Cost Segregation Tax Strategy for Dentists - Part 4

In this episode of the Dental Boardroom Podcast, host Wes Read, CPA and financial advisor at Practice CFO, delves into the advanced mechanics of cost segregation and how dentists can use it strategically to optimize long-term tax outcomes. He explains the key differences between bonus depreciation and Section 179, explores how state tax rules can impact overall savings, and shares what to look for when selecting a qualified cost segregation firm. 

Wes also highlights how cost segregation can play a role in building purchase negotiations and why aligning tax strategies with a broader financial plan is critical for sustainable growth.

What You’ll Learn

• How cost segregation works and why it’s more than just a tax-saving tactic
• Why front-loading deductions can create long-term tax problems if not planned properly
• How multi-year tax planning helps optimize savings and avoid future tax spikes
• The impact of rising income on tax brackets and the loss of valuable deductions
• How to align tax strategies with actual cash flow to avoid financial mismatches
• Why state tax rules can significantly change the outcome of your tax strategy
• How cost segregation can influence building purchase decisions and negotiations
• Why taking a holistic, long-term approach is essential for maximizing financial outcomes 

Key Takeaways

• Bonus depreciation allows you to create losses and offset other income, while Section 179 only reduces income to zero and requires election.
• Cost segregation can accelerate 30–40% of a building’s value into shorter depreciation schedules, increasing early tax deductions.
• Front-loading deductions without a plan can result in significantly higher taxes in later years.
• Multi-year tax planning helps smooth income, maintain lower tax brackets, and preserve valuable deductions.
• Large early deductions may reduce future eligibility for benefits like QBI and child tax credits.
• Financing equipment while taking full Section 179 deductions can create a mismatch between tax savings and future cash outflows.
• State tax laws may not follow federal bonus depreciation rules, reducing total expected savings.
• Choosing the right cost segregation firm is critical look for engineering-based studies, detailed reports, and audit support.
• Avoid firms that use contingency pricing or promise aggressive results without proper analysis.
• Conducting a cost segregation study during the purchase process can improve negotiations and reveal true after-tax costs.
• Allocating more value to shorter-life assets increases depreciation opportunities, while land provides no depreciation benefit.
• The party who pays for tenant improvements receives the tax benefit, making structuring decisions important.
• Tax strategies should always be aligned with a broader financial plan to avoid unintended long-term consequences.

Transcript:

Wes Read:  Welcome back everybody. I am going to carry on my last segment of the cost segregation analysis, what it is and why dentists should consider this when purchasing their building or doing a construction build out on a new space. We've covered a lot of ground in the last three episode. This one will get a little more nuanced on a couple areas around depreciation, the types of depreciation, specifically the difference between bonus depreciation and section 1 79, depreciation.

Depreciation. We're gonna talk, uh, very briefly about how states conform or don't conform to these rules, and we'll also talk about some of the red flags and green flags when you're looking for a. Cost segregation analysis firm to perform the research and to provide the report, which would become the basis for the tax, um, approach to the depreciation and the tax savings.

And, uh, also how cost segregation can play in a key role in the negotiation and purchase process when buying the building. And then lastly, some really key tax planning comments that I wanna share with you to make sure that all of this is being seen relative to an overall plan. Okay, let me first kick off by talking about bonus depreciation.

In the last three episodes, I talked a lot about how when you, when you buy that building and you, uh, commission this cost segregation study, and you are able to break up the purchase price of the building across the different types of, um, assets that the government, that the IRS will. Put the purchase price into, so let me put some real context here.

You buy a building for $2 million. Now, my last episode, I mentioned that you could usually front load, uh, or shift about 30 to 40% of the building. Into asset categories that allow a faster access to tax deductions. For example, the two by fours on the building you bought are going to be deducted over 39 years.

That's a long time to get the benefit. However, the cabinetry might be deducted over five or seven years, and so you get that a lot sooner. So how much of your $2 million purchase price for the building should go toward the. Kind of shell and the walls and how much should go toward some of the incidentals that are then attached to or added inside of that shell.

