Financial & Operational Mistakes Dentists Make: Part I

In this episode of the Dental Boardroom Podcast, host Wes Read, CPA and financial advisor at Practice CFO, kicks off a new multi-episode series focused on the most common financial mistakes dentists make in both their personal and practice finances. After returning from an October break, Wes zeroes in on cash flow discipline, spending habits, tax inefficiencies, depreciation strategy, excess distributions, and the development of automated systems for long-term wealth.

Wes explains how many dentists struggle with lifestyle inflation, unmanaged owner draws, and treating the business account like personal cash, often without understanding tax basis limitations. He highlights the “depreciation trap,” where large Section 179 write-offs paired with financed equipment purchases create short-term tax relief but long-term cash crunches. He encourages dentists to align depreciation schedules with loan terms to avoid future financial strain.

Key Points:

• Automate savings and retirement contributions
  
• Match depreciation timelines with equipment loan terms
  
• Avoid treating the practice account as personal spending
  
• Monitor tax basis before taking distributions
  
• Maintain disciplined budgeting and lifestyle control
  
• Reinvest profits to strengthen practice efficiency and growth

Transcript:

[00:00:00] Wes Read: Welcome everybody to another episode of the Dental Boardroom podcast. I've gotta apologize, I have been out of pocket for the month of October. You know, I had quite a bit of travel going on and just a lot going on in October. As we're heading into Q4, we get very busy around here at Practice CFO because we are staging.

[00:00:27] Wes Read: All of our clients to stick the landing for the year with their W2, their tax planning, their cashflow planning funding 401k, and defined benefit plans, and just everything to get all the levers in their financial ecosystem lined up just right to minimize taxes and maximize output to their personal balance sheet.

[00:00:49] Wes Read: And therefore help them accelerate financial independence, which is what we live for here at Practice CFO. And I am getting back on the podcast train here. As you know, I try to do two a week except when I get out of commission like I have recently. But that's pretty rare. That's pretty rare. So I'm excited to dive back in.

[00:01:09] Wes Read: I've got some great podcast episodes coming up. I've got. Tomorrow with a Howard. With Howard Fran. Many of you will know who Howard Fran is. He's the founder of Dentaltown, and we're gonna talk about AI in a dentistry. He and I, if you haven't listened to my AI series in dentistry, go back. I've got about seven or eight episodes on AI tech making its way into your practice in your operating room, and I interviewed the founders and executives and salespeople of some of the more common AI companies that are merging in the space of dental.

[00:01:48] Wes Read: And, uh, Howard and I, Howard, Fran and I are gonna talk about that tomorrow. So I'm looking forward to having him join the show. And then I'll also be joining on his podcast show that he does, uh, as a part of the Dentaltown community. So excited about that. Alright, what I'm jumping into today, if you're watching this on YouTube, you can see it on the screen.

[00:02:06] Wes Read: I'm jumping into a topic that is near and dear to my heart because it is one that I'm attempting to help dentists avoid making, which are financial stakes. Mistakes as dental practice owners. And so this series, this is probably gonna be, I don't know, two or three episodes here, depending on how much I want to jabber on these subjects.

[00:02:29] Wes Read: But these are key financial mistakes. That dentists make in their practice and even in their personal life. As you know here at Practice CFO, we are ultimately trying to drive financial success on a very personal level, and the practice is simply the engine or the heart of cash flow. And those cash flows pump out into their broader financial ecosystem that we use to increase their savings, increase investments, reduce their debt, and ultimately, ultimately create a real strong sense of financial stability and financial progress.

[00:03:07] Wes Read: And if we can do that and help our clients attach meaning to the money that they are creating for their future selves, I know. We have done a good job that is our mission here. And so a lot of what we set up in some ways are sort of guardrails or bumpers on the bowling alley lane that we prevent dentists from tossing that gutter ball.

[00:03:30] Wes Read: Because when you do that, it really affects your financial score. It really affects your financial progress. It's almost like trust. Trust can take a long time to build up. And overnight it can be lost. That is the case with financial accumulation. So wealth accumulation takes a long time to build up and sometimes you make the wrong step and suddenly years of hard work of incrementally building your financial security is wiped off the map.

