as a S corporation or a partnership, the partnership or the S corporation will follow a separate tax return and you'll be issued, what's called a K one, somewhat up to a W2 or 10 99.


00:04:57 And then you take your share of the income and you report it on your personal return. So two different mechanisms, but end of the day, you know, your income is all being reported at the individual tax level. So whenever you go to pay your taxes, the partnership or escorts, not paying taxes on your behalf, you're paying taxes on your income.


00:05:19 Another question, Jeremy, in terms of asset protection, a lot of people think that if they have a single member, LLC, that that is better than being a solo practitioner. So if I'm starting out my practice and I just am by myself, do I actually even need to have an LLC? Or can it just be me and my social security number who start this practice?


00:05:49 Yeah, I would strongly advise against a sole practitioner, a good point on the liability protection. You want that LLC for that layer of liability protection, you know, you're going to be paying malpractice insurance as a doctor, and you don't want someone suing you for your personal assets. So you want to have that, that shield of liability against it, where they could only come again.


00:06:14 They come for any assets inside of the LLC and not personal assets. Great. That helps. Okay. So not to interrupt you. What's what's the next most important thing that we need, I would say on set up is really getting it set up in some sort of accounting software and not just doing a back of the envelope or using your bank statements to compile records.


00:06:36 You know, you want to be able to measure and, and see the metrics of your practice through the years and monthly. If you can, you know, the, for someone starting out something as simple as QuickBooks would be sufficient, you know, you want to set up with a chart of accounts and what a chart of accounts is, is basically you labeling every account in your software.


00:07:00 So you have a balance sheet. So things on your balance sheet would be like your bank, account cash, any equipment you bought, any loans you take out. So it's not things that really drive in the profitability of the company, but things that you own that make up the worth of the company, or you owe such as debt. When you get to your P and L you know,


00:07:22 you, when you have your types of revenue broken out and then all your expenses broken out, such as your salaries, your professional fees, contract, labor supplies, things like that. And you know, when, if you do it properly on the front end and it's as simple to, you know, maintain it throughout, and you can always add accounts as you go,


00:07:42 you know, as you get into more complex partnerships or bring on additional doctors, then QuickBooks probably is not the solution. You may want to look at a more advanced software. We use one called intact, which is a very advanced, very good software for medical providers allows you to allocate income to the, the different partners differently and really provides different schedules to show,


00:08:09 you know, production by partner with their related expenses and those types of things that are very important to, to a doctor. So most medical practices in your experience are actually putting the data into let's say, QuickBooks, and then adding these expenses to their chart of accounts or using the chart of accounts to add their expenses to their software. And then ultimately they give it to you or they,


00:08:40 or how, how in your mind do you think is the best way for a medical practice to get the information to their CPA in a way that's actually usable for the CPA to get money back to the information? Yeah, a few things. One, if, if, if, you know, if you're a doctor, you're probably don't have the experience of doing the accounting and,


00:09:02 you know, that's a very specialized area. So, you know, if you have a, a practice manager internally that, that does understand the accounting or having a, you know, an accounting on staff, then, then you know, that that would be one good avenue. Another one would be to outsource your accounting to a CPA. So on that's really,


00:09:25 you know, involved and understands the medical practice. That way they can help you maintain the books, reconcile your accounts and help with budgeting and cashflow projections, those types of things throughout the year. Most softwares today are around the cloud, which is a great thing for me as a CPA, I can generally at any time with my client's permission, pull their year to date information,


00:09:52 and that way, not just to do their tax return, but maybe throughout the year, when we want to do some income tax projections, get some idea of, you know, are they down? Are they growing? So that come April 15th of the following year, you know, have a big surprise for my uncle Sam, that you have, you know,


00:10:10 a good idea of where are you going to fall out at? Well, to that end, I think one of the things that gets a lot of us in trouble is we go from being employed physicians to being essentially self-employed. And so when I first started this practice, right, and I'm getting some amount of money, how do I deal with estimated taxes?


00:10:34 What do you tell people about, you know, estimated Texas? Cause I know from my own experience, when I very first started out, that was an easy way to get caught with your pants down because you know, the person who's practicing in a hospital setting or where somebody else has been doing the accounting, isn't thinking to themselves, oh, I actually have to pay taxes every month because they're automatically withdrawal withdrawn.


