00:00:04:10 – 00:00:49:23
Jay Shorr
Welcome to Shorr Solutions: The Podcast. And I’m your host. Jay Shorr, CEO and founder of Shorr Solutions. We are a team of national and award winning practice management consultant with experience running a multimillion dollar cosmetic, dermatology and plastic surgery practice. We’re here to share strategies and insights that will help you grow your practice efficiently and profitably. In each episode, we’ll explore the steps and actionable insights to guide you through your journey to increase efficiency, boost revenue, and decrease costs. Tune in and discover how to improve your patient experience and take your aesthetic practice to the next level.

00:00:50:01 – 00:01:11:08
Cristian Devoz
Welcome to another episode of Shorr Solutions: The Podcast. My name is Cristian Devoz and I am one of the partners and a senior Client Success Manager. Here at Shorr Solutions and today I’ll be hosting this episode. I’m actually joined by two of our senior team members. We have Jay Shorr. He’s our CEO and founder. And when I say senior, I don’t mean age by the way. I mean more experienced team members.

00:01:11:11 – 00:01:13:22
Jay Shorr
No you don’t, but that’s okay.

00:01:14:00 – 00:01:17:02
Nanette Maddox
We get it.

00:01:17:04 – 00:02:04:00
Cristian Devoz
And then we’re also joined by Nan Maddox who is our senior client success manager. And definetly one of the biggest assets in our team. Having owned owned her own med spa and also having worked for one of the largest surgery practices in the Midwest. She has a lot of experience, so I’m really happy to be joined by them today. And to have this discussion and today’s conversation is going to be about taxes. We’re actually going to be talking about how to maximize your tax credit and how you can start preparing now before the end of the year. So, Jay, let’s get started. The first question is going to go to you, Jay, because I know you are very experienced. You had your own practice back in the day. So can you tell us a little bit about what you have noticed that maybe practices are missing as far as opportunities to maximize their tax credits?

00:02:04:01 – 00:05:44:20
Jay Shorr
Well, depending upon the type of a corporate or a business formation that you have can make a big difference. If you are an individual sole proprietor, meaning you just run your business under your name and you’re not incorporated, or you don’t have a limited liability company. Now, a partnership on the other hand, is an entity between two or more people that they distribute the income proportionately to the levels of your partnership. And then there is an LLC, which is a limited liability company. And then there are corporations which have a s-core or a c-core. And I’m not going to get into the major differences of those. But there are major tax advantages. For example, if we want to speak about personal taxes versus corporate taxes, let’s go to the LLC for the minute. So if it’s a single member LLC, it’s considered a disregarded entity. It does not have to file a tax return, whereas an s-core has to file an 1120 S return. And then it gives you a K-1 depending upon who the shareholders of that corporation are. Now the s-core also does not pay taxes. It’s called a pass through. And then whoever the officers of that’s score are are responsible for the profit and or losses on their personal taxes. All right. Whereas an LLC, it is distributed proportionately. Now the difference then if you are an LLC and you are the leading member or members of that LLC, you cannot take a payroll. All right. You take distributions. Whereas with an s-core you take a physical payroll. You take your federal withholding taxes out, you take the Social Security and you take the Medicare on each individual payroll. All right. And then the corporation itself is responsible for matching Social Security and Medicare. And then it has to pay its proportionate share of what we call Futa and Suta. So the state unemployment tax and Futa is federal unemployment tax. All right. That goes directly to the government. So just because you may have X amount of dollars of a payroll then the net there’s different types. Then there’s the net payroll which is what actually gets direct deposited into the bank. But the differences are the taxes that you’ve taken out of the employees pay that has to be remitted, hopefully through a third party like a Paychex or an ADP or all of the other types of a QuickBooks. They have all have their own payroll systems, and then you have to pay the additional taxes because a lot of doctors say, come to me and they say, well, if my gross payroll was $30,000, why do I have to pay $34,000? It’s a well, you didn’t realize that you had a match FICA You had a match Medicare. You had a police state unemployment tax and you had to pay federal unemployment tax. Those things are not negotiable. All right. Now that’s on the corporate level. And then you want to make sure to reduce your tax liability, because at the end of the year, if you have a lot of money sitting in the bank, and that is considered profit, then you’re going to have to end up paying taxes on that profit whether you distribute it or not.

00:05:45:01 – 00:06:14:15
Cristian Devoz
And now that you’re mentioning that that’s that’s kind of like the point of this episode. And I love that you went over that explanation of different types of entities and how you can maximize taxes with payroll and all of that. That’s great. But the real focus for this episode would be after we get that bottom line, you have a profit, right? So now what are you supposed to do to minimize how much you’re going to pay in taxes? Legally, of course. So that’s what we want to talk about.