[00:04:01] Wes Read: Well, I'm gonna talk about some of these mistakes. Some of them are smaller mistakes. Some of them are, uh, existential mistakes almost, and some of them are just small strategies to help build wealth. And by neglecting or omission, that's the mistake. In some cases, it's simply omission. IE not doing something.

[00:04:22] Wes Read: That is a mistake as a dentist. So let's go through these mistakes one by one. And what I've done is I've attempted to categorize mistakes in groups because those mistakes are similar to other sort of neighbors. To other mistakes that dentists make. And so the first mistake or sort of set of mistakes I'm gonna talk about is kind of the most fundamental, and that is cashflow.

[00:04:50] Wes Read: And spending mistakes with a lack of cashflow and spending discipline would probably be the better way to say that. And there are four categories I want to talk about right here. Spending more than they earn excess distributions. A poor consumption income ratio, and then simply not automating savings.

[00:05:09] Wes Read: So let's go through these. Number one, spending more than they earn. I did a full one hour podcast on why dentists struggle to live beneath their means. This was probably early 2024, uh 25, late 2024, and you can find that by just searching why dentists struggle to live beneath their means. On the Dental Boardroom podcast, and I go into this one in depth, but let me start off by saying that you dentists go through a lot in your journey to become a dentist and you come at a dental school and you have significant debt.

[00:05:42] Wes Read: Most dentists that I know fresh outta dental school have a major negative net worth, and they have a major negative net worth. Because their debt exceeds their assets, and that's largely student loan debt, and that's understandable. However, I always put student loan debt in the category of good debt because you're essentially creating through that debt.

[00:06:06] Wes Read: You took out debt in order to create an an income generating. Aspect in your life. Now, in this case, it's not an asset, so I can't say it's an income generating asset, like a stock that issues dividends, but it's your brain, it's your skillset that is the most valuable asset that you'll have, that you can monetize as a dentist if you do that well.

[00:06:28] Wes Read: But when you come at a dental school, there's this thing that I always call pent up consumerism. You've just been holding out for so long, living like a college student. You come out and you just want to buy those things that you see other people your age starting to accumulate and you feel like you're getting left behind and enjoying the good things of this earth.

[00:06:49] Wes Read: And I always say, if you can come outta dental school and just keep living like a dental student a little bit longer. Or maybe, maybe you're in your mid forties or mid fifties or even mid sixties. If you come to me and you're not where you should be financially, I'm gonna tell you to live like, you're, like you're a a college student.

[00:07:08] Wes Read: Yeah. I'm gonna have you really look at your budget. Now as life goes on, you sort of build into your life certain expenses you can't get rid of, but everybody at one point or another should really do a diagnosis of what they spent, and that can be really easy. There are plenty of online budgeting tools where you print out PDF tools.

[00:07:28] Wes Read: You can literally hand write it and calculate it, maybe throw it up in Excel, whatever the thing is, is that you're conscientious about it. You're doing something that makes you think about it. And for me, it's like when I go to the gym, I automatically tend to watch what I put in my body, what I eat, and there's something about making a conscientious effort or almost a habit out of it.

[00:07:55] Wes Read: But in this case, I think it's a good idea to at least one time understand what you really need to live on, and then compare that with what's coming in from your dental practice. Now, doctors tend to spend more than they earn not to because they've been dental students, they come out with. Uh, pent up consumerism, but because sometimes there's a false illusion of how much cash that they have available to spend, and they have two pockets on the same individual.

[00:08:22] Wes Read: They have their business pocket and they have their personal pocket. And the business pocket is the business checking account, and the business checking account can build up cash at some time. It becomes a, a temptation to reach over into that account, pull out some cash, transfer it to a personal account to then use to take that vacation, buy that car, spend on that new home, or whatever it is.

[00:08:48] Wes Read: And it's really hard to sometimes resist it when you see there's cash over there in that business checking account. But there's a lot of reasons why one needs to be extremely cautious when they move cash from their business checking account to their personal checking account. Now, there's two ways to do that.

