We're bringing back some of your most common questions about write-offs and tax deductions for dental practice owners. Ash is joined by Lynne and Lorainne Kent to talk about a broad array of topics, including the nuances of business expense deductions, home office claims, and considerations for travel-related deductions. They also discuss the protocols for handling cash receipts, with Lorraine stressing the importance of proper record-keeping to avoid tax evasion issues. Lynne provides insights into the complexities of vehicle write-offs and the constraints around EV tax credits, especially for high-income earners.

The episode touches on the misconceptions around adding AirBnB's to a portfolio and what you can write off, handling gifts and business etiquette, especially during festive seasons. They also talk about how important it is to not withhold income from the IRS, and why you need to be careful of red flags on your taxes.

And as always, make sure you consult with a tax professional.

Key Topics Discussed:

• Vehicle Write-Offs
• Business Expense Deductions
• Handling Cash Receipts
• Deducting Travel and Meals
• Home Office Deductions
• Combining Airbnb with Farming Activities
• Gift Tax Rules and Business Etiquette
• Documentation and IRS Audits
• Importance of Consulting Tax Professionals

Welcome to Beyond by Wings, the business side of dentistry, brought to you by Edwards and Associates, PC. Join us as we discuss how to build your dental practice, optimize your income, and plan for your future. This podcast is distributed with the understanding that Edwards and Associates PC is not rendering legal, accounting, or professional advice. Listeners should consult with their business advisors before acting on any of the information that is shared. At Edwards and Associates, PC, our business is the business of dentistry. For help or more information, visit our website at eandassociates.com. Hello, and welcome to another episode of beyond bite wings. In today's episode, we will be talking about the various.

Questions that we get from our clients. And to talk further about it, we have a couple of special guests. 1 is returning guest slash ex host. Lynn Ledbetter. How are you?

I'm good. How are you?

I'm good. Thank you. And a new guest who's the tax manager of Edwards and Associates. Her name is Lorraine Kent. Yeah. Hey.

Hello. Hi. How are you? I'm doing well.

Awesome. Great. Now there's a reason why I wanted to have both of you here because some of these questions will require both of your, expertise. Some of them in my personal opinion are quite hilarious, but you know

what? I actually Which is why I'm laughing.

And and yes, for the listeners out there that don't know, I did share these questions with our guests, before we started recording. So you may hear the laughter before the questions are being asked. But in all honesty, you know, I tried putting myself in their shoes.

Yes. They are good questions.

And some of them I'm like, you know what? They're valid questions. I could see myself asking myself that question if I didn't have that business acumen, you know? Yes.

I think the the chuckle often comes because we hear these questions a lot.

That's true.

Every, every new startup wants to ask these kinds of questions.

Right.

What can I do? How far can I go? Right. And we, we get it.

Right. And honestly, in my opinion, it's better asked than, you know, just Assumed. Yeah. Assumed. Right. So I'm glad. And in fact, that's part of the reason why we're doing this episode so we can bring it to our audience and our listeners as well. So out of these questions that we have here, which one do you guys want to tackle first? Do you think we should go by?

Surprise us. Yeah. It can go in order that you have them or random. It's up to you.

Okay. So I actually I think these were random, but coincidentally, the first one does happen to be the most commonly asked question again. So this one is. You guys

ready?

Yep.

All right. I just bought a new vehicle. Can I write it off for my business?

That is the most common one. Yeah. Absolutely. The most common one. And sometimes year after year, same, same business year after year. I just bought another new vehicle. Can I write it off? Oh, I just bought another new vehicle. Can I write it off?

Yeah. That's when we talk. If it's the same person asking the same question again. Mhmm. Okay. So, you know, I feel like this could be a yes or a no depending on the business you're in.

Exactly. It it depends. And it primarily depends on what the business percentage

Right.

Is going to be. Because if it's used less than 50%, the deductions that everyone hears about the full write off are going to be, restricted. You may end up just using a mileage rate. But if your business calls for your vehicle to be used more than 50% of the time, then, you may qualify for bonus depreciation or section 179. Sometimes it depends on which type of vehicle

Mhmm.

It is. So there's a lot of depends.

Yeah. Those catch are. Yeah. Those catch phrases are what the sales team get you with.

That's right.

You can write this off. You can take bonus on this. You can take 179 on this. And while that is true, there are individual circumstances that play into those decisions and abilities. So Yeah. There are income limitations. There are mileage, business use percentage limitations, heavy weight of the vehicle limitations. So there's all sorts of things that play into that.

And you can't just assume that the salesman has given you the right answer. Don't don't rely on your salesman for tax advice who is receiving commission on that sale. Right? So, yeah, it it really depends. And, like Lorraine said, it depends on the business as well. Well, we're talking to, you know, an audience of dentists. We know what their business is, and we know how much they're driving or not driving.

Mhmm.

And that's part of the problem. They're not salesmen that are driving all over the place. They're not attorneys that are driving all over the place. So, you know, if they have a single practice and things are a lot different than they used to be. Like, where where are you really driving these days? We own a service business. Right? Right. Where do we drive? We don't drive to the bank anymore. We don't drive to the post office anymore.

We don't very often drive to CE anymore. All of that is done cloud based.

Right? Amazon, everybody delivers Right.