What about the wirings going through for all of the it? What about the hvac? What about different aspects of the building that we could parse up and put into these different buckets such that you can maximize the tax of benefit of those different buckets by depreciating them? Not all of the buckets allow you to front load the depreciation into the current year through what's called bonus depreciation or section 1 79 depreciation.

I'm gonna cover both of those briefly here in a moment, but I do wanna, uh, take a moment and pause on bonus depreciation. Bonus depreciation is the best of. All depreciations because it allows you to actually have a loss to go negative on your corporate net income, which then flows out to you on your personal tax return, which can be used to offset some other income.

That could be very valuable. Section 1 79 doesn't. Now I'm gonna elaborate on that a little bit more. However, bonus depreciation was scheduled to run out in 2026. 2025 was only gonna be 20% of anything you purchased. Um, in the past would be a. Could be bonus depreciated. However, Trump's one big beautiful bill, the OBBB uh, reinstated bonus depreciation on a go forward basis.

So if you do buy your building or construct a building going forward after 2025, you'll still be able to now elect as much bonus depreciation you want for the. Portion of the purchase price of your building, that gets allocated to the five, seven, and 15 year asset categories, and that can be significant Now.

Ho. Hold onto that thought. When I get to the end here and I talk about tax planning, you don't wanna let the tax tail wag the dog just because it's an ara. A strategy you can elect to do doesn't mean you should because it may actually harm you over a multi-year analysis. I'm gonna talk about that and it's incredibly important and something a lot of CPAs neglect because they don't do multi-year analysis often.

They're simply looking at the current year and figuring out how to maximize your deduction today. When a good financial plan is gonna forecast out and say, over the next 5, 10, 15 years, what is the most optimal tax strategy? That net net, at the end of that time period, you are best off. So with bonus depreciation, just know it is fully enforced that bonus depreciation can be elected, uh, at any time when purchasing, uh, fixed assets or what are called capital assets, the purchase of a building is absolutely a capital asset.

Okay, now let's talk a little bit more about the subject of. Section 1 79 versus bonus depreciation. Again, I'm not trying to make a CP out of CPA out of you, however, as the CEO of your business, there are certain terms I do believe you should understand. Now, you probably heard about section 1 79 because your dental supplier.

Will come near the end of the year and tell you why you need to buy a new set of dental chairs or buy that CAD cam or buy that cone beam or whatever, whatever that is. In order to get this 1 79 deduction, you need to buy it and have it placed into service by December 31st, and they will present it as. A little bit of a magical tax deduction that's sort of pulled out of a black hat.

The reality is all Section 79 1 79 is doing is it is accelerating when you get that deduction. So if you bought that dental chair, instead of deducting it over five years, as the IRS typically requires, if you elect into section 1 79, you can deduct the full cost of that chair in the year that you bought it and placed it into service.

That's what Section 1 79 is. Again, I gotta emphasize, it's not giving you any new tax deductions. It's simply changing the timing of the tax deduction to receive it a hundred percent in the year that you purchased that Capital Asset Bonus Depreciation is similar in that it allows you to accelerate depreciation also, but let me go through the differences between Section 1 79, depreciation and bonus depreciation.

Section 1 79. As I said earlier, you have to elect it. If you don't elect it, then whatever you bought in that year, let's say it's a, let's say it's a a a hundred thousand dollars CAD cam. You got the milling unit, you got the whole thing, and you, you want to deduct that. In the current year, you, if you don't elect anything by default, by default, you will not get the section 1 79 deduction.

And so you want to make sure that you elect that. Now, when it comes to bonus depreciation, when you buy your building there, there are some things that will automatically AP apply when bonus depreciation is allowed by law, and it has not always been allowed. It fluctuates up and down, depending on the president in office, the more aggressive tax.