[00:09:07] Wes Read: One is through payroll. Most dentists are S corporations and they have to pay themselves as an employee of their corporation, and that goes through payroll and is a W2. The second way is a transfer through an online transfer on your phone, on your computer outside of payroll, and it's just a a CH transfer from business.

[00:09:28] Wes Read: Checking to personal checking. Now the way dentists oftentimes see their business checking is they see it as a backup ATM, and when cash gets low in the personal accounts, we often tend to dip into that backup ATM without having a good plan. Around how, why, and when money transfers out from the business checking account to the personal checking account.

[00:09:58] Wes Read: Now, by the way, if you're an independent contractor, this still applies, and I think all independent contractors, if you're an associate independent contractor, you should have a separate checking account for your business as an independent contractor. And that the same concept of when you transfer money from that checking account to your personal checking account applies here.

[00:10:19] Wes Read: Now what happens when a doctor pulls out more cash than they should from their checking account to their personal savings account? So from business to checking. To personal savings. Well, the IRS has a rule on this, and the rule is you cannot pull out more cash from your business checking than you have what's called basis or your tax basis.

[00:10:40] Wes Read: And your tax basis is simply money that you put into your business checking from personal checking. That's number one, which doesn't happen very often. And number two, it's the cash you keep in your business checking account from earnings after paying all of your business expenses. What's left and what's left.

[00:11:00] Wes Read: The IS says, the IRS says, you can go and pull that out. Now, a lot of times though, the amount the IRS says you can pull out is less than the cash in your checking business checking account, and that's because what the IRS calls cash in your account is sort of this, this synthetic number. It's not actual cash showing on your business statement, business checking account statement.

[00:11:22] Wes Read: It's actually a function of your net income. Per your tax return that you send to the IRS every year, it's that that net income, less what you've pulled out as distributions or transfers to your personal account. And unless you're deliberately keeping track of that synthetic number, that amount that you're allowed to pull out, you're not gonna know.

[00:11:47] Wes Read: And this is something CPAs actually have to stay on top of to be able to tell you how much you can take out. Now here at Practice CFO, this is a number we track for every client. So we know how much you can pull out of your practice. So when you ask for that extra money to be deposited in your personal account, we can tell you how much, 'cause lemme tell you what happens if you pull out more than the IRS allows you to pull out and again, what they may be allowing you to pull out of your business checking is less than the cash in your business checking.

[00:12:19] Wes Read: And here's why. Two main reasons, number one, oftentimes. Especially when you buy a practice, you get working capital as a part of the loan. If you get a cash out loan out of your practice, that's collateralized by your practice. So cash lands in that could be a line of credit. That could just be a a, like an equity loan you get based on your practice, sort of like a home equity loan, but it's a business, a home.

[00:12:41] Wes Read: It's a business equity loan that's called a cash out loan. Anytime you get cash in your business checking account, that is not from collections. It's not from doing dentistry. That does not go in the IRS view of your piggy bank balance. It doesn't, you can't pull that money out. It doesn't give you basis as an S corporation.

[00:13:03] Wes Read: Now there's some, there's some nuances there for partnerships and sole proprietors. Most of URS corporations I'm gonna focus on on that. And so that's number one. If you get cash landing that's originated from a bank loan, you cannot pull that out. And for new buyers, this is often a problem because there's a dip in cash flow in the first year of owning a practice, and sometimes it's that working capital loan from the bank that is sort of the life support, like water in the desert, and they tend to pull that out in order to just live on.

[00:13:39] Wes Read: Now. The second reason why doctors end up being able to pull out more cash from their business checking account to their personal checking account than the iris. Uh, allows them is because of this thing called depreciation. And when you buy a practice, or even anytime in the life of owning your practice, you buy equipment.

[00:13:59] Wes Read: Let's say you buy CAD cam, you buy a cone beam, you buy a set of dental chairs, you do a renovation on your building whenever you buy these tangible assets. What you can do is ex is you can deduct that in the first year of buying it. Typically, you gotta depreciate it over time, but most CPAs will have you elect what's called a section, a section 1 7 9 deduction.

