Episode 133 | PPP Updates and Tax Tips with Julie Herres
WITH Julie Herres
- Episode 133 | PPP Updates and Tax Tips with Julie Herres 00:00
Tax Tips and PPP Updates with Julie Herres
Hi Group Practice Listeners! In this episode, I’m talking with Julie Herres about PPP updates to be aware of, and tax tips for group practice owners.
In this episode we cover:
- PPP updates (as of end of 2020)
- taxes due by the end of january
- categorizing expenses, planning for 2021
- considering you entity structure for tax purposes
- tax saving opportunities
This episode is sponsored by TherapyNotes. TherapyNotes is an EHR software that helps behavioral health professionals manage their practice with confidence and efficiency. I use TherapyNotes in my own group practice and love its amazing support team, billing features, and scheduling capabilities. It serves us well as a large group practice owner.
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Hey, everyone, I am back. And today I have guest expert on who’s been on I think once or twice before Julie from Green Oak Accounting. Hey, Julie, how are you?
Hey, thanks for having me this morning.
So today, you’re gonna give us I think a few minutes, I have an update on where all the PPP stuff is, as of today’s date, which is November 30. So anyone who’s listening is further out beyond there, you’ll just need to make sure that things haven’t been re-updated. And we’re going to jump into some end of your tax tips since we’re heading towards the end of the year here. And you know, Julie, you’re the expert on all things tax.
Haha, sounds good. So PPP, a couple of new changes in November of 2020. So there’s a couple of different ways to apply. There’s the easy application, there’s the full application, and then there’s a new, simple application for loans under 50,000. But the really important thing here is that the IRS has doubled down in earlier this year in May, they had said expenses that are paid for with PPP funds are not deductible. And Congress had said, actually, that wasn’t our intent, but they didn’t actually do anything about it.
And in November, the IRS said again, if you whether you have applied for forgiveness for your PPP loan or not, those expenses are not deductible, as long as you’re expecting to get forgiveness, if you’re planning to apply for forgiveness at any point, whether it’s in 2020, or 2021. Those expenses are no longer deductible.
So for most of our clients who are private practices, there was a dip in income for some months, but there wasn’t a complete shutdown, right. Most practices went to telehealth and continued to operate mostly as normal revenue wise, at least. And so what that ends up doing is that created a pretty significant tax liability in most practices, because the expense that you would have had normally, of paying your team members or you could use a PPP for wages, rent utilities, so all those expenses that you would have normally had to offset the income, you can’t deduct any more, because they will, they can reasonably be you can reasonably expect for them to be forgiven. So if you’ve got a PPP loan for 100,000, for example, that means you might owe you 30-35,000 in taxes that you weren’t necessarily expecting to.
Oh, that’s a big deal. Yes. And luckily, because I have you, you had me save all the money that I needed to ahead of time, but there’s probably a lot of practice owners who weren’t anticipating that.
Yes, that yes, sometimes that is the case in and still Congress still said after the IRS releases information a couple of weeks ago, Congress is still saying, hey, that wasn’t our intent. But unless they actually do something about it and pass a law saying those expenses still are deductible, that’s kind of the situation where we’re in. So it very well may change.
But as of right now, my preference is certainly to plan as if there is tax due on those amounts, just in case and what we were before that happened, what we were actually thinking as your accountant, like the accounting professional was thinking is, Hey, why don’t we wait until 2020 to apply or 2021 to apply for forgiveness, because then we can deal with that later right there. It kind of buys us some more time for the regulations to change. But now the IRS has said actually, no matter when you apply whether you apply now or not, if you expect to get forgiveness, that’s not deductible. So that’s the big change there. So if for any folks who haven’t saved for taxes yet, it’s time to start now.
Yeah. And so for anyone who’s not tax and accounting savvy, simple terms of what Julie is saying is that if you got a PPP loan, and it’s going to be forgiven, or it’s likely to be forgiven, then that’s your goal. You will have to pay taxes on that amount. My saying that correct?
Yep. That’s it. That’s about correct. Because what the CARES Act said is that the PPP itself is not taxable. Right? So that was clear from the beginning. But what the IRS has said since then is the expenses forgiven are not deductible. So that essentially makes the PPP taxable, right? Not directly, but indirectly, it makes it taxable.