Uh, president is going to want bonus depreciation and vice versa. And when it is allowable, it's automatic, and you actually have to opt out of bonus depreciation as opposed to opt into it. Let's go on to the second item here. The difference between Section 1 79, depreciation and bonus depreciation. Income limits a section 1 79 deduction.

Cannot create a loss. On your corporate income, so let's say your December 15th and you, your net income is $75,000. You look at your profit and loss statement. On the very bottom it says $75,000. Now, that's quite low. I would hope that you would have more profit than that, but let's just say it's $75,000 and you buy that CADCA for a hundred thousand dollars and you elect section 1 79 deduction.

Well, if you do that, it will bring your taxable income down to zero from your corporation, but it won't go negative. Section 1 79 cannot create a negative K one for you. You can't deduct that loss. However, bonus depreciation allows losses so there's no income limitation. You can create losses that carry forward or carry back.

Speaking of Carrybacks, that's the third item here. With section 1 79, any 1 79 deduction that you were not able to use, because it can't be, it can't create a loss, can carry forward to future years. And when it comes to bonus depreciation, losses that are created by bonus depreciation, you can use them to offset, uh, other income.

On your 10 40 tax, certain other income on your 10 40 tax return. But if you don't have other income to offset, you can actually carry that forward as well as what's called a net operating loss on your corporation. So if, if there's a loss created from either section 1 79 or bonus depreciation, uh, you're going to be able to use that loss.

Even if you can't use that loss in the current year, it gets suspended. Held in theoretical jar and in the future when you have income, net income, you'll be able to pull that suspended loss out and use it to offset income in future years. Let's talk about also phase outs. Neither of these really have asset phase outs for, that will apply for a dentist.

For a larger business, there's a phase out of around, I think it's three and a half million, and there's not many dentists buying equipment. Or doing a renovation that's gonna cost more than three and a half million dollars. Um, now for bonus de that's for section 1 79 deduction. There is at a very large amount, a very high level, a 1 79 deduction phase out if you bought that much.

But like I said, what dentist is paying for things like dental chairs and x-ray machines and you know, a few loops or whatever, that's over three and a half million. Not any. So that really is irrelevant for dentists. If you're a large manufacturing company and you had these huge manufacturing build out costs, that could apply.

Not the case here with bonus depreciation. There is no asset purchase limit, but the bonus percent is phasing down. It was phasing down annually is now kicked back in. Okay, now when is 1 79 best used and when is bonus depreciation? Best to use if you have strong taxable income and wanna reduce it to near zero, but not below zero.

Section 1 79 is perfect. And Section 1 79 is something we use all the time at practice CFO for our clients. The one thing I will tell doctors to be aware of, and you've heard me talk about this, this, uh, tax trap, if you. Finance equipment. Let's say you finance that CAD cam and it's a hundred thousand dollars and you have paid no money out of pocket 'cause you financed it and then you section 1 79 deduction, deduct the full 100,000.

You're gonna, your CPA is gonna look like a hero in that year. You're, you're not outta pocket at all, and yet you just got a hundred thousand dollars deduction, probably gonna save you somewhere around 30 to $45,000 in taxes. It's gonna look fantastic. But then in the next years. When you're paying the loan on that equipment, you get virtually no tax deduction and your money is going out.

And so it reverses and it catches up to you. And sometimes you have to buy more and deduct more section 1 79 to recover from the prior year when you did that. And it can snowball outta control. So you gotta be extremely careful. I typically say I match the cash flows from your bank account to the tax deduction.

So if you finance it over five years. I'm typically gonna depreciate it over five years if you pay for it outta cash. I'm gonna section 1 79, deduct it to match the full deduction since you pay for it in cash. Now, when is a bonus depreciation best to use when you want to create the largest possible loss, especially with the LLC rental structure.

And creating a loss. Again, you can't do that with 1 79, but you can do that with bonus depreciation. And depending on where you are in the tax bracket and other, uh, assets or elements in your tax ecosystem, you may want to generate a loss out of your building. In order to use that loss, uh, where possible.