[00:14:22] Wes Read: If you don't know that, you absolutely should chat GPT it. Make sure you understand. What section 1 79 deduction. I don't think dentist and dental practice owners need to become experts in the tax code. I don't. You shouldn't. It's not a good use of your time. I recommend you rely on CPAs and good financial consultants to help you there, but there are some key terms that I think you should know and depreciation, and 1 79 is one of those areas.

[00:14:48] Wes Read: Now, when you buy that, let's say you buy that CAD can, and let's just say I'm gonna use a nice round number. It's a hundred thousand dollars. You're supposed to deduct that over five years. Meaning that if you literally came out of pocket a hundred thousand dollars, you're gonna be outta pocket a hundred thousand dollars, and you only get a deduction of a portion of that.

[00:15:07] Wes Read: Let's say it's $25,000 in that first year. You see it's not straight line. It's not 20,000 every year for five years equals a hundred thousand. Instead it's like 20,000 the first year, 30,000 the second year, 15,000, the third year, 10,000 the fourth year, and whatever's left the fifth year. It's this sort of unequal.

[00:15:27] Wes Read: Front loaded. Deducted deduction timetable over those five years. It's called Makers. Don't worry about it. Just know that when you buy that CAD chem, you're supposed to get the tax deduction over five years. Now they make an exception, and the exception is if you elect Section 1 79, which is the part of the tax code that allows this, you can front load all a hundred thousand dollars of that CACA to be deducted in the current year.

[00:15:53] Wes Read: So if your net income was 400,000 before. Deducting that CAD cam cost your net income after deducting that CAD cam cost through a section 1 79 deduction is 300,000, a hundred thousand dollars less, and depending on your combined federal and state marginal tax rate, that might save you anywhere from 25 to $50,000, 25 to probably $47,000 because of that cost.

[00:16:21] Wes Read: Now, here's what dentists like to do. Is they like, and really it's their CPAs by the way. Is there CPAs who pull this off? Dentists go and take out a loan to buy that CAD cam. Maybe it's a Patterson loan, maybe it's a shine loan. Maybe it's direct with your bank or a specific third party lender, but you get a loan and so in that first year, you literally come out of pocket very little or even nothing if it's a six to 12 month no payment period.

[00:16:51] Wes Read: So no money goes outta your business checking account. Your CPA elects the 1 79 deduction of a hundred percent. And so in that year, you get a hundred thousand dollars savings. So not only did you get a cadcam that you're now using in your practice, ideally you're saving in your lab costs. Now also, you just are gonna pay 25 to $47,000 less in taxes.

[00:17:12] Wes Read: And guess who looks like a hero? Your dental supplier who sold you that CAD cam and your CPA who just saved you a bunch of taxes and you're like high fiving. Your team. Nice. This, this feels like magic. Alright. Fast forward the next year. Now you're coming outta pocket on that a hundred thousand dollars loan.

[00:17:33] Wes Read: Let's say you're coming outta pocket $30,000. Let's say it's 20, I dunno, $2,500 a month. You're coming outta pocket. $30,000. Guess how much tax deduction you get? Very, very little. Just a little bit for the interest portion of that loan. But the principle that a hundred thousand, you no longer get a deduction for that because you took it in the first year.

[00:17:57] Wes Read: And that is called accelerating your depreciation or frontloading your depreciation over those five years into the year that you bought that cadcam. And again, that's why your taxes were so much lower, because you front loaded a hundred thousand dollars tax deduction in the current year, and when you took out a loan to buy it, you didn't even have to come out of pocket.

[00:18:17] Wes Read: So you get this huge benefit in year one, but then you pay for it. You pay for it in years two through year five when you're paying back on that loan with almost no tax deduction at all. And so your taxes not only go up because you don't get that a hundred thousand dollars tax deduction in the next four years, but you also have less cash to pay your higher tax bill because you're paying on the loan for that CAD cam.

[00:18:47] Wes Read: And so everything reverses. First year, your CPA looks like a hero. In the next four years, you're fighting, you're fighting with your CPA. Why did my taxes go up so much? This doesn't make sense. Well, doc, it's because we got that 1 79 tax deduction last year, yada yada, and now you're having to pay on this loan, yada yada, and it's put you in a tax crunch.

