Subscribe
Share
Share
Embed
Dentists, Puns, and Money is a podcast focused on two things: The financial topics relevant to dentists leaving clinical practice and the stories and lessons of dentists who have already done so.
1. The stories of dentists who have transitioned from full-time clinical dentistry.
2. The financial topics that are relevant for dentists making that transition.
If you’re a dentist thinking about your exit from clinical, and you’d like to learn from the experiences of other dentists who have made that transition, be sure to subscribe to your favorite podcast app.
Host Shawn Terrell also dives deep into the many financial components of exiting dentistry, including tax reduction strategies and how to live off your assets.
And, we try to keep it light by mixing in a bad joke… or two.
Please note: Dentists, Puns, and Money was previously known as The Practice Growth Podcast until March 2022.
Shawn Terrell (00:06.467)
Dr. Bill has always been somewhat of a parrot head. That is someone who really enjoys the music of Jimmy Buffett. And the most famous Jimmy Buffett song includes a reference to looking for someone's lost shaker of salt. And if you've been paying attention to the one big beautiful bill, then you know that the term salt has been tossed around quite a bit when talking about how it all works moving forward. So.
Shawn Terrell (00:39.852)
Dr. Bill has always been somewhat of a parrot head. That is someone who really enjoys the music of Jimmy Buffett. And in the most famous Jimmy Buffett song, there's a line about looking for his lost shaker of salt. And this is apropos because if you've been paying attention to the one big beautiful bill and some of the new legislation associated with it, then you know the term salt has been tossed around quite a bit when discussing it.
Hi, I'm Shawn Terrell and I am the host of Dentists' Puns and Money. This podcast is brought to you by Dentist Exit Planning. At Dentist Exit Planning, we help dentists leaving clinical in the next few years build their financial treatment plan for life after dentistry. In this episode, we continue our podcast series on the one big beautiful bill by talking about the salt deduction inside the bill.
So a little background first, SALT is an acronym that stands for State and Local Taxes. Now prior to 2018, if you itemized on your taxes instead of taking the standard deduction, one of the things that you could do was count whatever you paid for state and local taxes.
Shawn Terrell (02:01.55)
So a little background, SALT is an acronym for state and local taxes. Now, prior to 2018, if you itemize on your federal taxes instead of taking the standard deduction, one of the things that you could count as an itemized deduction was the amount of money that you paid annually for state and local taxes. So many states have income taxes that have to be paid in addition to federal income taxes. Some states do not.
And then some locations also have local income tax that has to be paid in addition to federal and state tax. But generally speaking, the local tax is a little bit more rare, although property taxes on a home or other property that you might own does usually fall into the salt category too. But before 2018, what you could do if you itemized in your federal taxes was take the total amount that you paid for all those state and local income taxes and in a given year,
and then deduct that total amount against the income that you earn on your federal taxes for the purposes of figuring out how much you owed in federal income tax. And there was no limitation on it. So if you paid $100,000 a year in state and local taxes in 2017, you could itemize and deduct that full amount from your federal income taxes. What changed in 2018 was that a cap or a maximum amount was applied to that
salt deduction moving forward. And that new cap, instead of being unlimited, it was $10,000 a year. So you had people living in high state and local income tax places like New York or California that were deducting tens of thousands of dollars per year on their federal taxes each year. And then all of a sudden they were limited to deducting only $10,000 max per year. as a result in 2018,
For some people, their federal tax bill went up quite a bit.
Shawn Terrell (04:08.589)
So what the One Big Beautiful bill does is increase that salt amount that can be deducted for those that itemize. It's not unlimited like it was in the past, but under the One Big Beautiful bill, the cap on the salt deduction is increased to $40,000 per year starting in 2025 for those that are married and file their taxes jointly. Couple things to note here, there are some max deduction.
differences for different tax filing statuses, like if you're single or you file single, even if you're married. So be sure to check on that for your max deduction. And then also that max deduction, depending on whatever your tax filing status is, starts to phase out eventually. And eventually it just goes away and reverts back to the maximum of $10,000 per year like it was before. Speaking of which, while we're mentioning things like this, the new deduction limit,
It's scheduled to revert back to $10,000 a year, that old limit in the year 2023, or excuse me, speaking of which that new deduction limit is scheduled to revert back to the old limit of $10,000 in the year 2030. Now I've started to view all tax law as effectively temporary, but this higher deduction limit amount is officially, if you want to call it that, temporary.