Now I'm not gonna go into all of the ways that you could use that loss. It is a bit restricted from other rental real estate properties because if you are the tenant and the owner, you are not able to use any net operating losses from the building LLC against income from other passive third party tenant rentals that you own.

Alright, so the key insight here with the LLC rental structure bonus depreciation is almost always preferable because it can create a loss to shelter rental income with no income ceiling. Alright, which states sort of conform, which don't. This is one of the chaotic things about the United States of America is you have federal tax laws and then you have tax laws at the state level.

And although there is quite a bit of alignment, there is also a lot of misalignment. For example, the federal. Uh, system. The IRS has a lower tax rate on long-term capital gains. That's when you buy an asset, an investment asset. You hold it for more than a year, and then you sell it. So a simple example is you buy Apple stock, you hold it for a year, it goes up by 20%, you sell it.

That gain is taxed at a lower rate, which for most dentists is 20% federal. However, most states don't have a difference. Uh, at least California doesn't. And a lot of them don't. They don't distinguish between a long-term capital gain and ordinary income. Ordinary income is the higher rate that you typically pay on your W2 and K one income from work.

So let me, let's look at how the states may differ here. Federal, from the federal rules around depreciation and cost segregation. Federal cost seg segregation benefits do not automatically apply at the state level. Many states have have decoupled from federal bonus depreciation entirely. For example, California does not conform California decoupled from federal bonus depreciation entirely.

A 300,000 federal deduction may produce zero. California deduction. So dentists in California should still do cost SE for federal benefit, but must plan for the state tax shortfall. This is why good tax planning needs to look at both federal and state tax planning, especially if you're in the high income tax states like California and New York.

New Jersey does not conform with federal rules either. Often using pre-tax cuts and job Act as the 2017 uh, Trump tax, uh, bill bonus depreciation claim federally is added back on the New Jersey return. Texas and Florida, they have no state income tax, so it don't matter. Same with Alaska. Those ones are easy.

New York partially conforms. The state deduction is often less than the federal deduction for bonus depreciation. And Illinois, same thing. And all other states, you just gotta verify that with your CPA, or you can search that up in your AI model as well. But sometimes these AI models hallucinate and they get it wrong.

I find that quite a bit. They use old data, for example, so be sure to consult with your CPA on this at the state level. But bottom line, any, um, always model both federal and state tax impact before projecting total savings from a cost segregation. Okay. Now, when you're going to find that company that's gonna help do the analysis and you're gonna pay them some money, you wanna make sure that they are qualified.

This is absolutely critical In every field, there are people who are very effective at what they do. They have mastered their domain, and there are people who have not mastered their domain. They haven't done the proper. Studies, the proper credentials, the proper education, and they may be able to put forth a good sales pitch, but they may not be great at what they do.

This happened a lot with the employee retention credit, the ERC. There are a lot of shark companies out there saying, Hey, I'll do your ERC and you'll pay me 25 to 30% of whatever your credit is. It was complete predatory, um, practice. A lot of doctors fell for it. They ended up paying. 40, 50, 70, 80, a hundred thousand dollars to these companies who then walk away.

They hold no liability, and now you're left holding the bag in case the IRS does come and audit you and makes you pay it all back. You're not gonna get that money back from those sharks out there. There's a lot of these people, so many people in this world wanna get rich. Fast. And so they, wherever there's an opportunity that comes up, a new tax law, whatever, and they capitalize on it by presenting something that sounds shiny and wonderful only to really line their pockets at the doctor's expense.

I shared a few episodes back. I think private equity is doing that a lot in the dental space with these incredible smoke and mirror, but what look like promising offer letters when you really run the numbers, really look at 'em, you realize. These things are really accreting money away from the dentist into the pocket of a bunch of fancy intelligent business people.

So be very careful here. The same thing when it comes to a cost segregation analysis. So here are some of the green flags in companies that you might be looking at. You wanna make sure they have a licensed engineer on staff who does conduct a physical site inspection. Red flag is when there's no engineers and the study is done entirely by a CPA.