[00:19:08] Wes Read: So what do you do at the end of the, of the second year? Well, you go buy another really expensive piece of equipment. Maybe it's a cone beam, maybe it's five new dental chairs, whatever that is. And then you do the same thing. You finance it through debt, and you take a section of 1 79 and it saves you for that second year.

[00:19:24] Wes Read: But guess what? Now it's triple the trouble. In year three when you're making payments on the CAD cam and the cone beam, or whatever it is you bought. So now you may have 40, $50,000 going out for that year with almost no tax deduction as well. Taxes going up, very little tax deduction. You got a bunch of money going out to pay the debt, and it puts you in a cra cash crunch.

[00:19:47] Wes Read: This is a, this, this is a trap. This is like a a, it's a depreciation trap and so many dentists get lost in this and it is a huge mistake. Yeah, which is the theme of this podcast, mistakes, financial Mistakes that dentists make, is they end up being lured in from a CPA who is shortsighted, and a dental supplier who's just trying to do a good job.

[00:20:12] Wes Read: I love dental supplier. I have great relationship with them, but a lot of times what they will say is, Hey, you get this free tax deduction called the Section 1 79 deduction. It's not a free tax deduction, not a thin air. All it is, is it's just accelerating the full deduction of that cost into the current year.

[00:20:29] Wes Read: That's all it is. It's just a timing difference of when you get the deduction and when you front load the benefit into the current year, you end up suffering in future years. So what I always recommend is that you try to time the deduction with the outflow. So if you take out a five year loan for that CAD cam, then don't accelerate the depreciation.

[00:20:48] Wes Read: Take the depreciation over the five years. So you're mapping or you're matching. The tax benefit with the cash outflow to buy that CAD cam, you wanna map those. Now, occasionally there is a reason why we will accelerate the deduction even when we finance it. But that's kind of the unusual circumstance and we'll do it for a very specific strategy.

[00:21:12] Wes Read: So when you end up taking out more cash, going back to this cashflow management. Pulling out too much cash from the business checking account to the personal checking account. When you do that, because the synthetic balance that the IRS says you can transfer out is X, and you pull out two to three times x, that's called an excess distribution.

[00:21:35] Wes Read: You are pulling out excess cash from your business checking account to your personal checking account that the IS says you cannot do it because it's either debt money. Or because you depreciated so much your assets that you financed, this equipment that you financed, that you have this false sense of cash in your business checking account.

[00:21:59] Wes Read: When you depreciated that, it pushed your net income way down. And therefore the iris says your income, what you put into your piggy bank is actually a lot lower than the cash balance because you took that accelerated depreciation through the 1 79 deduction, and so you distributed more money from your practice to your personal check account than you should have.

[00:22:18] Wes Read: And guess what? You're gonna pay a penalty on that. And it's called excess distributions tax. And it bites unknowingly and surprisingly many dentists. And then they get into a conflict or an argument with their CPA. Why? Why did I have to suddenly pay so much taxes when the prior year I got a big tax refund, perhaps.

[00:22:37] Wes Read: Okay, so spending more than they earn, that's number one. That's a problem. One of the biggest mistakes. They simply spend more than they earn, and dentists tend to spend every dollar as human nature, humans. Dentists being a subcategory of humans tend to spend every extra dollar that suddenly appears in their bank accounts.

[00:22:58] Wes Read: I always say spending goes up and down as fast as cork on water goes up and the water goes up and down. It's just almost immediate, and it takes really good discipline in order to avoid that tendency of human nature. To set aside money that you could go spend right now to set that aside and put it in a wealth building account tool, paying down bad debt, building emergency reserve funds, building 5 29 education accounts for kids, 4 0 1 Ks, IRA accounts, all of those wealth building.

[00:23:31] Wes Read: Channels. They don't do it because they spend it. Well, it takes discipline. So they don't spend more than you earn and don't have more distributions outta your practice than you should and avoid the excess distributions. Alright, let's go onto the next one. And that is a consumption to income ratio that's too high.