00:11:00 So what do you think about, you know, offering advice for, how does, how does that doc who's in private practice figure out estimated taxes, self-employment taxes so that they don't get that April surprise? Yeah, that's a, that's a good question. Generally, what we do as a firm is one of two things. One, if the income's pretty consistent,


00:11:27 we will prepare and project estimated tax payments for the next fiscal year. Based on the prior income, if you're a doctor married, making over 150,000 a year, then you need to pay in 110% of your prior tax. When I say prior tax I'm including your federal tax and your self-employment tax. So whatever that was in the prior year, you multiply that by 110%.


00:11:54 And then you divide that by four because there's four quarterly payments. And you know, you want to try to pay that in at a minimum through throughout the year, if not, you could be subject to some underpayment penalties, which can add up as, as your income grows. Alternatively, if you're just kind of starting out one way to do it would be maybe on a quarterly basis to just look at your revenue,


00:12:19 less your expenses. And it's not a simple calculation. You definitely would want to use a CPA, but you know, the, the highest tax rate right now is 37% for federal purposes. But self-employment tax is also a big deal because you're paying both sides of social security, Medicare as, as your self employed, social security right now at about 140,000 up to 140,000,


00:12:45 you're paying 12.4%. So that's a, that's a big chunk of change. And in Medicare, it goes on forever to Medicare is 1.4, 5% for the employee. And 1.5, four, 5% for the employer. So 2.9% that you will pay on all your income. So there's a lot of moving parts. There's a lot of pieces to the, to the tax formula.


00:13:07 And then on top of that, and you got your state tax to, to worry about whatever your state tax rate is. So you, you got to kind of build all that together and then project out what, you know, you think your tax is going to be and remit that, you know, quarterly throughout the year. But as I said before,


00:13:24 you probably want to have a CPA or a professional involved to run these calculations and give you an idea of, you know, what you should be paying in. So on that same note, but changing it up a little bit when we're about to hire an employee, right. And we're trying to figure, we, you know, we have a schedule in terms of what we think that salary range is going to be.


00:13:48 But when you're thinking about benefits for that employee, and you're trying to figure out what your share of the taxes are. Do you have a ballpark number for a percentage of their salary? Because in the past I used to say that, you know, probably that 15% all in would cover your share of their payroll taxes and their health care benefits, et cetera.


00:14:13 And I think if listening to you, that number is probably now a little low. Yeah, well it varies. And payroll taxes is a given. You're going to have to, you know, pay your share of their payroll taxes and that 7.65%. So that's, that's the bare minimum now, good point on the other benefits, you know, as an employer,
00:14:34 you want to offer as many benefits as you can to retain talent and also, you know, just provide something for your employees and yourself. But when it comes to healthcare and retirement benefits from a healthcare standpoint, it's kinda all over the place. You know, healthcare is, is very expensive these days when it comes to health insurance, you know, one thing that really has taken,


00:14:57 taken over, we've seen majority of our clients go to our health savings accounts, which have high deductibles, but the premiums a little lower and, you know, that could, that could range anywhere from a few percent to up to maybe even 10% of the employee's salary. So there's not really a right answer. There just depends on what you can afford and what kind of a plan you're,


00:15:23 you're looking to give And at what, and what plan you're going to give really depends on how much you want to retain that talent. Because if you give somebody a crappy plan, That's right, It didn't get you very far in terms of them being your employee, being happy with that plan. That's right. And then another component of that, as I mentioned earlier,


00:15:43 was a health savings account. One thing that some companies do is fund a little bit to their health savings account every month. Right now you can, you could put up to 7,200 into a health savings account per year to an employee. If the pulling has put the money in themselves, they get a deduction against their directly against their W2 and their income.


00:16:03 If the employer puts it in, they don't get a deduction, but it's a benefit that you could provide to them. So, you know, you may, you may per se give 50 to a hundred bucks or even more per month, just to, just as an added benefit to help offset some of those healthcare costs Now, but to come back to that point.


00:16:20 So if I put money into an HSA on, on the behalf of my employee, okay, I get that. I, I, as the employer, don't get the tax benefit, but if I provide health insurance for them, let's say, I make a contribution of, you know, $300 a month towards their plan. That's a tax deduction from my practice.