A CPA isn't looking at, um, design and engineering documents of a building in order to properly do that. And if the IRS were to audit you, they're gonna wanna see that that was done. Alright, another green flag. Uh, a good company doing a cost segregation analysis is they reference the ir, the IRS cost segregation audit technique guide compliance, and red flags is when they do a desktop or a modeled study, no physical inspection of the property and they don't really reference, uh, and use the IRS cost segregation audit technique guide.

Alright. Another few. I'm just gonna go through the green flags directly and then I'll do the red flags. So, a good company is gonna deliver a written asset by asset report, not a summary spreadsheet, but a much more detailed asset. By asset. They're gonna outline it. They're gonna, they're gonna inventory everything so that we know what's going in each of the asset buckets.

Alright? A good company is gonna have explicit, explicit written audit support policy. They will defend the study if questioned. That's absolutely critical. They typically will have a flat fee structure, not contingency based. Again, that is so important. Stay away from contingency based vendors. Typically speaking the it, because what it does is it incentivizes them to put you at risk with the IRS.

And I mean, one could argue that the good thing about that is they're gonna try to maximize the tax deduction. I get that. But what I believe and have seen is that companies that are. Paid as a per a percent of the tax savings tend to bear more risk than they should. In their recommendations because they know that you are the one who's carrying the risk and they simply get their share of the reward.

So be careful there. You want a flat fee structure. Lastly, a good company will have performed studies specifically on dental office properties, so they have background in dental offices because there are a lot of unique aspects to a dental build out there are. Alright, a few more red flags. Red flags, contingency pricing.

I talked about that. Uh, refusing to provide written audit support or defenses only up to 50%, uh, with or defense only to 50% confidence, so they're not standing by their, the defendability of their study. They promise an unusually high reclassification percentage without even seeing the pro the property.

So, so if they're like, yeah, hey Doc, I think that we could reclassify 60% of the purchase price into these other, um, into these other asset categories. To then accelerate those depreciation on those categories. 'cause remember, you cannot depreciate or bonus depreciate the 39 year category, which by default is what the non land portion of the building will go to.

So the whole cost S is to say, what portion of the non land amount of the purchase price for the building can we put in these other categories in order to then depreciate those faster? So if they're promising you things that sound too good. To be true before they've even inspected the property. You should probably turn and run on that.

Lastly, your general CPA is doing the study without a specialist on the team. Yep. Again, there you want to avoid that. So the IRS bottom line has specific audit guidelines for cost segregation and a quality firm will proactively reference them. A low quality study invites far more scrutiny than no study at all.

Okay, and lastly here. When you go to buy the building, before I get to our tax planning comments here in a moment, when you go to buy the building, it is best practice in my opinion, to do a preliminary cost segregation analysis before you actually sign the dotted line. So while you're in due diligence, you may have an offer in on the building, and now the attorneys are doing their thing, negotiating the purchase contract, and, uh, you're getting lending.

So there's underwriting taking place. All that's all that's happening, and it's, you know, usually a, a six to 12 week period for all of that to, to finalize, here's some things that you can be doing during that period to understand what the tax implications are of buying this building if you do a cost segregation analysis.

So when buying a building from the market or from your landlord. A cost seg analysis should be part of your pre closure due diligence, not an afterthought. So step one, per purchase price allocation in the contract, how the purchase price is split between land building and personal property in the purchase agreement is directly, it directly affects your depreciation.

And I've said this in the prior episode, that land is never depreciable. However, therefore a higher allocation to personal property means more accelerated depreciation, and that is the name of the game. How can we move more away from land, more away from the 39 asset class and more into the five, seven and 15 year asset class, which is that five seven year, you're, you're really looking at personal property in there, and when I say personal property, don't think of like your car or your home.

Not, not that type of personal property. It's property that you could sort of. Unplug. Pick up, move out, walk outta the building with, that's what I mean by personal property. Business, personal property, which sounds like an oxymoron, but it's not a, uh, a higher allocation of that personal property is what you want to get.

