Transitioning from Tax Planning to Treading Water

Jude Guerin, CPA
Partner, AG Dental CPAs & Advisors (LDA Premier Events

This is typically the time of the year when we are finalizing prior year tax returns and beginning to look at clients’ current year-to-date numbers to begin advising on tax planning strategies. We start to put a plan in place for the remainder of the year to give clients plenty of time to be able to successfully accomplish their financial goals. This year is anything but typical. With many of our dental clients being closed for a significant period of time, our discussions haven’t been about how much they plan to fund in their retirement plan or how much equipment they will buy. Instead, they are focused on keeping their practice afloat during this unprecedented time. Below is a chart that provides examples of the 2020 planning we are advising many clients to do and ways to help you stay above water.

Traditional Planning:	COVID Planning:
Pay quarterly estimates to reduce the overall taxes due with your tax return and avoid underpayment penalties	Conserve cash in all areas.Tax plan with your CPA to determine if quarterly estimates are necessary. The net income of practices will be significantly lower for at least the 2^nd quarter of 2020. This likely would reduce the need to pay quarterly estimates. Also, many of the deadlines for 2020 quarterly payments have been extended.
Efficiently utilize financing programs offered by lenders when making large purchases	Contact lenders about loan deferrals for up to 3-6 months. Most lenders are offering relief in the form of interest only payments. Deferrals of any type will help in the overall theme of preserving cash as the #1 priority.
Consider new equipment purchases to save on taxes	Utilize SBA loan programs to obtain working capital. The two most popular SBA loan products are the Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP). Both programs have forgiveness potential for portions of the loans assuming you meet the qualifications. There are strict time frames for each loan and a limited amount of funds to be distributed. The terms are attractive as well. Overall, there are pros and cons to consider before applying. Contact your tax professional for advice and analysis.
Fund retirement plans as much as possible to both save tax dollars and plan for the future.	Consider retirement plan withdrawals as an additional source of capital. As part of the CARES Act, retirement plan participants can withdraw up to $100,000 from eligible retirement accounts. The standard 10% penalty for early withdrawals will not apply. These distributions are available until 12/31/2020. Note: ordinary income tax on these withdrawals still applies and this should be a last resort for liquidity.

Jude Guerin, CPA, is a partner with AG Dental CPAs & Advisors, an LDA events partner and member of the Academy of Dental CPAs. AG Dental CPAs & Advisors provides traditional accounting services, as well as dental consulting, for over 130 dentists in the Southeast United States. If you would like more information, visit www.agdentalcpas.com or call (225) 767-1020