Okay, perfect. All right. So we’ll, of course, keep everyone updated. I will always bring Julie on whenever there’s any new updates on the PPP front. But that’s that’s that for now. So on to tax tips, because we’re at the end of the year, what are some of the top things that you’re suggesting for group practice owners? When it comes to end of year, taxes and accounting?
Yeah, well, so first of all, for any practice owners that haven’t done their books yet, or that have been ignoring their books, maybe for a little while, for a long while, before you do any tax planning, it’s a good idea to catch that up. So you actually know what you’re working with. And so you know, how much you’ve made, how much your expenses are, what your taxable income is going to be. So that would be the first place to start. There’s no time like the present for catching up before the end of the year. Because 1099 are due by the end of January, W2s due by the end of January. And it’s hard to get all those things correct if you don’t have to do this. So it’s, so that’s a good place to start.
But a great year end tip is to accelerate any expenses that you might have. So especially, again, with this additional tax situation that a lot of practice owners are facing if there were expenses that you were planning to make in or, or purchases that you were expecting to make in January, like if you were thinking of redoing some of your offices, buy new furniture or re any kind of equipment, replacing computers, if you were planning to do that on 20. In 2021, it might make sense to accelerate those expenses and purchase those items in December that works for any cash basis taxpayer.
So if you’re cash basis, which most practices are, that means that you can deduct an expense when it isn’t incurred. And so as long as you buy something and receive it before December 31, and that would be deductible. So that’s a great way to reduce your taxable income.
Now, however, that doesn’t mean that you should buy something that you don’t need. Because that’s not that’s not tax efficient. And what I mean by that is that if you’re if you’re spending $100, on something that you don’t need, if you’re in a 24% tax bracket, that means you’re saving $24. So you’re spending $100, saving $24. If it’s something that you need, that makes a lot of sense. But if it’s something that you don’t need, you’re still out $100. So that doesn’t make any sense. So it has to be something that you need. But this time of year, there’s a lot of software subscriptions, or various subscription where you can pay a whole year upfront, if it’s something that you know and love.
Sometimes you can even get a discount for doing that. That’s a good move, certainly. And it can move the needle and sometimes you can prepay services as well like if you have a virtual assistant, you can pay January now you can pay q1 now you’re depending on on what you have coming up. You can prepay for some of those items. If you were redoing your website, you could pay that now. And take advantage of that deduction.
That’s a really that’s really smart. So going through all of your expenses, maybe monthly recurring expenses that you have and asking if there are yearly options, especially if you plan on sticking with those services long term would be a smart move to do.
Yeah, absolutely. And if you’re not 100% sure about one year, especially for a service vendor. You could prepay a quarter or six months, right. Whatever you feel comfortable with. You can do that with your rent too sometimes. Here some landlords are up for that. So there’s a lot of different expenses that you could prepay if you have the cash flow available. Nice. Okay. That’s a good tip. Yeah. So also year end, this is a great time to look at what you’ve got saved for taxes. So the last quarterly estimated tax payment is due January 15 of 2021. Hopefully most practices have made quarterly estimated tax payments if you haven’t there is still time but that’s something that is coming up.
And so it’s a good time to recalibrate, especially before you spend money on accelerating expenses. Like, is there enough money saved for taxes?
Because if not, most entities are pasture entities. And that means that the profit from the business is passing through to the personal tax return. Right. And so that applies for an LLC for an S corp or partnership. And so there’s still time that tax return isn’t due until April 15. So between now and April 15, there’s five months, if you haven’t saved anything for taxes better start now. Right? There’s still five months to do that, and get ahead. So I would certainly look at that.
I think it’s a great time of year to look also at a budget or a forecast for 2021.
Trying to figure out like, where do you Where do you want to go? What are your goals, financially or otherwise? We have a lot of clients who come to us and say like, Okay, this 2021 is going to be the million dollar year. And I think that’s an awesome goal. But it’s great to have numbers around that, right? And so, million dollars is 83,333 per month. And so how do you get there? How do you get to that point, are you either at that run rate or that you’re exceeding a million dollars, that means that you’re probably going to start below and end above the 83,000 mark. And so kind of figuring out like some some basic logistics on how exactly that’s going to work.