This should be negotiated before you sign to buy that building. Not discovered after closing. So in the same way when you bought your dental practice, you have to say how much of the purchase price is going to Goodwill and how much is going to dental equipment, and how much is going to furniture and, and fixtures, and how much is going to a non-compete agreement, and how much, if any, is going to purchase the accounts receivable.

You have to take the purchase price and and spread it across those different assets. Well, same thing with the building. How much of this is the 39 year, uh, uh, property? How much of this is a, a personal property that we can put in the five, seven, or 15 year category? And you want to put that in the agreement when you're buying the building.

That way, uh, the buyer and the seller are aligned in what they report to the IRS for tax purposes. Okay. Number two, it could, this, uh, analysis could inform the price. So a cost se analysis before closing tells you the true after tax cost of the building. Two buildings with the same sticker. Price can have very different net costs depending on how their components are composed.

A dental rich build out lots of infrastructure already in place, is worth more on an after-tax basis because you get such a good tax deduction for those items. And then lastly, the land value must be isolated and verified. Land is excluded from all depreciation. The seller or appraiser allocates too much to land.

Especially in high cost markets like Southern California, your depreciable base shrinks a cost seg firm can help establish a defendable land improvement. So you want as little allocated to the land as possible. It's a common mistake to not do that. So the rule of thumb here is if you can get a preliminary cost seg analysis done before closing, do it, the information is worth more than the study costs.

All right, let's go ahead and finish up here with the concept of tax planning. You'll hear me say this a lot, that I don't believe the tax tail should ever wag the dog, and it's very common for dentists to latch onto a single strategy and then suddenly in doing so, turned a blind eye to the cascading.

Implication of other areas in their tax planning that are affected by that initial strategy. So all strategies play into each other. There's a relationship between making one decision that will affect your bottom line, net profit and other decisions that also are attempting to affect your bottom line net profit.

And I'll give you a couple of examples here, but I wanna start high level and say you have. Um, tax brackets that you are exposed to. And let me just get back. Okay, here we go. Let me just tell you what those 2026 federal tax brackets are, and I, I'll, I'll say married filing joint here. If you don't mind. Uh, the individual tax rates for non-married people will be half or substantially less than this, but for.

Let me go to a, uh, I'm just pulling one up right now on Google. So married, filing joint up to 24 from zero taxable income. Again, this isn't collections, this isn't operating income. This isn't even your bottom line on your profit and loss statement. This is on your personal 10 40, which is gonna be the sum of your W2 and any K ones you have.

And espouse income, but this is on your 10 40. Any net taxable income between zero and 24,800 is only taxed at 10%. Then from 24,000 8 0 1 to about a hundred thousand, I'm gonna round here to keep it simple, that roughly $75,000 leg of your income journey is taxed at 12%. Then from a hundred thousand to 211,000, it's taxed at 22%.

Then from 211 to 4 0 3, it's taxed at 24%. Then from 4 0 3 to 512,000, it's taxed at 32%. Then from 512 to 768, it's taxed at 35%, and then anything above 768 is taxed at 37%. Now, a couple key concepts here. Number one. It's not retroactive. So if you get to that top bracket and you're making, let's say 800,000, you're in the top 37% federal bracket.

Not all of that is taxed at 37%. Only the amount above 768,000 7 0 1 is taxed at that 37. Percent. So it's, that's why they call this a progressive tax scale. They're like stairs and every stair starting at the bottom is taxed at a given rate. And only when you get to that next rate is that new stair taxed at that new rate.

And so still your first 24,800 is taxed at 10% and the next roughly 75,000 is taxed at 12%. That doesn't change. That does not change. The second thing I wanna mention is that this is federal only. So depending on your state, you gotta add to your state. So federally, if you're in the 37% tax bracket, 'cause you're cranking it and you're in California, you're gonna add another 10 to 12%.