00:06:14:17 – 00:07:07:03
Jay Shorr
Let’s take a quick break. We know that maintaining a profitable aesthetic practice while managing all of the moving parts of your business is challenging. While your passion and dedication lie in caring for your patients and practicing medicine, the same enthusiasm might not extend to crunching the numbers in your business. Well, here at Shorr Solutions, we can help you with your financial analysis. Our services are designed to help you identify opportunities for growth, reduce unnecessary expenses, and maximize your practice’s profitability. Whether you’re seeking to streamline operations, increase revenue, or gain clarity on your financial performance, we provide the tools, strategies, and expertise you need to succeed. Schedule your free consult with our team today to get started.

00:07:07:05 – 00:07:21:12
Cristian Devoz
Now Nan I know you have a lot of experience as well working at practices and having your own spa, can you tell us a little bit about now you’re getting to the end of the year? What should you be doing to prepare so that you don’t have a big amount of money sitting in the bank on December 31st?

00:07:21:14 – 00:08:14:00
Nanette Maddox
Well, hopefully you’ve been preparing throughout the year, but the last quarter of the year gets to be the crucial point. So you’re wanting to make sure you do a thorough review of your profit & loss statement, and you want to make sure that all of the expenses have been recorded and everything is accurate, so that in case there’s ever any audits in the future, everything is good. Everything else is checked and double checked, and it’s good if you have an accountant that is familiar with a medical practice so that they can help guide you toward the end of the year, and the things that you need to do to make sure that you don’t have that large sum of money in the bank account at the end of the year. If there are other ways that you can use it and spend it to have the tax advantages.

00:08:14:02 – 00:08:17:09
Jay Shorr
So Nan, I’ve heard that money is golden.

00:08:17:11 – 00:08:20:05
Nanette Maddox
It is until you have to pay taxes on it.

00:08:20:07 – 00:08:22:00
Jay Shorr
Okay.

00:08:22:02 – 00:10:09:23
Nanette Maddox
So one of the things you can look at is an equipment purchase. If you’ve been thinking about a large equipment purchase, if you’re wanting to get that new pretty new shiny laser and you’ve been thinking about it and thinking about it, and now is the time to start negotiating. What I’ve found at the end of the year, the equipment companies are needing to get rid of their inventory because they don’t want to have to pay taxes on that either. So they’re looking to clear their inventory, they’re looking to make deals. And typically that is a great time to be negotiating a large equipment purchase and not waiting until next year and January and purchase it then, because then you’ve lost the tax credit for that year. The other thing to look at are large bulk purchases. If you have the space, let’s say implants for instance, if you have the space and you’re going to use them, you can look at making large bulk purchases at the end of the year to help absorb some of that money that may be sitting there at the end of the year. There are lots of different ways to look at spending it. There’s different schools of thought on pre spending on contracts. Let’s say you have a marketing contract or you have a consulting contract. You have different things that you may pay monthly throughout the year or at the end of the year, you can look ahead and go, what are the contracts that I have do for the next year and prepay them all? So that that is an additional tax benefit for you at the end of the year? Of course, you don’t get it throughout the next year, but at the end of the year, if you do the same thing, it all comes out in the wash. As we say in the country.

00:10:10:01 – 00:10:45:23
Cristian Devoz
Love it. Thank you so much for those insights. Now, Jay, this one is for you. Because Nan mentioned something that was very crucial. She mentioned the equipment and buying equipment at the end of the year. And I know that many practices actually do that already. And we’ve heard they know that podcast before where people have like a graveyard of lasers in their practice. Can you explain why people do that? And what’s the difference between taking a section 179 versus depreciating the equipment? Because I believe that when people do it, they take that section 179 at the end of the year to be able to to do that. But can you explain what that is, because some people might not know.

00:10:45:23 – 00:12:27:03
Jay Shorr
Well, let’s interpret what that word actually means. And where did it come from? Section 179 is the actual code in the IRS tax code. So you’ll hear section 179. You’ll hear a lot of device manufacturers say, okay, well the laser is $100,000. But if you take a section 179 and you are in the 25% tax bracket, then you’ll get a 25% reduction in your taxes. So the net net cost of that laser is $75,000. Well, that’s one school of thought. However, the idea of a section 179 is as long as you put it into service in that year and you sign the contract and you have a whole bolus of money. All right. What you can do if you have high profitability. And this is what I used to do in our former practice, I would buy it and then take a 179 tax credit. And what I’m doing is I’m fully depreciating it in that tax year, even if I take it and I don’t pay it off right away, as long as I sign for it and put it in the service, I can continue to pay for it for three or 4 or 5 years. But I’m taking the whole hundred thousand dollars off of my profitability, lessening my tax consequence less $100,000. That’s the upside.