00:16:42 Is it not? It is, it is it's for every employee you get. And, and if, and on the HSA side, that health savings account, if, as an employer, you're funding a piece of that to the employee, you do, you do get a deduction for that. It's just as long as, you know, if the employee of themselves are putting money in,


00:16:59 then you don't get, of course you would get a deduction, but they do. But if the employer puts money into it, you know, just to help the employee, that that's another added benefit, and it is an expense you could write off against your income. Well, talking about expenses and health insurance, if I provide health insurance for my employee,


00:17:22 if that, and let's say I put in that same $300 that I just said, but the is 500 does the 200 that I take out to cover the remainder of their health insurance. Is that a pretax for that employee? It, it varies if, if you set up what's called a cafeteria plan, which most employers do, and which basically pre-tax items are such as health insurance come out ahead of time then yeah.


00:17:52 Then that is not taxable to them on their W2, but sometimes with lack of guidance or just didn't set up the plan, right. I've seen where the health insurance does come out post tax, which is not ideal. You know, you want it to be pre-tax so you're not paying tax on it at the end of the year. Right. And,


00:18:11 and so, you know, I think this is one of the reasons that having a CPA to form a cafeteria plan for you, or talk to you about a cafeteria plan is so important because basically if you can, for health insurance where you get the tax deduction for the co your contribution, but also that you can say to a potential employee and you get your health insurance for your contribution.


00:18:38 Pre-tax that to them is more valuable because basically, you know, if they have to pay tax on their health insurance premium, it's that much less income, or that much less per hour salary, that you're actually paying them as compared to, if you pay, if it comes out pre-tax, then their salary per hour is actually higher, if you will,


00:19:03 because they pay less tax on every dollar that they're getting. Is that a fair statement? That's a very fair assessment of how that would work. And, and to that end, you know, that while we're talking about benefits and setting up, you know, how much do I have to pay in taxes? What do I offer to myself? What do I offer to my employees?


00:19:27 I just want to, before we talk about some other things to talk about retirement plans, and, you know, again, a lot of us are either coming from an employed setting or from in a hospital or an employed member of another medical practice. And so we never had to actually set up a retirement plan, you know, and, and I know that there are plenty of retirement plans that are offered out there.


00:19:59 Can you talk briefly about the components, you know, really high level components of a retirement plan who sets it, where do you even go to get it set up? How does it get set up? And what's the difference between setting up a retirement plan and investing in a retirement plan? That's a good question, Sandy. No, there's four or five different retirement plans out there today.


00:20:23 The most common, which I'm sure everybody's familiar with is a 401k plan. 401k is which, you know, I'm a big AVAC VAT advocate of are great because you think it'd be designed to really benefit the owner more than some of the employees. So you can actually give more percentage-wise to the owners than you can to the employees, but it's still a benefit you are given to the employees.


00:20:49 You would go to a TPA, which is a third party administrator. We, we do do that with our firm. We have probably about 230 401k plans we administer, but they, on the front end, you have to come up with a plan document, which basically just outlines the specifics of the plan. What's the minimum contributions, you know, who's how,


00:21:12 how are you eligible to participate? You know, how long do you have to work at that place before you're in it? How many, what's the minimum hours to qualify? Things like that. There are a couple of components. Sometimes they're set up with just a profit sharing component, which means the employer doesn't have to put anything in they at their discretion.


00:21:34 They could just decide, Hey, this year we had a good year. Let's give 5% of salary to all our employees. That's one, that's one avenue. Another might be a safe Harbor plan, which generally is a three. The employer's required to put 3% of the employees salaries into that plan every year. And then there's generally a matching component to where if the,


00:22:01 you know, if the, the employee puts in say 3% of their salary, the employer matched at 3%. So there's several different pieces that add up to where you could put some significant dollars. So as an employee, as a, as an owner, you can put away about 58,000 each or in a 401k plan, if your income is high. And,


00:22:25 and then the employees right now, you know, they could defer up to about 20,000 a year, which means if they withhold through their withholdings up to $20,000 in a given year, you're not paying taxes on that. In that year. It just goes into your 401k account and you wouldn't pay taxes on it until you're at retirement age and start withdrawing those funds And understand that.


00:22:49 Although I have to tell you, I think most of the employees in a medical practice, other than the physician, or maybe mid-level employees are not putting away that amount of money. I think that the real question that people grapple with are, you know, can I do this by myself? If I, you know, have a practice and I have a bunch of medical assistants,


00:23:13 can I start a 401k plan and not offer it to everybody? Or do I have to, you know, offer it, you know, some other type of plan rather than a 401k. And then the other thing is, is that, you know, how much money am I going to quote, unquote, lose if I have to contribute to my employees,


00:23:35 am I better off, you know, in order to get this maximum $58,000, how much do I have to distribute as benefits essentially in terms of this match to my employees? Yeah. Yeah. A couple of thoughts on that as for dance. Our last question first, it really depends on the plan and how you design. There's not a clear cut,