So, you know, what we could get away with back in the day is gonna be different than what we can get away with now. We're still using the old rules because the IRS hasn't said you can't, but we know if it's as soon as it's looked at by the IRS, they're gonna be like, yeah. Prove that you drove all those miles because Yeah. They see what we see. Right?

Right.

So that's where the problem comes in.

Because that back in the day when IRS audits were frequent, when I first started, one of the easy, what I'll call, low hanging fruit was the mileage lock.

Mhmm.

Nobody could really produce that, and the IRS agent would occasionally laugh at the person who kinda just turned one in, and it's all, like, the same ink. It was obviously written yesterday. So we really haven't had that level of audit in nearly 20 year actually, over 20 years. And we do anticipate that them returning. We know they're recruiting right now, and they're training, so we expect to see them eventually, next year or so.

Right. And, of course, I know I know there's going to be a handful of people that even though they're aware of the rules, they're still going to try to cheat

the system.

But assuming that all our listeners would follow our guidance or try to do everything by the book. Now, again, validly, if they ask you this, and I and I say this on par with what you guys just mentioned, which is, well, I use this car to go to work every day. Mhmm. What do you mean? I I mean, there's a 100% usage, business usage.

Yeah. Commuting doesn't count. Yeah. That's the misconception. We have even had a case recently where one of the dentists is commuting to another state, opened a dental practice in another state, and that is considered, in the IRS's eyes, commuting. Right. Even though

Hundreds of miles.

Hundreds of miles is involving airfare and additional expenses more so than just your bonus depreciation on your car.

Yeah. And you want None of that is technically allowed.

And, technically, yeah, there's we think we may have a workaround for that to not be his primary, workplace. Right.

Yeah. Because we we are on your side. As the clients, we are absolutely on your side.

But if that if that was the primary office and that got audited, the IRS is gonna say, no. This is this is personal. You're going home to visit on the weekends.

I see. Okay. Now what about someone, let's say, who just started a practice, but to supplement some of the overhead expenses is doing an associateship or 2 on the side? What about those miles?

Those those change that changes. Yes.

Because then you don't have a primary location.

Yeah. Depending on how much you're working in those other places.

Yes. So Yeah. Your if you have a primary location, the to and from that location are not deductible, but anything back and forth and in between would be

Okay. I see.

To your to your other locations. Same thing if you have multiple practices. So you're gonna have you you may have a primary location. You may not. You if you're split all your time evenly Mhmm. Then, you know, you've got kind of more business miles. But and the problem also comes in if your primary location is the furthest location, well, then you don't have any the it's everything is commuting. Because if you drive 50 miles to your primary location, it doesn't matter that you're the location that's 10 miles away that's not further.

So that's still considered commuting miles. So there are a lot of factors at play and it gets complicated, but, just know we we do what we can to take the rules to your best advantage, but there are restrictions.

But it is possible if, let's say, someone with multiple locations with one vehicle

Mhmm.

If if it has usage in multiple locations that that burst business percentage could exceed that 50% limitation.

Yes. Yeah. When you're getting up there that way, then you can, justify it easier. And especially if you're if you've got a lot of associates in those locations, so you really truly are overseeing. And so you're going back and forth different places every day, maybe you're filling in for whatever associate was out or you're going to manage the others, then that gives you a lot more business miles. And once you hit the 50% mark, if you have the right vehicle and if you have enough income to allow it, then, yeah, you're gonna get some of those deductions. Full write off, $25,000 write off, things like that.

Amazing. Okay. So in short, consult with the financial advisor or your tax specialist before, you know, you you think, oh, you know what? I should be able to write this off just because my sales associate has so many people talk.

And and on that note, and I know this isn't one of your questions, but I'm just gonna throw this out there.

I think I know what it is. And I'm glad you brought it up because I was thinking of

the team. Associate is also gonna say as you sign on that Tesla that you're gonna get the EV credit, and you are very likely not going to get the EV credit because there are heavy income limitations on that, and most dentists do not qualify.

Okay. So let's actually talk a little bit more about this because I've seen this happen and it's crazy because in the past that credit was not already included. This was something you had to apply for.

Right? Right.

But now what Tesla or these other electrical vehicle manufacturers are doing is that they are automatically including the credit as they're selling it. So you're thinking, wow, am I, I'm getting this discount because I'm getting the model y. It was manufactured in the US. So I get the full credit, but then you're probably a dentist. You're above the income limitations. And what does that do?

And what does that do, Lorraine?

Well, what it just started in 2024, so we haven't actually had to work through the mechanics of this. But the rules did change, but where the customer goes into the car dealership, and they talk to the salesperson, tells them all the wonderful tax deductions they're going to get, on this vehicle purchase. And they ask them a question, Does your income qualify? And the purchaser is like, oh, yes. Of course. I don't make any money.

Mhmm.

So then they get the credit. So this is yet to be seen, but I expect it's going to work similar to the, let's call it the Obamacare health credit

Mhmm.

Where people were getting the advanced credit on the health care, and you'll get a tax reporting form that you receive this credit that will be of new form, because it doesn't exist yet. So there has I'm expecting there'll be some new form to report the credit on the purchase of the vehicle. And if your income does not qualify, you are going to be required to pay that back.

Mhmm. So pay that back.

Yes. So it's gonna be added on to whatever tax

you owe on your pay. That $75100 credit and you don't qualify, your tax just went up $75100. You gotta pay it back.

Yep. So we need to be cognizant of that. Yeah.