You're approaching 50% income taxes there in certain states when you combine the two. So these stairs, these tiers within the tax bracket are really important. If you can stay all, if you can keep a hundred percent of your income. Inside of the 24% tax bracket or less, you're limiting a lot of the tax headwinds once you start to get up above 24.

Now you go from 24 to 32, that's an 8% jump. Notice the jumps from 10 to 12. That's 2% from 12 to 22%, so that's 10% and that's all up to 211,000. Married filing joint. If you're single, that's 105,000, but that is only 2% from 22% to 24%. To go from 211,000 to 403,000, so that's, that's, that's a low amount. But then there's this big kick up from 24 to 32% in between 400, 3,500 12,000.

That's all taxed now at 8% higher in that extra roughly $110,000. And so it's when you start to get up your taxable income closer to 500,000 plus, now you're really dealing with some tax headwinds. So what I don't want, here's the thing, I don't want you to cost seg bonus depreciate have huge losses, and then for like three or four or five years, your income is in the 12 to 22% bracket.

Because you created so much loss that you essentially brought your income very, very low in those first few years because you bonused depreciated the cost segregation study results. I mean, you're gonna feel great. It's gonna feel really good, but guess what? All we're doing remember is we're frontloading 39 years of depreciation on the building into the first handful of years, and it's gonna feel great, but then after that you don't, you're actually gonna get significantly less depreciation than it had.

You never done the cost second bonus depreciation in the first place because it would've been straight line from year one to year 39, but now you've. You pushed a bunch of that up in the first few years, so what happens? Suddenly, you see this steep rise in your tax brackets after those first few years.

Significant rise, even though your cash flow is gonna feel the same. You're still collecting the same amount. Your overhead is about the same, your debt is about the same. Suddenly your taxes skyrocket and you're just like telling your CPA, what the heck is going on? Last year I only owed $6,000. Now you're telling me I owe $90,000.

How can that be? Well, it's because there wasn't proper planning and that leased proper, proper expectation setting by the CPA when this was done. And here's the other thing. There are deductions you get, and if you're on YouTube, you can see my screen. There are deductions you can get if you keep your income below roughly 550,000 or so that phase out once you get above that amount.

Two key ones are the qualified business income deduction, the QBI deduction, which is a wonderful thing for small business owners. And the second one is child's tax credit. If you have kids. Uh, and you're married. Once you hit around five, 550,000, you start to lose the benefit of the child tax credit and also some schedule A itemized deductions start to get lost as well.

So there's a handful of deductions that once you get up to about 550 to 600,000 married, filing joint, half of that for single, you start to lose. Those other deductions that you would've got beforehand. So if you front load all your depreciation and you just like go the full nine yards and you're in the 22% tax bracket for three or four years, and then suddenly over the next couple years it just skyrockets, well, you're gonna lose out when it skyrockets on these other deductions like the QBI, the child tax credits certain.

Um, qualified income or itemized deduction totals that can start to get phased out. You lose those things. So in some ways, I don't necessarily want to see you getting down in the low 22% bracket only in a few years to then have a. Going forward, being in the top tax bracket where you lose all those other deductions.

I would rather pace this out and do a forecast and say, what is the optimal rate at which I should be accelerating deduction from a cost segregation study and the related accelerated depreciation and the bonus depreciation. What is the right configuration over the lifetime? Of deducting the cost of this building and such that if I present value it in today to help me understand what the true value is, which one will create the most.

Tax saving and allow me to keep the most money in my pocket. So that is so key and so many CPAs just rushed to take every deduction you can today, even though you're actually gonna leave a lot of good tax deductions on the table in the future. Because of that decision, it was shortsighted, marginal thinking.

And a lot of times, historians, which CPAs are, tend to think on the margins, not think in big picture. All right. Last thing I'm gonna say is around tenant improvement allowances. As you know, if you, um, do a, uh, if, if you're the landlord. And you pay for tenant improvements to a third party who's renting your space.