00:23:59 you know, percentage or amount of dollars that you must give to employees to maximize your end. They just depends on how the plan set up. It could, it could be as low as a few percentage points to, to a couple, you know, two to five or 6%, depending on how much you want to give. As far as setting it up on the front end,


00:24:19 it's not something you could do yourself. You need really two professionals. You need a, an accounting practice or a pension company that will manage and, and run your 401k administration for you. But on top of that, you need to get an investment company to assist you. In other words, someone like a fidelity or Charles Schwab to give you the options of the different investments and manage your,


00:24:45 your investment portfolio. So to, to follow up questions to that, the first, I think I probably was not clear enough and I apologize. What I meant was can the owner of the practice participate in a 401k plan and not offer it to any of my employees That it, no, you cannot. There's just this discrimination rules and 401k plans that you need to meet.


00:25:10 Generally, there are minimum requirements and eligibility requirements. And as long as the employees meet those eligibility requirements, you have to offer the 401k to everybody. Not everybody may not decide to participate. So may elect out. Don't know why, you know, why you would do that, but I've seen that before. And, but, but you do have to offer to,


00:25:33 to everybody. And that's similar with health insurance as well. You know, you can't pick and choose who you want to give up a health insurance plan to. If you have 10 to 20 employees, you have to, you have to offer to everybody. You know, if you have some interns or part-timers, you know, they may not meet the eligibility requirements.


00:25:49 So you may not have to provide it to them, but your full-timers generally, we'll all have to get some, some sort of benefit from those types of arrangements. Well, I I'll be honest with you. I actually had a number of employees who didn't want to participate in the 401k plan, particularly my medical assistants, who were not making huge dollars to them,


00:26:12 having that money deferred meant less money that they had to spend on groceries. It wasn't until we explained to them, okay, you at least want to put in the minimum so that you get the employer match because it's essentially free money. Correct? Do you, the employee, if you put this way and explain to them the, the tax implications that in the end,


00:26:36 they really, it wasn't costing them a hundred percent of what was getting taken out of their paycheck, that they were getting, you know, some portion less because, you know, yes, they made this contribution, but they also didn't pay tax on it. And they got the free money from the company. So I think this is the importance of not only having a 401k plan,


00:26:59 but an administrator who actually interacts with your staff and can explain to everybody you're offering this 401k plan to what it's about, what the plan terms mean, same thing, because a lot of these plans, including mine had a vesting schedule, so that basically employees have to work for you a certain amount of time before they get a hundred percent of that money.


00:27:24 Because, you know, again, a lot of people are always afraid, Hey, I hired this medical assistant. They were only here for a year or two years. And I put in all this money, then they're going to walk off with it. Well, with our vesting schedule, basically it took you five years. You got 20% a year.


00:27:40 So if you quit before five years, you weren't walking off with the practices, contribution. It went back into the practices, 401k pot. Now my, but my other question about the whole fidelity thing is, you know, I think there's a fair amount of misconception. Can you just go to fidelity or Vanguard and have them set up the plan, or it's usually that there is this two prong,


00:28:12 I would say this there's two avenues. One. There are what's called bundled providers, which will do everything generally. You're not getting in my opinion, the best advice and best administration. And that in that avenue, majority of plans though, do have a two-pronged service attack where you have someone that's doing the administration, the accounting that's, that's all they do so that,


00:28:39 you know, they're giving you recommendations and meeting with the annually, things like that. And then you have in the second piece, which is the investment side, such as the Fidelity's of the world, that will handle the investments. So Jeremy let's say that I have this 401k plan for my so, and for my employees. And then, you know,


00:29:05 in five years, 10 years, life changes. Can you change? Or let's say I tried to do it on the cheap, and I didn't want the, the biggest, best plan from the beginning. How easy is it to change the documents of a 401k plan? Do you have any idea On the back end? If once you have one set up,


00:29:25 I don't think it's the easiest thing to terminate, but it can be done and you could all look, you know, you can wind it down now on smaller providers or practices on the front end. You know, 401k may not be the all, all in right answer. You know, there, there are some other options such as ACEP, which is stands for simplified employee pension.