[00:23:50] Wes Read: Now, this really relates to spending more than they earn, but this consumption to income ratio is just this. This is simple math. It's what did you consume? What did you spend, and I like this definition, consumption to income. I like this term because consumer items are different than investment items.

[00:24:12] Wes Read: When you go buy something that loses value, the second you pull it out of the store or off the lot, that is a consumer item that's gonna be close. That's gonna be a car, that's gonna be vacation, that's gonna be eating out and dining, that's gonna be entertainment. All all of that, that's gonna be toys, all of that.

[00:24:35] Wes Read: Those are consumer items because you're consuming them and all the value goes away as you consume. It. An investment item is something that actually maintains its value and goes up over time. Even though it may sort of be volatile and fall in the short run like a stock over time, it is expected and will most likely go up.

[00:24:54] Wes Read: That's an asset we need to build those assets. So consumption to income is how much are you allocating of your net income to consumable items that lose value over time, and what is that number divided by your income? Your income being what lands in your personal checking account from payroll and what you're able to safely transfer as a distribution out of your practice to your personal account.

[00:25:20] Wes Read: And so if you transfer per year, let's just say 200,000 through W2 and distributions from business, checking to personal checking 200,000, and let's say you spent. Let's say 160,000 on consumer items, and the other 40,000 went to paying down debt and putting in your IRA accounts, then that is 160,000 divided by 200,000.

[00:25:45] Wes Read: Consumption to income consumption divided by income, and that is 80%, 160 divided by 200. That's 80%, so your consumption to income ratio was 80%. The lower you can get your consumption to income ratio. Meaning, the more, the less you spend on consumer items relative to your income, the more surplus you're gonna have to allocate toward building wealth.

[00:26:11] Wes Read: That right there, my friends, is the number one indicator of somebody's progress toward financial freedom. Is that not, is that simple ratio right there? At practice CFO, we try to calculate that on a regular basis and give insight to our clients on whether or not they have a healthy consumption to income ratio.

[00:26:34] Wes Read: And here's the thing, I have dentists who make incredible amounts of money. They may be taking home a million dollars a year and sometimes, not always. Sometimes those doctors have very little to show for it over the years. Why? Because their consumption is so high, and therefore their consumption to income ratio, even if their income is good.

[00:26:54] Wes Read: Is not, is, is not great. Just look at, you have income as the denominator on the bottom. Consumption is the numerator on the top. If your consumption, uh, go, if your income goes up on the numerator, the bottom, if your incomes goes up, but your consumption in the numerator on top goes up as well. Well, guess what?

[00:27:15] Wes Read: The outcome. Isn't great. And so I have some younger doctors or doctors who maybe don't have as much income, but they're just so good at, at defense and how they spend money. They don't overbuy their cars, they don't overdo their house. They don't shop out excessively. They're not constantly having 10,000 Amazon items show up on their door every week.

[00:27:36] Wes Read: They're, they're careful on what they, where they go out to eat and their vacations. All of that accumulates to having. A good, healthy consumption to income ratio, which then allows them part two of that sort of equation is to use that surplus wisely, wisely to pay down credit card debt, to have a good emergency reserve fund and to invest in good, ideally good sort of investments, index based low cost investments in their ira, 401k, et cetera.

[00:28:06] Wes Read: And I will also say those doctors who are able to live on a low budget personally, it allows them to have more money retained inside of the practice to invest in growth through practice management, consulting, good technology, good marketing, good financial consulting like practice, CFO, good CFO services, all of that.

[00:28:27] Wes Read: They're building that engine, that platform of really strong practice operations and success, which then. That investment ends up being sometimes the having the best return on investment or ROI is that reinvestment in the practice. Okay, and the last item on this section of cash flow and spending discipline is simply not automating their savings.

[00:28:51] Wes Read: This is such a basic, simple mistake that is so pervasive among people, and I do see this often in dental setting up automatic save. Automatic savings is so easy. It doesn't matter which bank you have, they all can have you do automatic savings. Now, there's different ways to do this. You could say, work with your payroll provider.