Question is who gets the tax benefit of that tenant improvement? Or maybe you don't own your building and you're doing a build out and you're asking the landlord to pay for some of that build out because some of the benefit runs to the landlord. It's their space and you won't always be there. And so they are getting a benefit.

And so it makes sense sometimes for the. Landlord to pitch in, in what's called a tenant improvement allowance. So who owns the depreciation? When the tenant is doing a build out, they pay for a lot of it, and the landlord pays for some of it. Well, here we go. If you fund the build out yourself versus receiving a TI allowance from the landlord.

You own these improvements and you can depreciate them. If a landlord funds the buildout via a TI allowance, the landlord depreciates it, not you. This distinction matters enormous enormously. For dentists who are buying a building to operate in the entire clinical buildout should be owner funded and documented for maximum depreciation benefits.

So structure your finances accordingly. So bottom line, whoever comes out of pocket and pays the cash. Is the one who gets the deduction. So what I'd probably do if you're doing a build out and let's say you don't own the building and you are negotiating a tenant improvement allowance from the building owner, I would try to, uh, have the landlord pay for the portion of the build out that would go to the 39 year asset class.

Uh, because that asset class cannot be bonus depreciated and get that benefit you. Come out of pocket for the five, seven, and 15 year asset classes, which would make a lot more sense. 'cause a lot of the things that you're putting in, like, uh, maybe some structural issues for dental chairs, maybe, uh, uh, uh, you're, you're adding a space to get it plumbed for a new operatory.

But those things can be accelerated faster through the five, seven, and 15 year property asset classes. So be smart about that. Consult your CPA and these decisions matter a lot. I will end with this final statement. Dentists, uh, are incredibly intelligent people who make very good money. However, like a lot of individuals, most of individuals, to be honest, including even accountants, oftentimes they don't.

They believe that they can structure these decisions strategically on their own and optimize those. Decisions. Why? Because they are intelligent. They have a, a, a PhD and they know how to study. They know how to research extremely well, but these are complicated matters and patching them together in a holistic view to optimize the entire ecosystem can get quite complicated layer on top of that, some of the psychological and emotional aspects of money.

And it even gets a little bit more tricky as well. So, uh. Try to understand that it's not about the cost. When you do a study or engage an advisor to help you make good financial decisions, it's about the outcome. And I've said this. Before, I'll say it again. The most important thing you could do when finding good advisors to give you good advice is to do multiple interviews, whether that's a dental CPA, and financial advisor like, like us, or it's a cost seg analysis, or whether it's a, an attorney or a practice management consultant or a marketing company.

Do various interviews. Ask for data, maybe ask for some references, do some study on it. Because who you choose in the roster has a significant effect on the outcome, but I, I truly believe you get the right people in place. As your board of advisors who are competent, who are plugged in, who are responsive, and who communicate well together, you can create a significant return on investment.

By getting the right type of advice. When you get into these higher tax brackets, when you have higher cash flows, you have more complexity. Small errors can be extremely costly. I've even seen simple QuickBooks accounting errors cost hundreds of thousands of dollars to dentists because they quick, because they wanted to pay a, a dirt cheap bookkeeper down the street who didn't really understand dental and didn't do proper accounting.

A lot of the transactions. We get them years later and they overpaid in taxes significantly because of simple bookkeeping mistakes, let alone tax planning mistakes and missing tax planning opportunities. So it's just so incredible that you understand that at your level as a business owner with an increasing income and an increasing tax bracket, good planning goes a long way to help you feel financially organized and accelerate financial independence.

Thanks everybody for listening to the series on cost segregation. Hope it was helpful. Stay tuned. I've got some great, uh, content and, uh, episodes coming up. Excited to share with you. I want to dive more into the personal financial planning side. That's really at the end of the day where my heart is, all that stuff about tax and accounting.

And strategies ultimately is to drive what is the thing that I value and care for the most here at practice CFO, which is your personal financial security, growth, and independence. And so stay tuned for some really exciting episodes on that. I'm really looking forward to it. Until then, I.