00:29:49 Those are very easy to set up. Basically, you go to an investment guy or a bank, and I mean, it's really a one-page document and you could defer up to 25% of your pay every year. Makes sense for a solo practitioner and maybe with just one or two employees, but as you grow that could get very expensive. As you can imagine,


00:30:11 if you have 10 employees trying to do a 25% contribution to everybody, you know, that would cost a fortune. So as you grow, you know, that's when you probably want to look to move to a 401k where you can kind of manage that and have different options and change from ACEP or an IRA to a 401k is very easy. It's just a little more complex to the T to do it the other way from a 401k plan down to a,


00:30:38 to another option, but it can easily be done, But most, most people are going to have themselves, a front office person and an ma. So, you know, pretty much when you start a practice, you can anticipate that there are going to be at least three of you the very first day you open your doors. So, you know,


00:30:58 the, the thing I, I think that we often forget is that each of these steps has some costs. And so if you can anticipate, and this is where, you know, I think having had phenomenal guidance over the years from Faulk and Winkler has come in handy. You know, it, if you start out with the right thing from the beginning in the long run,


00:31:22 it actually costs less than if you start out with the thing that you thought was cheaper only to switch gears and then have to implement the bigger, better thing. And I think having the guidance of here are the five different options or however many options. And here's the advantage and disadvantages of each one. And this is why yes, in this today may seem like the better plan,


00:31:48 but looking at your numbers, we project that in a year or two years, you will have, you know, enough employees or the need for this, that, or the other thing. This is a better scheme. So on that note, in terms of planning and advice, I want to switch gears briefly and talk about things like buying equipment, because I have gotten myself into trouble early on in terms of thinking about,


00:32:15 you know, do I buy something outright? Do I lease it? Should I lease it to own? What are the tax implications of that? And then the depreciation, maybe you can briefly talk about depreciation and the advantages and disadvantages. And then also, and I, this is can tell you how rusty I am section. I think it's 1 79, Very good.


00:32:43 And the implications of that. Good, good questions, Sandy, when, you know, let's face it, medical equipment is not cheap. So, you know, when you come in to buy some or invest in it, you know, there's a couple options, you know, lease versus buy. You know, when you're considering leasing, you know,


00:33:02 a couple things you may want to look at, you know, how quick would this equipment be outdated? You know, you don't want to sink in maybe six, eight years into some equipment. If in three years, you may need to upgrade that equipment. And leasing may be more viable from a cashflow and from, and for just a practicality matter,


00:33:22 you know, with leases, there's two types of leases. I'm not gonna go into the details because it's accounting, but one, you can write off the payments monthly or two, you can depreciate it, but end of the day, both sides, you're getting a deduction. When you look into buy equipment, you do have the option. These days of doing one of two things,


00:33:43 either taking section 1 79, like Sandy said, there are several limitations on that. We really have not been using 1 79 a lot in the last five years since the Trump act, because there's something called bonus depreciation and bonus depreciation works very similar to 1 79, but there's not limitations like 1 79. If you have a loss, you can't take that deduction. If you use the equipment,


00:34:09 things like that, you know, you can't take that deduction. Bonus depreciation has less limitations. It allows you to write off that entire asset in the year of purchase. So it could really help you with your cashflow and also with your taxes. You know, if you have a taxable income of 200 grand and I'm buying a 200, a thousand dollar piece of equipment,


00:34:30 I can bring my taxable income down to zero. But one thing I'll always go ahead and say, I didn't mean to interrupt to Jeremy, but I just want to be really crystal clear. So if I buy like a used C-arm, then I can use bonus depreciation Today. I can. Yeah. In the past you could not, they rewrote the rules under the Trump act in 2018.


00:34:53 And bonus does qualify with used equipment, use vehicles, things like that. Now, right now it's a hundred percent. Now there's a reduction scale. That's going to start in 2023, where you only can take 80, 80% of that amount. Then the next year will be 60 and 40. So last five, five years or so have been a gimme where you get a whole a hundred percent,


00:35:16 but that will change. Now, you know, that's fluid as, as Congress's. So with legislation coming, who knows what the new rules are going to be, but one last thought I wanted to leave on. If you finance that equipment, you want to be careful too, because you're gonna have some debt payments to pay and say the next three to five years.


00:35:36 If, if you finance a say over five years, well, if I take a hundred percent bonus this year, I'm not going to have many deductions to offset that cashflow for that note outside of the interest of me. So if you're financing equipment, a lot of times I will encourage my, you know, my clients less match up the cashflow. So maybe I'm not going to take bonus because I have some finance and payments,


00:35:59 and I want to match my depreciation over the next five years with my cashflow and my notes versus let me write it all off this year. And then next five years, I may not have, you know, the, the deductions to offset that cash that's going out the door. But I think that that's actually a great point to kind of close on because one of the things that I think we often don't think about is cash flow and tax planning and anticipation.