And I want to interject here and just say, if you don’t have an accounting team, I really can’t say enough good things about you, Julie, and your team at Green Oak Accounting. Bringing up the idea of forecasting, I think that’s one of my favorite things about having, you know, worked for you now worked for you with you for the past couple of years, is seeing how much my business has shifted by having really good and accurate forecasting materials. I think you guys do a really great job on that and helping me see the bigger picture financially. When I have an idea for quarter two, quarter three, here, she’s laughing, because she knows exactly what I’m talking about.
But you know, as the business owner, we have all of these ideas, and we’re really good with vision. But looking at what the financial, like outcomes need to be to make that vision a reality, or what the costs really, truly are, or breakevens. And all that is is something that we tend to not be really great at. So if you need an accountant, beyond the taxes beyond the, you know, month to month accounting, Green Oak does a really good job with actually almost taking your business plan. And and looking at the financial aspect of it and helping you get there. So thank you.
Oh, that’s that’s a great ad. Thank you for that one. So I think a big piece of what we do is because we know the industry, we can we take our clients ideas and put numbers to them. One of our clients a little bit earlier this year had this great opportunity for adding another location. And that happens often. And so we looked at the numbers, okay, what is this going to cost? What is it going to cost? Not just in the deposit down in the first month’s rent, right? Not just that, but okay, how many offices are in there? How much is it going to cost to furnish each office, all the computer systems the right, like all the different pieces, and sometimes we can help say like, Okay, this is a great idea, you have plenty of cash.
And in some cases this year, we had to say we just don’t think you have enough in reserves. For this to make sense. We’d love to revisit this in six months, but there just wasn’t enough cash available to do this without being in a really precarious situation. So those are the that’s the kind of feedback that we can give.
Yeah, I just think of my new program that we did in my group practice, the education program, and how I thought, you know, we’re paying our team a couple $100 per hour to do these webinars. It’s a way to diversify their income, it’s, it matches with our vision, we’re able to make it, pay what you can for the community so that it’s equitable.
And I really, I think I’m okay with finances and I, we have a private person that’s running it. So I knew what her salary was. And if we’re paying $200 for the person to do the one hour training, I was thinking, after all is said and done, you know, five or $600 per course that we put out into the community, we need to get back to break even, but after your I don’t even know what you want to call this spreadsheet. It was amazing, you guys. It literally showed me that we need to make around $3,000 per course I mean, mindblowingly different in the things that you think of from a financial and tax perspective, putting it really all together.
Like I said, that’s the one thing I keep going back to thinking. These are the things that us normal group practices. are not thinking of even when we think we know all the expenses that come with a new program or new location, there are just so many things that we’re not thinking of that you, you add really a ton of value to. So I’m stopping at that.
Okay, sounds good. And ultimately, you know, we can present the information, right. That’s our job as the accountant, the CFO is to present the information, it’s still the business owners decision, and some, some of our clients will say, you know, what, it’s okay, I’m gonna take that chance anyways. And that’s like, that’s there. Right? That’s, that’s absolutely allowed. But we can present the data. So we can look at it that way. As the year end approaches, I always think it’s also a good idea to look at the entity structure for tax purposes to see if it still makes sense, especially in a year of significant growth. And as much as it says about how we’re doing as a country, like most of our clients have seen pretty significant growth this year, with our income with our team.
So if you’re, you know, if a practice owner is has doubled their income in the last year, it’s a good idea to see, just to take a quick look at is this still the best entity for tax purposes.
Sometimes that means moving from an LLC to an S corp, right? It could mean a couple of different things. And sometimes you may look at the numbers and still not decide to make a change. But it’s a good time to look at that, especially in years of big, big growth. And also mileage, if we’re looking for tax saving tips. mileage isn’t is an easy one, right? So if you’re, if you’re using a personal vehicle for the business, if you track mileage, you can reimburse yourself tax free for that mileage. And it really adds up for most of our clients, it does end up being a couple of $1,000 a year that you can get, you can reimburse yourself tax free. You do have to keep mileage logs. And Maureen is rolling her eyes because she doesn’t like mileage logs.