But then again, it's history.
If history serves as any indication, I would expect this topic to be politicized by both parties as that expiration date at the end of 2029 gets a little bit closer. One part of all this that is seemingly good news for many dentists is that owners of pass-through businesses, which dental practices tend to be, is that part of the big beautiful bill does not include any restrictions on state level.
Shawn Terrell (06:08.3)
pass through entity taxes. So for background, after this SALT cap was moved down to $10,000 maximum in 2028, so for background, after this SALT cap was moved to $10,000 per year maximum in 2018, what a number of states did was pass laws that allowed owners of pass through entity businesses like S-corps or partnerships, which general practices tend to be taxed that way.
it passed these state laws that would effectively circumvent this salt deduction cap by structuring state taxes in a way that they were paid by the pass-through entity business. So that those state taxes then became deductible business expenses effectively and that meant that
Try this again. So for background, after this SALT cap was moved to $10,000 in 2018, a number of states passed laws that allowed owners of pass-through entity businesses to effectively circumvent the SALT deduction cap by structuring their state tax payments as deductible business expenses. And what that meant was that business owners with pass-through entities, like dentist practices or dental practices,
that previously had a high salt deduction could avoid having their state taxes count towards that new salt cap. It was effectively a workaround loophole. And the big takeaway with the One Big Beautiful bill is that the loophole, that loophole specifically was not closed by this. So dental practice owners with S-corps or partnerships that dental practices tend to be and that make
good money and that live in places with high salt taxes, this is I guess a really good thing unless you like paying more in income taxes than you have to. So some takeaways and some reminders before I wrap things up. The one big beautiful bill might mean your taxes are lower, but all of this actually I think requires a lot more analysis throughout the year and especially at the end of the year in terms of making sure that that lower tax bill is actually realized.
Shawn Terrell (08:29.299)
And this is analysis that could be done by you, by tax software, or by a tax professional, preferably all three or some version of all three. A reminder also that when it comes to taxes, I believe the goal is to pay the least amount of taxes in total over your lifetime, even if that means you might have to pay a little bit more taxes in a given year than you otherwise would have had to.
And then finally, the final reminder here is do not make tax decisions in a vacuum. Don't assume that just because you can now deduct $30,000 more in state and local taxes on your federal income taxes, that your federal income tax total bill will be lower than it was before. Making tax decisions in a loophole in the vacuum, making tax decisions in a vacuum could cause you to blow out a flip-plot.
Shawn Terrell (09:25.275)
And finally, don't make tax decisions in a vacuum. Don't assume that just because you can now deduct $30,000 more on your federal income taxes than you could before, that your total tax due for federal taxes will be a lower amount than it was before because that's not always the case. And if you make tax decisions in a vacuum, you could blow out a flip-flop, step on a pop-top, as Jimmy Buffett might say, if he were still around.
Shawn Terrell (10:03.155)
A final reminder, do not make tax decisions in a vacuum. Don't assume that just because you can now deduct $30,000 more in federal taxes that your overall federal tax bill, the total amount due will be lower. It might be, but you just can't assume that with everything baked into the cake at the end of the day. Making tax decisions in a vacuum could cause you to blow out a flip-flop, maybe step on a pop-top.
That's what Jim D. Buffett might say if you were still around. If you'd like to learn more about how the One Big Beautiful Bill Act applies to you and to your situation, we have a free checklist that we can send you. Whether you're watching on YouTube or you're listening to this on a podcast app, go to the show notes for this episode and then look under episode resource. And if you click on that link, we will email you a checklist to sort of take your personal situation and...
Put it against this checklist to see if any of these situations or the news things with the one big beautiful bill apply to you and your situation So you can be aware of them at tax time
Also, if you're a dentist leaving clinical in the next few years and you are interested in a personalized consultation with Dentist Exit Planning, you can schedule a no-obligation virtual meeting with me. And to do that, just go to DentistExit.com, click on free consultation at the top right corner of the homepage, and you can pick a date and a time that works best for you to have a virtual meeting with me. Final reminder before I go that Dentist Exit Planning is a registered investment advisor.
The information presented here should not be interpreted as investment, legal, tax, financial planning, or wealth management advice. It's for educational purposes only, and past performance is not indicative of future results. Thanks again for watching and for listening. I'm Shawn Terrell, and we will talk to you again very soon.