Yes. Yeah. We had a client, just today. Now this is on 2023, so he didn't get the advanced credit. He was just hoping to get the credit on 23. Mhmm. His income is $9,000 over the limit, and we have tried to get it under, and there's just nothing we can do.

Looked for an hour and a half. I was there's to be maybe something I can find, and I just could not

So he's not gonna get it. I mean, that's that's the reality of the situation. But very few dentists are under that. It's not a high threshold.

For a married filing joint, return, it's 300,000. Right. And, you know, for single, it's half that. So that's really for a dentist, especially 2 earner in this economy, that's really just middle income. Normal. Yeah. Normal. Yeah.

Normal income, but it doesn't qualify.

Right. Right. Right. One more thing to be cognizant of before, you know, you just accept that. Oh, wow. Yeah. I'm buying an electric car because I'm going to get this credit. All right.

Now moving on to the next question. This one was. I just bought a Rolex. As a gift for one of my associates, can I write it off?

I wanna know where the associate's working because I'm gonna go there. Yeah.

I wanna go there too. Well, technically, gifts are limited to $25 per person per year. Wait.

What are you saying? $25,025.

25100. 25 $275? Or it gets included in wages. What

what what are you saying? So you're saying that the maximum I can give someone is $25?

That that's the IRS limit on a gift, an annual gift per person.

But it's just part of the device.

In, what, a 100 years, I think?

And and the employee did happen to be the owner dentist. Uh-huh. We did kinda whittle that down.

Sometimes it's the front desk person who happens to be his wife. Yeah. Yeah.

Yeah. Yeah.

There are guests. So Yeah.

There

are. Even just yester my husband's coming up on his 15 year

Uh-huh.

Anniversary, and his company every milestone, gives a list of things that they can choose from. Right. Right. So, I'd be a little curious to see how they accounted for. I'm sure it's getting expense. It's not getting added to wages. But

Right. Right.

Talking, like it seemed like the items were averaging about 2 to $300 with

I see.

Selection. So that that's probably more typical Yeah. For your

A Rolex is gonna be really hard to just decide.

I know. It's like but, or just early this year too, there were a lot of charges in December to, Tiffany's on a tax return I was looking at. And I asked for more information on talking, like, 7, $8,000.

Right.

At the time, they were business expenses. But in this case, surprisingly got returned in January.

Interesting.

So but those they were personal deposits. So but, yeah, we were like, okay. So bought the gifts, but then returned them. It was that was a little interesting.

That does sound interesting.

There's always fun things.

Oh, absolutely. Are

you on the, like yeah. But yeah. So something 7, $8,000, Tiffany's, Rolex, Nordstrom.

Right.

Right. Be have to ask a question about that.

Yeah. So, yeah, in that case, we're gonna ask who it was for

Right.

Who the gift is for, are they going to include it in their wages? If you include it in that employee's wages, because there are legitimate gifts, like your husband's gift Mhmm. You know, 20 year anniversary, things like that. Right. There are legitimate gifts. And, if they're gonna put them in wages and tax that employee on it, then it's absolutely deductible.

Okay.

But a lot of the owners don't wanna do that because they're considerate. They don't it's a gift. I don't want you to have to get a tax hit on it as well. But, unfortunately, you can't play both sides Yeah. Of of the events there.

Yeah. The IRS wants to tax everything.

Yeah. That That's the bottom line. That's the bottom line. Sad reality of the situation.

Years ago when airline miles, like, people who traveled for work and were earning miles on their personal travel accounts, the IRS is dying to try to figure out a way to tax the miles when employees cash them in on personal trips. And, fortunately, they never could figure out a way to do that or and, surprisingly, didn't require CPAs to figure that out for them. Interesting.

But that

was a big deal for about a year or so is, how the IRS was going to tax, like, rewards, like travel rewards.

Yeah. So that's so they're looking for every advantage. Don't Yeah. Don't think they aren't.

No. That's right.

They've just taken a snooze for about 20 years.

I see. You no. No. No. That's true. They are definitely amping up their audit game. But, you know, the Rolex is definitely on the extreme side. So it's mostly for entertainment.

Yeah. Right? We are recording a podcast. But, you know, in reality, we do see the employer trying to gift, let's say, to referrals.

Right. Right. Right.

Especially specialists. We're working with general dentists just to

make sure. Common.

And it is business related. It's to

make an individual decision. Fee could be considered ordinary and necessary. That's really the premise of the IRS deductions of which allowed. Is it ordinary, and is it necessary?

Mhmm.

And sometimes it's not both. Sometimes things might be necessary, but it's not ordinary Mhmm. Depending on the circumstances.

Right. So I would say, you you know, in our industry, the to pay a fee to the general dentist for referring to the specialist, that is very common. We would definitely consider that ordinary.

Mhmm.

So if they pay ordinary fees or give them ordinary gifts, that's not gonna be any kind of problem. If they were to give them a Rolex, then you've breached the necessary component. That's not that's that's not really ordinary. Right. Definitely not necessary. But, yeah, there are times when it's it's a marketing kind of expense. And then the $25 gift, rule really doesn't apply to in that kind of a situation.

Right. Right. Which makes sense. So, like, sending a basket of edible arrangements or tips treats or maybe a basket of chocolates.

Yeah. Or even even, you know, slightly extravagant

Right.

At Christmas or or whatever. Yeah. That's all that's all pretty much Okay. Industry standard. Right. Right. That makes it ordinary. And and and I would argue necessary because if you don't do it, your competitor is.