I literally hate this. This is the bane of my existence is these mileage logging apps because I drive everywhere. And then I have to remember at the end of you know, if I don’t do it every day, after three days, I have like 40 something random is it is this personal or business and it has just to like location points, but I don’t know was that Michaels that I went to? Where is this I don’t remember anymore. So it’s so annoying. I hate it.
I’m sorry, you hate it so much. But that’s a good way to get money out of the business tax free, right. So you’re if you’re if you’re tracking your mileage, anything that’s business mileage from your administrative home office to the office, where you see clients to errands that are for the business, all that is deductible.
And so if you’re if if a practice owner serving their own personal vehicle, sure, you can choose to not track your mileage and not reimburse yourself, that’s an option. If the vehicle is owned by the business, then you do have to track that because then the personal use has to be carved out. But that’s usually a pretty easy way to get a little bit more money out out of that home office like looking at especially this year looking at your your home office expenses, if you have an S corporation, that would not go on your tax return as a as a deduction, but you could reimburse yourself through an accountable plan.
Like that’s a really easy way to get, again, a little bit of tax free money out of the business for things that you’re already doing. If you’re already working from home from your dedicated home office, that’s absolutely a valid deduction, right. So looking at all those little deductions and making sure that you’re taking advantage of all that. That’s a great time of year to do that.
I also want to add, if you own other properties, which I know, a lot of group practice owners do. There’s some potential savings if you’re doing work out of those locations, right?
Yes. So one of the the great tax saving options is the it’s it’s called the Augusto loophole, and it came from a golf tournament in Augusta, Georgia, so you can rent your house less than 14 days per year. And that rental is tax free. So that means if you have an S corp, you can have a board meeting at one of your homes and your pay yourself rent pay, pay your, from your business to your personal account rent for that. And as long as you’re renting your home less than 14 days out of the year that rental is tax free.
So that’s a great way to go you would want to get like with most things, you just have to document it properly and have the right documentation, some comparisons of what the market rate is, but that’s a great way to go. So if you as long as if it was a vacation rental then that would look a little bit differently. It wouldn’t quite work that way just because there’s more than 14 days rental out of the year. But if it’s a personal home, you can even do that with your with your primary home as well.
Yeah. Okay, cool. Any other tips? Is that the last one?
I think that was the last one.
Okay, so if people are having a heart attack right now because they don’t have an accountant or they don’t have an accountant they love and all this sounds like a foreign language to them because they haven’t been being told this information by their accountant, how can they reach out to you know, so–
First there’s no need to panic, right? So don’t panic, it’s gonna be okay. But it is a good time to take care of it. So if you’d like to reach out to us go to greenoakaccounting.com you can schedule a free consultation with our team and see if we might be a good fit to work with you. We generally work with people on an ongoing monthly basis.
So it’s, we don’t take on tax only work just because we found that that’s not the best way to help our clients is just during the tax at the end of the year. So we work with our clients monthly throughout the year. And we have some spots available for January. You can also do go to green oak accounting dot com slash tax. And you can get a download with some additional tax planning tips and some of the tips that we talked about as well.
Awesome. Well, thank you again for coming on. You always have a wealth of knowledge, so perfect timing.
Thanks for having me.
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Here are the resources and guides we recommend based on this episode
7 Days to Level Up Your Practice
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Group Practice Start Up Checklist
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Specialized Accounting for Private Practice
At GreenOak Accounting, we offer accounting services that cater specifically to solo and group therapy practices. Our services range from bookkeeping to budgeting & forecasting, Profit First support, profitability analysis, payroll, tax preparation, compensation analysis, and much more.
Through working with over 100+ therapist clients, we have seen what works and what doesn’t, so our team can help guide you on the path to financial. Our specialized services can be customized based on the size and needs of your private practice.
For more information about our packages and the different ways to work with us, please visit our website at https://www.
* I am an affiliate for some of the businesses I recommend. These are companies that I use in my own group practice, and make recommendations based off of my experience with them. When you use some of these companies through my links, I receive compensation, which helps me continue to offer great free information on my podcast, blog, Facebook group, and website.
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Maureen Werrbach is a psychotherapist, group practice owner and group practice coach. Learn more about her coaching services here:
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