00:12:27:05 – 00:12:28:23
Cristian Devoz
What about the downside, Jay?

00:12:29:01 – 00:15:40:02
Jay Shorr
I’m going to share the downside. You’re going to pay for it for another 36, 48, 60 months. And although you are paying for it, you are getting no relief to your taxes because you can’t double and triple dip. You’ve taken the whole credit and the initial tax year that you bought it, and now you can expect to keep taking credits as you pay for it. It will come off of your P&L as a debit, but it will not come off of your taxes under depreciation because you’ve already fully depreciated it, because you have the option to depreciate something over three, four, five years. Check with your tax professional or that section 179, which allows you to take it all at once. And the reason we do that is what Nan said. You have a lot of profit that you know you’re going to have. You want to reduce it. So what we used to do is bought all our equipment at the end of the year. Yes, because most of these companies have stock holders and they want to see that the equipment is moving. So now the device manufacturers, they will reduce their prices and give you your best deals in the last quarter of the year. I call it the order of the quarter. All right. And therefore you’re getting the deal and you’re able to depreciate it all at once and take that tax advantaged. Now remember, the business doesn’t pay taxes. I want to make that perfectly clear. We say about reducing the taxes. The only kind of a business that pays taxes is a C corporation, but that is a minority in our world. We’re usually PLC’s LLCs and s-cores. All right. So therefore those companies don’t pay taxes on the LLC. It comes out on a schedule C on the s-core. You file it under the 1120 S and the IRS tax form. And then you get a K1. The K1 is a distribution to all of the shareholders by percentages in your operating agreement. All right. Your shareholders agreement as well. And then if you have $100,000 in profit you divide that proportionally to the ownership of the business. And then that individual attaches that K-1 to their 1040 and the IRS, your personal tax return as profit or loss. All right. So the shareholders are the ones that have to pay the taxes or get the benefit of a loss, not the company. But as an owner of a company, I don’t want to make a lot of profit at the end of the year. So I do have two options. I can distribute it. All right. And that’s what our company will do now that we have new shareholders. We brought on new partners. So I’m either going to have all this profit and pay it to the IRS, or I can distribute it out as distributions to my shareholders. They will have to pay tax, but who doesn’t mind paying tax if you’re getting a lot more money?

00:15:40:04 – 00:16:12:18
Cristian Devoz
I love that you mentioned profit sharing or the distribution of dividends however you want to call it. And it’s great for team retention, and it’s also great for, you know, for you to minimize the amount of taxes that you have to pay as an owner. And I actually remember, last year, you were able to get equipment for a couple of our clients for a lesser investment simply because it was the end of the year. You were very good at negotiating with the equipment companies and and sharing that if they were ready to give you the specific price that you were asking for, you were able to pay right there and then.

00:16:12:20 – 00:16:15:20
Jay Shorr
Up to and including New Year’s Eve.

00:16:15:22 – 00:16:53:03
Cristian Devoz
Correct. So it was, you were, you know, crunching those last few days of the year, trying to get those deals. And you did, and you were able to save a lot of money for our clients. They were very happy because they were able to save money. And then they took that section 179 that helped them minimize taxes. So that was wonderful. And that’s something that we help our clients with. Now let’s talk about other strategies that we can use. So we share section 179 versus depreciation. We talked about profit sharing were our other strategies. And maybe this could be for you Nan The practices can use to maximize those tax deductions.

00:16:53:03 – 00:18:25:20
Nanette Maddox
One thing that you can look at doing let’s say that you’re wanting to purchase I’m going to use implants again. You’re wanting to purchase implants. You just haven’t had the time to place that order. You’re down to the wire. One thing you can do is go to the bank and get cashier’s checks made out to the companies that you’re looking to make those large purchases for, so that that money is withdrawn out of your account. You have the check made out to that company, and then you can use it to purchase the product after the beginning of the year, when you have more time to be able to do that from a med spa point of view, if you have a large skincare inventory, please be mindful of the inventory that you have on your shelf. I don’t know if you’ve noticed that stores tend to clear their racks at the end of the year just to not have the inventory, because part of the tax return is they want to know what inventory you have on hand, and you end up paying taxes on that inventory. So it’s best if you can minimize the amount of product that you have on your shelf, but then place an order before the end of the year and time it so that you do not receive the product into the your system until after the beginning of the following year. So those are just two little strategies that you can look at that makes a difference in the bottom line.