[00:29:14] Wes Read: And say, I would like every paycheck to deposit $250 into my IRA account at Vanguard or Fidelity or Schwab. Clients of Practice CFO. We hold all of our clients' assets at Schwab except for the 401k, which we have now moved over to Vanguard to have really good low cost participant directed 401k plans, but you could set it up to automatically.

[00:29:41] Wes Read: Just deposit that amount as a part of your payroll. So let's say your payroll, you net your payroll to be $10,000. Maybe it's $15,000 gross. This is for you personally as the doctor, not your employees, but you. Let's say it's $15,000 gross. You have a couple thousand going into federal taxes, maybe a thousand into state taxes.

[00:30:00] Wes Read: You got some going into fica, that's Social Security and Medicare. Maybe your health insurance is baked in there as well. And what's left is, and ideally you're funding your 401k. That should absolutely be. Automatic. That's a no brainer. Just simply say, what is my max 401k contribution? 2025? That's 23,500.

[00:30:20] Wes Read: Divide that by the number of payrolls in the year. If you're twice a month, that's 24. If you're every two weeks, that's 26. And just set that on autopilot and it deducts the right amount to max your 401k every year. But in addition to that. You can have $250, $500, a thousand dollars, $5,000, $15,000, or some of our clients, 30 or $40,000 being deposited into trust accounts, brokerage accounts, IRA accounts, et cetera.

[00:30:48] Wes Read: In a very, of course, strategic way. To maximize the, the ultimate growth on these, but you can set that up through payroll, so it's just automatic. The other option is outside of payroll, you just have an automatic transfer from your business account to a personal savings account. That's called a draw.

[00:31:05] Wes Read: You'll wanna coordinate with your CPA on that, so they know how to categorize that expense in the QuickBooks ledger. But you can have that set up so it automatically transfers $2,000 a month over to an individual account or a family trust account or an ira. Just remember these IRAs, you have limits.

[00:31:21] Wes Read: It's $7,000 a year if you're underage 50. It's $8,000 a year if you're older than age 50, and you don't want to over fund those things, of course. And if you're in a high income tax bracket, you can fund a non-deductible IRA and then roll that over into a Roth IRA through what's called a backdoor Roth conversion.

[00:31:39] Wes Read: Now, don't try that one on your own. I would make sure you get proper guidance on doing that. 'cause it's easy to make mistakes and then you end up paying penalties on that. But we do that for, I'd say most of our clients. We do a Roth IRA conversion for them and their spouse virtually every year, and we build up a beautiful tax-free balance that is just 20 years down the road.

[00:31:58] Wes Read: It is something to behold to have tax-free money. You pull it out, the IRS never gets their sticky pause on it. So automated savings also, you could say, I'm gonna add to my personal payroll and extra. Okay, $2,000 a month. So going back to my example, instead of saying my, my payroll is gonna be structured such as 15,000 is my gross, less fica, federal, state health insurance, et cetera, lands me $10,000 a month, which I use to spend.

[00:32:27] Wes Read: You could say, I'm gonna have that land me $12,000 a month. So you go from 15,000 up to roughly 17,000 as your gross compensation in your payroll. After everything comes out, now you're left with 12,000. And you can take 2000 and have that automatically transferred the day of or the day after your payroll lands.

[00:32:46] Wes Read: To be automatically transferred into your savings or investment accounts. Or you could even have a bad debt. Let's say you got a car loan at 8%, it's non-deductible. You could have that extra 2000 go toward paying down that bad debt. You could have it go into an emergency reserve account at your bank and anything you can do to automate this stuff, because if you don't automate it, guess what?

[00:33:09] Wes Read: You spend it. If you don't automate it, guess what? You spend it. That is the way. Of nature when it comes to personal finance, it just is, and so you have to intentionally construct the piping, as I call it, the piping for everything that automatically goes where it needs to go. If you're a client of practice, CFO, this is a big part of what we do.

[00:33:32] Wes Read: Every time we meet. We do a cashflow forecast, we do a tax forecast. We look at your debt payments, we know what you need to spend. We look at your personal life goals around education, funding, buying a home, getting that car, getting married, all of those things that have financial price tags, and we construct the ideal or optimized cash flow movement.