That makes it necessary. That's

right. So it's part of the whining and dining. Exactly. Right. So okay. That's good to know. Okay. Here's another one.

And this is a real question, by the way, I got asked. My wife and I just came back from Hawaii where we talked business. Can I write off the trip?

This is my favorite one, and, apparently, I have been missing out on a lot of deductions for years because my husband is also a CPA.

Mhmm.

So every trip we've ever taken

And every dinner you've

ever had. We we ever had, we've businesses come up. 1 of us has probably talked about our job, but, unfortunately, no. If it if we were audited, that would not be a

And the last expense here.

It's a great idea, though. And, a lot of people think just if we go on a vacation and we have a meeting Mhmm. Scheduled during that vacation, that that makes the entire family vacation deductible. And the IRS, if if and when you get audited, is going to say no. That's that's a personal vacation. Right.

But there are ways, though, to make parts of it deductible. So that's where the strategy comes in. Yeah. You don't want to deduct the whole thing and and paste a bright red flag on it that says audit this tax return because I guarantee you if that's in there, that's not really allowable. There are other things in there not real so you don't wanna open anything up to scrutiny to the IRS. But if you take parts of it that you can justify, that don't make it scream, hey, this is a problem, then there are ways that you can deduct part of it. Like, you're not gonna deduct the whole family. Don't deduct the whole family.

Mhmm.

But the dentist part, we can deduct that part. We can deduct their airfare, their hotel, potentially, some of the food, not all of the entertainment. Right. And not for days days. Yes.

Right. And Like a conference, for instance

Mhmm.

Is a good example where there's a legitimate business purpose that requires you to travel to get to that conference where the dentist could book the trip. They're gonna need, airfare and a hotel. Well, if their family members decide to come along, you know, whether you have 1, 2 beds in the hotel, that's not really going to be questioned. So their airfare would be personal, but your entire hotel would be Covered. Covered.

Yeah.

That

would be good. Yeah. And then a portion of the meals because you were going to be there anyway. Right. So but if you went to a show on the side, that's personal. Right. Right.

So So in order to not be so flamboyant about your deductions, it's better to strategize.

Right.

Take what's allowed because then I mean, where else can you deduct a quarter or a half of your vacation? Because that's essentially what you're doing. Don't aim for the 100% because that screams audit me. But if you keep it reasonable and just to the one portion, then you can deduct that, and that's a pretty good deduction.

Right. And if there is a legitimate business

Absolutely. Or, I

mean, I mean, a necessary Right.

A necessary yes. A component. Mhmm.

Component.

Yeah. Now one thing I will caution on that we see sometimes is, like, cruises and other countries. Now those would really like to have those questions asked beforehand

because there are very

complicated restrictions on

cruises and travel abroad. Mhmm. Restrictions on cruises and travel abroad. In Russia? Even if it is a conference. Even if it's a 100% legitimate.

Yeah. Okay. So I'm I'm actually glad you've asked me this because, you know, legitimately, there are implant seminars in the Caribbean. They're much cheaper than what you find here. You get more, people to, you know, practice on over there. So you're saying that those kinds of seminars would not be?

They could be subjects. So ideally, if you're thinking about one of those, go ahead and ask, your team lead before you book everything, will I be able to deduct this? Because it does depend sometimes on the country, how long it is.

Not specific. Yeah.

Very very specific with some of the countries.

Right. Right. I see.

And then there'll be additional limitations. Not that it will be fully not deductible, but, a high percentage of it could be nondeductible.

I see. Yeah. And and I I think we're also talking about 2 things here. Right? One is what raises a red flag, and number 2, will it be allowed or not?

Will it yeah. Is it even is is it specifically disallowed?

Correct. So it could raise a red flag when it is allowed.

Right. Yeah.

Right? It's just, you know, what is your intent Right. Not to raise any red flags if and I think that's what Lorraine's saying, that if you just want to not raise any red flag, then avoid those. Maybe try to find domestic.

Mhmm. Right. It the domestic one is definitely a a safer option.

Mhmm.

And then, you know, if we are just reasonable about, which part of that is personal versus deductible.

Yeah. Now if you've got something that is completely legitimate and it can be supported, you just need to understand that it could raise a red flag, but that doesn't mean you shouldn't take it, unless you're really adverse Mhmm. To that kind

of, you know,

stress. But if it's defendable, then you can take it. Absolutely take it. Don't pay tax on something you need to pay tax on. Yeah. But don't

just take, several staff members, to a conference.

Mhmm.

And it's very expensive, but they're all actually legitimately attending the conference. So you still have to keep any meals and entertainment pieces of the travel separate because there are different tax treatment. But, overall, the trip is a business expense.

I see.

So

Now And

then they are the IRS, if you do get audited, there are certain things that are require high higher level of substantiation, and travel is on that list, of course, as well as meals. Pretty much all business meals are required to have at least one other person and a documented business purpose. And we know most people are not documenting every meal, who they were with.

I I think there's 3 people at this table that are not documenting every Yeah. Different thing. That's a difficult one. It is it is difficult. Yeah. You just have to understand that if it gets scrutinized, you're not going to get that done.

You could lose it and yeah. And the mileage, on the cars. That's Mhmm. Actually one of those higher substantiation requirements. So it's up to the taxpayer to be able to prove if they get audited

Mhmm.