00:36:32 I think that a lot of times we are retroactive instead of proactive in terms of our thinking. And I think that the advantage of things like a P and L statement, I think the advantage of really understanding, you know, how much money is your practice bringing in Israel is, is the amount that you have every month, pretty much static. Are you growing?


00:36:59 Are you, do you anticipate that next year, you know, your income is going for the practice is going to be significantly higher. Should I defer making this purchase? You know, if it's in, in November, should I make it this year? Or should I make it in January? And, and to your point, should I take off the entire amount this year?


00:37:20 Or am I going to need some of that depreciation, you know, in future years because my revenue is going to be that much greater and I need to have more deductions because otherwise I'm going to be in a higher tax bracket. I think, you know, that's something that may be beyond the, Hey, I can do this in QuickBooks and I can do my own tax accounting.


00:37:46 That is, I think, you know, in a nutshell exactly why having a healthcare CPA who can really understand medical purchases and of equipment and staffing needs and how medical practices change as, as so important. I just do want to ask you one final question and that is, can you just briefly go over the difference between a cash based accounting and accrual accounting?


00:38:20 Yeah. That's a good question to get that a lot of accrual based accounting is what accounts to choose for under generally accepted accounting principles. What that includes is things such as a cruise like your billings. You know, let's say this month, I bill out a hundred thousand dollars under a cruel accounting. I'm going to include that a hundred thousand dollars in my revenue,


00:38:47 even though I didn't receive the cat shit and then same thing with my eighties. So any bills that I've incurred, I may not have paid the bills yet, but if therefore this month, I'm going to include it as a, as an expense. So I get the deduction under accrual. Accounting is some matching principles, but most, most taxpayers and medical practices follow their taxes on cash basis.


00:39:10 Which reason is you don't want to pay taxes on income. You haven't received yet. So through cash basis, you're only paying income, your taxes on income you've received and deductions you've paid. So there is a discrepancy between accrual and cash, but a cash cash when it comes to tax planning and tax payments is definitely the better option because you've realized that income you've got the cash and you're not,


00:39:35 you're not paying for things. What if, what if that patient never pays me? You know, I don't want to pay taxes on that income. Well, and to that end, you know, especially with a medical practice where we built an insurance company today, and it may get denied, there'll be a contractual. Write-off how much we think we're going to get paid.


00:39:58 Doesn't always match what actually comes in the door. And to that end, one of the things that I think gives people, both heartburn and a lot of confusion is what is bad debt. So if I, if I have a contractually, if I, well, let me backtrack and say, we all know that charges and collections have nothing to do with one another.


00:40:24 If you look at a medical fee schedule, you know, the Dr. May charge $300 and blue cross is only going to pay them as the allowable a hundred. So you're right off 200, right? That's right. If you, first of all, my first question is contractual write-offs. Are they attacks? Are they tax deductible? Yeah, they, they basically all set your revenue.


00:40:49 So it's, it's the net amount that you enter the day you receive or your will receive is going to be the taxable amount, Right? So basically you're not taxed on what you're charged. It's because it's a cash based accounting. It really is actually only the dollars that come in the door. That is correct. Okay. Now also on bad debt,


00:41:10 if the patient owes you or somebody still owes you in this case, it's going to be the patient, let's say $50. Okay. And they never pay you that amount. You can't take that off either, because basically again, in cash based accounting, it's only what actually comes to me in my bank account. That's correct. Yeah. Only money you've recognized and you've paid taxes on that.


00:41:36 You can take off as a ride off on a cruel. I don't want to get too, too much in the weeds, but you could take that bad debt deduction because you've already recognized that income as a receivable so that you do have a difference in the two methods. But as a final note, basically the only money I get taxed on is the money that is basically listed on my bank statement as income,


00:42:03 As long as your Deposit, As long as you're on a cash basis. Yes, that is. That is correct. Okay, great, Jeremy, thank you so much for your time today. This was wonderful for all of you who are listening and want to find out more about Jeremy and Faulk and Winkler. You can find his contact info in my show notes.


00:42:22 Thanks Sandy. I enjoyed it. Appreciate and inviting me, Please be sure to sign up for my newsletter below. I'll be sending you tips on how to start a practice, grow a practice, and then add multiple services so that you can maximize your revenue.

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