[00:33:52] Wes Read: So everything has a purpose. I call this traffic Controlling your dollar so that you get the most. Out of it, and we set up that piping so that it just happens automatically, that everyone is the first category of mistakes that dentists make. To summarize, number one, spending more than they earn, which is simply having too high of a consumption to income ratio.

[00:34:18] Wes Read: Money talks and wealth whispers. You see this all the time. I cannot emphasize this, how true this is. So many of the people, I would say the vast majority of the people you see living a high lifestyle do not have the justified income to live that life. And what gives is they're behind in taxes. They don't have a whole lot saved.

[00:34:44] Wes Read: They have a lot of debt. And they're living life today with very little regard for the future. The people who tend to have, I look at my clients and I think who, who are the, who are the dentists who have nine, 10 million? Yep. We got dentists who had nine, 10 plus million. It's been because they, their whole career, they lived so far below their means, and they, in every case, they have a very profitable practice.

[00:35:08] Wes Read: That is true. But not only do they have a really strong offense with a profitable practice, they have a really good defense. It doesn't mean they're living poor, it just means that they're living well below their means and they're saving, uh, uh, money. Side on a regular consistent basis, and they're doing it prudently and they're avoiding the other mistakes, which I'm gonna go to in later episodes here after this one.

[00:35:30] Wes Read: And it builds up and it's a beautiful thing. And a lot of times you wouldn't know this when you look at 'em, I call it stealth wealth. They're very sort of stealthily going about building their wealth. And that's why I love this phrase, money talks and wealth whispers. And then lastly. Um, actually two more.

[00:35:48] Wes Read: The excess distribution issue, getting caught in that excess distributions trap, excessive depreciation, not balancing that out with the overall tax and cashflow picture, that's a problem. And lastly, just not automating those savings. Thanks everybody for joining this episode of The Dental Boardroom Podcast.

[00:36:08] Wes Read: In the next episodes, if I give a little precursor to what's coming up, we've got tax planning gaps. We're gonna talk about missing the PTE, which is such a low hanging fruit in most states, and yet, I got a new prospective client today that came in, looked at their tax return. Sure enough, they did not elect the PTE and it's not their fault.

[00:36:28] Wes Read: I guarantee you their CPA simply did not tell them. And that left about $7,000 of free money. Free money free, seven 7,000 bucks that had to get sent to the IRS. That could have been an investment account that would've turned into $50,000 over the next 20 years. Yep. Simple mistake, and that's been going on with this client since the PTE was permitted back in 2018 or so.

[00:36:51] Wes Read: That's a lot of money. That's probably four to $500,000 in retirement gone because of a very simple oversight from the CPA that the dentist didn't know about. So we're gonna talk about what is the PTE we're gonna talk about, talk about missing low hanging tax deductions. Very simple stuff. We're gonna talk about not meeting enough with their CPA and the misuse of depreciation, which I talked a little bit about today.

[00:37:14] Wes Read: Then we're gonna go into retirement and investment mistakes, the wrong type of retirement plans, paying off debt versus investing. Investing in private deals. I can't tell you how many catastrophes I've seen coming out of private deals with some relative or friend that's gonna turn out to be a huge winner, ends up being a massive flop.

[00:37:33] Wes Read: So we'll talk about that as well, and ways to sort of filter out what our dangerous private investment deals. We'll talk about business and practice management risks, not understanding the cost of PPOs, lease terms, partnerships, not having good financial planning analysis and not using good KPIs and team huddles.

[00:37:53] Wes Read: We'll talk about that. And then leadership and oversight failure. I'm not gonna go over these right now, but we're gonna cover those uh, areas. As a leader in your practice that lead to financial failures. Stay tuned on that one. And then lastly, how much should you pay yourself as a W2 in your own practice?

[00:38:14] Wes Read: So insufficient W2 income tends to lead to the IRS knocking on your door, and then they start to turn over every single rock they could find. And it is a nightmare. So what should the W2 that you pay yourself from your own corporation be in order to, uh, keep taxes minimized, but also to keep the IRS at bay?[00:38:37] Wes Read: So stay tuned for that. Thanks everyone for joining another episode of the Dental Boardroom podcast.