The business legitimacy of those.

I see. Yeah. And on that note, I just feel like I need to mention this because it is true. It does get difficult, especially if you have multiple businesses and you're going on these types of wining and dining on a regular basis. It's very hard to keep track of that. But there are software out there. For instance, there's one called Divi. The way you set it up is that you can actually create limitations.

Like any time there's a restaurant charge of let's say $20 or more, it's automatically going to send you a text on your phone where you just quickly type up. Who was there with you? What was the purpose? And the software itself will keep a track

of that. Oh, that's that's very cool.

So, you know, keeping an eye out for technology that's out there to, you know, put into a system that can help you can also go a long way. But as Lorraine was mentioning, it is true. Travel, meals, these are 2 areas that that is currently being scrutinized because

I feel like

it's easy, and they've been abused in the past.

Right? Even your just newly trained agent can get an audit adjustment on those because they know most of the taxpayers will not be able to provide the required support.

That's right. That's right.

Yeah. Yeah. And that's the thing. It can all be legitimate. Mhmm. And if you can't support it, it's just It's still not allowed. Yeah.

Absolutely. Okay. Yeah. Great tips there. All right. Onto the next one. This one was interesting. I thought this was a good question.

I am the 100% owner of 2 businesses. One is a startup, and the other has been in operation for over 3 years. I would like to fund a SEP IRA only for myself. Can I just do it through the startup since there are no eligible employees in the start up?

This is an excellent question.

Yes. And this one also depends on the relationship of the two practices. But if they fall under affiliated group rules, then they need to be looked at together.

And this one does

Yes.

From the question. Uh-huh. So

Yeah. Most of the time, if it's a 100% owner of both, it's you're gonna be Yes.

When it's a 100% owner and they're both dental practices and same industry, same owner.

Right.

They have to be considered as a unit. And this is strictly for ERISA retirement laws so that you can't fund only for yourself and not help your staff.

That's to prevent discrimination.

It is. Yeah. Yeah.

Yeah. It's frowned upon too

Mhmm.

For the owners to solely benefit themselves and not their employees.

Right. Right. And because what you had happening before these ERISA laws, you know, for every little component of your business, you would start a new entity. And, oh, those employees haven't been there that long, so I don't have to fund for them. Mhmm. So you might have these large industries, large corporations that were able to exclude the vast majority of their staff from retirement funding, which is not what the intention of retirement is all about, 401ks and things like that. So there are ways to fund for yourself. It's just not gonna be tax deferred, tax advantaged.

If you wanna fund for your staff, you've got to take into consideration all, all of the rules. And this is one one area you really just can't skirt around. There's no gray area. There's it's just it is what it is. Yeah. In in that case, you have to bring all those employees. You either have to fund for them all, the ones that are eligible

Mhmm.

Or or none. You can't exclude any of them.

Right. Right.

Right. The ERISA laws go beyond just tax compliance.

That's true.

Their, their own category as well.

That's true. Yeah. And it's not just for SEP IRA. It's Right.

It's all retired. It's all qualified plans. Right.

Right. Good point. Mhmm.

Mhmm. Okay. Oh, this one. I just bought a 100 acre plot with a single family residence occupying only about 1 acre of the lot. Okay. The remaining 99 acres is undeveloped land. Now, if I Airbnb that single fa family residence, can I buy heavy equipment that is needed to develop the remaining 99 acres and ride it?

Mhmm. Welcome to the known environment.

Business side of dentistry brought to you by Edwards and Associates, PC. Join us as we discuss how to build your dental practice, optimize your income, and plan for your future. And This podcast is distributed with the understanding that Edwards and Associates PC is not rendering liable, accounting, or professional advice. Listeners should consult with their business advisors before acting on any of the information that is shared. And Edwards and Associates, BC, their business is the business of dentistry. For help with more information, visit our website at enassociates.com. Being

the the house. It's not ordinary or necessary to need that, heavy equipment

Right.

To maintain a rental property.

Yeah. It doesn't matter if it was all bought under one contract. It doesn't have to be 2 separate tracks. You just you just can't do it. That's the way around it.

What what if what if we're trying to be creative? We're like, okay. You know what? I'm going to flatten the land and I'm going to introduce some llamas and horses and Well, then it becomes

a farm.

The foot

and it's Well, the farm tour.

Airbnb has a separate package. Like, hey.

Oh. If you do an event petting zoo part of the yeah.

Yeah. Well, then we're if you

to the extent you can allocate the cost for your pen and your llama, those would do become part of the business.

And I doubt that would be 99 acres.

Yeah. Yeah. Right. You were

But that portion? But that portion would be.

Yeah. Yeah.

And there it probably we've kinda really depends. I have not seen a whole lot of Airbnbs with petting zoos combined, but it might make sense to separate those into 2 separate components of activities.

Good point. Yeah.

Yeah. Especially if it kind of starts falling under the farming Mhmm. Rules, because there's different depreciation rules that apply to farmers. Okay.

Yes. So quite specific. Mhmm. But I was quite specific. I was just thinking Airbnb. I've been hearing a lot of questions about being creative with Airbnb. I don't know if there's someone out there that's

That's promoting this?

Promoting this because I got so many questions.

Hear this. We hear strategies go through the dental community in waves.

There's a lot of people right now who've seen more of it in the last few years than had probably in the prior ten, people buying second homes and Airbnb being, part time so that they become a short term vacation property.

Mhmm.

And those rules are very complex too, and there's a lot of things that will depend on how many days of personal use, you're using the property.

That's right.

Yeah. Because we're saying you can deduct the expenses related to the Airbnb, but there are a lot of limitations. So, yes, you can deduct them. That doesn't mean you're gonna get those deductions. There's a whole set of rules that play into that

as well. And the due diligence part of it is also very different for short term rentals. You have accommodations tax and, you know, other

Oh, yes. It's traditional licensing. It's

not as simple

register as like a hotel.

That's right.

And That's right. Yeah. It's and for depreciation, it's not considered like a a residential rental.

Right.

It's considered more like a hotel business. There

we go.

So but then there are rules that will depending on the number of days of personal Mhmm. Use, if it's over 14, and that includes, like, friends and family as well, nonpaying friends and family, then the vacation rule limits will apply. And then if you jump that hurdle and your personal use is less than, 14 days

Mhmm.

Then you still may be subject to passive loss because rental activities for most people, unless you're a real estate professional, are not considered active business investment. So there's a bucket called the pass activity limit, that may get trapped your deductions may get trapped at that level.

Right. Right. So all the more reasons to talk with the professional consultant. I mean,

they all get allowed eventually.

Right.

But that doesn't mean they're gonna get allowed in the particular year they were incurred. Right. Yeah.

They may be just carried over into a future year where there is enough income

Mhmm.

Or often with rental properties, most likely see them getting released when it's sold.

Mhmm.

Because once you sell that property, that will release your prior losses.

Alright. Here's another one. This I've actually heard quite a few times. Okay. Majority of my revenue comes from electronic payments, about 99%. But the remaining 1%, which is cash, is it okay if I don't deposit my cash receipts and keep them for petty cash and or year end cash bonuses for my team members?

I'm trying not to laugh, but we

really actually have this problem.

This is a no. This is a legitimate, real question.

You know what? It it there you know, what we hear Mhmm. When we hear that question is not necessarily the intent of that question.

Right.

The intent is I have this cash. I'm gonna use it for my cash needs at the practice. What we hear is I have this cash. I don't want the IRS to know about it, and I don't wanna pay tax

on it.

And some people are on one side of that question, and some clients are on the other side of that question. So that's where the laughter comes from.

That's true.

If you're truly keeping a petty cash account, it would be just like a bank account in theory. The money goes into it. It's just deposited for discounted for. And then as you spend it, you provide the list of expenses to be deducted. Right. And then you replace the cash with the new income.

The problem is that's not right.

That piece doesn't happen. Yeah. Right.

So they keep the cash to use for cash needs, but they don't tell their accountant. They don't tell the IRS and they don't put it in the bank. And so we don't see the income. We don't see the expenses and none of that's accounted for.

Right.

And so that is absolutely illegal. There's just no other way to get around that, that you can't Yeah. You can't do that. So, and over overstating expenses, of course, is not not okay with the IRS Mhmm. But understating revenue is jailable. So we don't want to promote that kind of behavior.

Would you mind saying that again?

Okay. So if you over report your expenses, so you make up all these expenses, so you pay less tax. That is bad. You have to pay the tax back. You have to pay penalties, all this stuff. But if you don't report all your income, you can go to jail for that. Think of Al Capone, you know, those kinds of things.

There we go.

There's no dealable. Jailable. So yeah. We're not generally talking that kind of quantity for our dental practices. Yeah. Right. Some of our dentists have other businesses that are cash intensive. Think restaurants, things like that.

Mhmm. Those do rise to that kind of level. So cash needs to be deposited and then pay your expenses out of your bank account. That way, we're sure that we capture the deductions that are legitimate. And you're sure that you've reported everything so you don't go to jail. It's a win win.

It's a win win. Right? And, I mean, think about it this way. Let's say a patient comes to you who's about to pay you. Instead of paying you, right, you're telling them pay my vendors directly.

Right. Mhmm. Right? Right.

What kind of chaos do you think you run into on your practice management software? It is.

It's a mess.

Right. And, yeah, and, ideally, put the money in the bank, and then you pay your expenses through your bank. You've got the support

Mhmm.

Right, that you need for your deduction. So if you do get audited, you don't lose the deductions.

Yeah. That's a good point because we've got clients that that do account for their cash properly. They'd say, hey, we had this cash. Here here it is. Record it. Here's what we spent it on. Okay. Great.

But now there are no receipts. So if you get audited, those expensive Here's a tip. The IRS is gonna accept whatever revenue you tell them. If you say you made a $100,000 they'll say, okay, great. They're not gonna ask for that support. But if you say you spent it on something, they're gonna make you show that receipt. And if you don't have it because you just gave somebody cash and didn't get a receipt for it, well, you're not gonna get that deduction.

Mhmm.

So that's a problem. Yeah. And it's

we see we do have some restaurant claims, and that is issue we're concerned about with the

Specific industries are like that. It's more cash heavy. Right? The restaurant,

like, how's it going? Falls under ordinary. Yeah. It is within the ordinary to not deposit all your cash and to pay, some of your employees or delivery drivers in cash. At the ordinary, it's not really allowed, and you're gonna lose those deductions because you can't support them.

Yeah.

And the cash register report tells us what the income was.

Right.

Yeah. So so it's not being hidden. Yeah.

It's not actually hidden.

You know, it's just you get caught up in the operations.

Right.

You know, day to day, you're busy, restaurants are busy, whatever, wherever you're working with the cash, you're just working, and you're not thinking about all the red tape that you have to deal with and all the support. So you're not dotting all your i's and crossing all your t's, and that's fine. You're getting by. Believe Believe me. I I live there myself. Like, I just do do what you have to do to get the work done. Mhmm. But then it comes to the end, and you're like, oh, well, I don't have any

of that support.

Okay. Well Mhmm. We understand that, and it's normal. But if the IRS looks at it, you're not

gonna get it. If you're unfortunate and you get chosen, you're you're gonna lose those deductions. So we just So

urge people to be careful when they can to keep the records.

Yeah. We're not auditors, so we're not requiring every receipt. And we'll take some expenses to the extent of industry standards where x percent is norm ordinary use of cash.

But to back to your question, we would urge you to deposit the cash Mhmm. And pay the expenses. That's not a very bad. Route. Right. Yeah. It's just easier. You're gonna make your life easier.

It's easier. We we don't have to guess or ask questions.

That's right.

Worry if you do get audited, how bad it's gonna be.

Yeah. Because your accountant is gonna know what your revenue is. It comes out of your dental management software, and you're reporting that revenue into your management software. Mhmm. It's more than what you put in the bank that it it's easily seen. And by the way, if we can see it easily, the IRS can see it easily.

Don't forget that.

So, so you're not, you know, you're not really hiding anything. So don't make your life complicated.

True. True. I completely agree. And then I'm also thinking of a practice that does a lot of cosmetic work. You know, every now and then you get those rare people that come in with a stack of cash.

Absolutely.

And then you have other reporting requirements. Right? You have FinCEN reporting requirements. If that amount is that one amount is more than $10,000 So if you're like, no. I'm gonna keep this for petty cash and whatnot. Guess what? You're preventing that report reporting requirement and all the more reasons to be scared.

Right. Yeah. You Right. Because then that starts falling into the fraud area, which is where you go to jail.

That's right. Well

and you've got operational concerns. You you keep that much cash sitting around your practice. You're just taunting your employees to steal from you

Very good.

Or losing it or, you know, whatever. So Yeah. Fire. Yeah. Yeah.

And that actually brings me to another point. I don't know. Is it just my clients or everyone? Because I've actually heard people. I don't know even, I don't even know if I should be talking about this over the podcast. But there are some people, let's just say some people that once it gets to that point of a material amount, they're too scared to deposit it in the bank. They're afraid they may get mugged or somebody they know. And guess what? They just keep it in the practice. Mhmm.

All that cash.

Yeah. To me, that's a big risk. Yes.

So to prevent that as soon as you get them, so don't wait till, like, oh, okay. There's a magic number I'm gonna wait for, and then I'm going to do a deposit. No. Instead, maybe create a system. Like, every day, right after work

Right.

You're Do

a deposit drop.

Well, you go on Wednesdays Fridays maybe to the bank. Yeah. Or well, I mean,

to prevent fraud in your practice, which is very common in a general practice Mhmm. One out of 6 practices is being embezzled from right now, if you're listening to me. So you should be reconciling your your daily production, your daily collections to your bank every day. At least, at least every few days or at least once a week, every day is ideal. So if you're holding that cash, you can't tie it out. So your collections say you got $10,000 your bank shows you got $6,000 Where's your other $4,000 Well, you have to just remember, oh, it's in my cash drawer. And then when you get to the end of the week, then hopefully at some point, I mean, it becomes difficult to know, oh, wait, did I put that cash in the drawer or did an employee take that? I mean, that's what you're that's why you're reconciling every night and watching those deposits every night to match. So if you're making them not match, that makes it easy for them to also make it not match and you lose track.

That's right.

And then you get embezzled and then it's then you're calling us for other reasons.

Sure. Sure. So all the more reasons is make it easy

Mhmm.

By yourselves. Mhmm. Just deposit them as you get them. As one mention. Twice a week, maybe. Ideally, once a day.

Yeah. Ideally, every it really depends on the cash

Yeah.

Amount of cash.

Yeah. Yeah.

I mean, if if it was, like, over 2, $3,000, I'm already going that same day. Mhmm. But, certainly, at least a couple times a week.

Then you can justify some business mileage. Right.

It's the best support the mileage. Good point. Yeah. Because that's not Kamima.

Right. That's that's legitimate business. Yeah.

Yeah. Okay. Good point. Good point. All right. Onto the next question. I just took my entire staff to Topgolf. Well, Topgolf is more popular around here, but it could be a nail salon, a spa.

Yep. Right? We've done all those things ourselves.

Right. Can I write it off?

Generally, yes. If it's if all of your staff is included, it's a staff event. And that is deductible, and it's not subject to the same limitations as other meals and entertainment.

Yeah. It's one of our few things that we're gonna not have any qualifiers on. We're gonna be like, sure. You're gonna get that done. Staff went great.

Yeah. It's not had

a great time. Anything. Yeah. So it's, yeah, it's those are not subject to limitations. And the same if you had an old patient event. My, orthodontist just have, like, a party Yeah. Like, an annual party, and so something like that would be Deductible. Mhmm.

Fully deductible because so long as it's not exclusive.

Right.

It's when you start excluding people is where you start getting into your limitations.

Right. And that's where that discrimination comes in. Mhmm. So kind of similar to the qualified retirement plans in the business. Okay. Next one. My cash reserve is a little tight this month. And I need some repair work done in the office.

Mhmm. Can I hire a contractor to do the work in exchange for any dental work they may need?

So, yeah, there's no rules against hiring and bartering. Mhmm. But you are required to then report that income that you would have charged them. So you would book the income for the service, like, the dental services, and then you would have the offset to the expense.

That's right.

Yeah. So that that's perfectly allowed.

It's allowed if it's a contractor subject to 10.99, it would be 10.99 reportable

Yeah. To that contractor. The contractor probably wouldn't like that part.

Yeah. They're probably Because they're not that part. How excited it is. Goes if it's over the $600, which most things these days are. That's right.

Yeah. That's right. Okay. So yeah. Even though it's possible, it's complex and requires careful documentation. So we usually don't promote it, but is it allowed? Sure. Absolutely. And careful documentation is

easier. As long as you report it correctly, it's totally fine.

Mhmm. Right. And to just highlight a little bit on that, understand this, we're not getting used to our fees. We don't have adjustments. You would actually have to create a special code into your software to enter this kind of a broader system income. Mhmm. You have to create a separate profile for this patient because this patient

It's a real patient.

It's a real patient.

A real

patient. And it will also be a vendor too, which will need the 1099 reporting information.

That's right. And at the same time, the services you're going to provide, the materials that will be used, are you just going to allocate that at cost? Or are you going to use the fees from your NASS, NDAS schedule? There's just a host of issues that can arise from this.

Right.

So again, completely up to you guys. Right. If you guys wanna do it. But we, we ask that you don't.

Makes life a lot easier.

Ash is not wanting to do the extra accounting.

Well, they probably don't want to either.

They'll have to do that. There's a lot of internal right there. Yeah.

Yeah. There is. It's sometimes just easier to just write a check or use the credit card or something. Because Zelle I guess people get paid Zelle a lot now.

Yeah. Yeah. Zelle is getting quite popular. That's true.

Like electronic check, we'll call

it. Mhmm. Mhmm. Yeah.

I do miss check numbers.

You do? Right? Yes. I'm tired of saying draft. Yeah. 1, draft, 2.

There was just, like, a ordering to that. Yeah. And if one was missing, you knew it. Uh-huh. Like, you could look for it like a little lost sheep or something.

Okay. You know, that actually used to bother me because I had client well, in the past when they used to write a lot of checks where they would just randomly pick out a check from the book. And I'm like, okay. I see 1052. Why is the next check 10.70? What happened to the other check?

Yeah. Yeah. Oh, and then there'd be great answers like, oh, I lost that checkbook. You what? Wait. This is not good.

Right.

Where did you lose it?

So, yeah. So there are pros and cons to that, I would say. Alright. Let's see. Alright. Just a couple more questions, and then we're going to wrap it up. Alright. Here's the next one.

I own a practice where I do get my business deductions. However, and this is me thinking, how about I assign one of my rooms in my house as home office and then claim additional deductions?

If you have a primary office elsewhere, you cannot do that.

There we go. Short and sweet.

Today, some of our answers are yes. Some of our

answers are not.

Right.

Yeah. A lot of answers are depends, but that's a no.

Yes. That's a clear no.

That's a hard no.

That's a hard no because you already have something that is exclusive Mhmm. And where you do your regular business. Right. If you

have a primary business off now the contractors, the associates with no official place, they're the ones who are gonna qualify for a home office Right. Or somebody in similar type of profession, like a real estate agent Mhmm. Often go, the spouses Right. Real estate agents, they likely don't have an outside office. So then in that case, they're qualified. Mhmm.

That's right. Good. Good. And the last one for our episode today. I opened a practice about a year ago, and I recently received a letter from the county saying I owe them taxes for something called business personal property. Am I being scammed?

That's a, that's a I like these questions. I mean, yes, this requires some education, but I want you to ask me if you think you're being scammed. Don't just assume everything is real. Right now, there's a scam going around about Texas UCC license filings. So scams are real. This is not one of them. Yeah. Business personal property is a real thing.

It's not a scam.

Right.

You do have to pay it. You do have to report it every year. So what this is is a tax. It's definitely in Texas. It's in most states. It's not in every state Mhmm. Where the county primarily is taxing the hard assets of your practice. So your dental chair, your treatments, your cabinets, those kinds of things, your computers, your furniture, they assign a tax to they assign a value to those things and tax it on that value.

And that's what pays for your school district and your, county roads and things like that. So So that is a legitimate tax. It is in Texas, and this is common. So I'm gonna go ahead and state the Texas rules, is you have to render it, once a year, generally in the spring. You have to report the assets that you have and the value of those assets, and then the county will assess the tax and send out statements late in the year. Generally, those payments are due by January 31st, but you wanna pay them before the end of the year so you get that tax deduction. So, yeah, that's a real

Okay. Excellent. That's great. Alright. Well, thank you so much for being on our episode today. A lot of valuable information was shared. It was great to have you both here.

It was fun. Great. Thank you.

Welcome to Beyond Dental. Thanks for listening to the inside of Dentistry. To subscribe to Beyond by Wins and Associates' favorite podcast, join us as we discuss more information. You can follow us on Facebook and Twitter and plan for the future. Listeners should consult with the business advisors before acting on any of the information that is shared. At Edwards and Associates, PC, our business