00:18:25:22 – 00:20:52:10
Jay Shorr
Another way to do that is that you can actually place those orders and make a deal with your vendor not to have it delivered until after the year if you need to clear inventory and then charge it on your credit card. What this does is it kind of offsets the option of what Nan talked about getting cashier’s checks. All right. You can actually write the check. You don’t actually have to have cashier’s checks. That is an option. But if you charge it on your credit card, your company credit card, depending if you do the accrual or the cash method, that even though you may purchase it in December, but then you don’t get your banks, your credit card statement until January and it may not be due until February. I call this cash float and I love to do that. All the time. However, what I do is I actually account for the purchases that were made in December. All right, as if I paid for it in December, because I can show what was ordered and actually paid for. I actually paid for the item. I just didn’t pay American Express. All right. So therefore I’m purchasing it in December. I get the bill in January, and then I may not have to pay for it until February. The other advantage that I’ve done in the past is if I have a lot of profit in my bank, my checking account, and I’m carrying a rather large credit card balance, pay it off. All right. Now you’re going to start fresh in the beginning of the year, and you’re going to wipe dollars out of your bank account, which lessens the amount of profit in the business. Remember, cash is key. Now, there have been times where I have left money in the bank because I needed it as operating capital in the beginning of the year. Yes, I did have to pay taxes. What was left? But if I had two choices leave it in and pay taxes or distribute it to myself and pay taxes. If there’s enough in the bank, I like to distribute it to myself and then I’ll be responsible for the taxes in case there’s a shortfall in the checking account. I don’t want to have to be the one that has to replenish it again.

00:20:52:14 – 00:21:27:06
Cristian Devoz
Well, those pretty good tips from both of you. Thank you Jay, and thank you Nan for sharing those. I love the strategies. Now there is something else that we do as a company and that may also be a tax deduction. You can back me up here in the past. Well when we get close to the end of the year, we always try to choose a charity of our choice. And we have the team vote for which charity we want to contribute to, and then we do a donation to that charity. So could that be considered also something that could help us reduce the profit of the business and that also benefits the community?

00:21:27:07 – 00:23:23:01
Jay Shorr
Of course, as a company, we do not wait until the end of the year. There is always a definite contribution. And let me explain. During the course of the year, we will give somewhere between 50 to $100,000 a year into our charity. Charity of choice right now is the Joe Joe DiMaggio Children’s Hospital. So throughout the year, we might give anywhere between 50 to $100,000 to the hospital. And then at the end of the year, we run multiple promotions. In the last quarter of the year, every new client that we sign, their first month of service goes to the hospital as a donation. When we have specials with like example, our conversion cascade, we will give a 50% off, 50% goes to the hospital. So we’ll run different promotions. And then at the last month of the year, all of our staff members pick a personal charity of their choice and we will match. The company will match that contribution up to a certain amount of money $100, $250, $500, you know, whatever it is. And, you know, a couple of years back, we donated money for the people in Haiti when and Puerto Rico when they didn’t have any water. All right. So we bought a pallet, of water from Costco and had it driven down in the Key West, for example, or things like that. So whenever there’s a natural disaster, will donate money. And yes, it’s not necessarily done to reduce taxes. It does help. All right. However, it’s a humanitarian issue. And that’s the main reason that we give to charity. And yes, it is a, tax benefit to the company as well.

00:23:23:01 – 00:23:41:12
Cristian Devoz
That’s great. Jay, thank you for sharing that. Now, Nan, this one is for you. I know we have talked about different strategies, but let’s talk about practical steps. What are some maybe 2 or 3 steps that a practice should take right now that we’re getting close to, you know, the last quarter of the year, what should be this should they do right now to prepare for next year?

00:23:41:13 – 00:24:51:06
Nanette Maddox
Well, we’ve kind of already mentioned those as reviewing your profit loss, making sure that everything is in order and that it’s correct, and making sure that you’ve coordinated with your bookkeeper or your accountant, and checking your inventory and seeing what you may need to order, what you’re planning to order, and getting all of that ready to go, so that you have that ready to pull the trigger, the last month of the year start negotiating on the equipment that you’re looking to purchase. Don’t wait until the last minute because you need to that time to negotiate with the company. So those are just some basic, basic steps looking into setting up the, profit sharing, as Jay mentioned. But that is a big thing that a company can do. That is a certain tax benefit and a morale booster for your people. And you can also look at bonuses and how you want to structure those for the end of the year for your staff. So there are lots of different things that are small that you can start looking at. And then there’s the big picture. What the big ticket items.

00:24:51:07 – 00:27:38:00
Jay Shorr
You know, Nan mentioned something about staff. And unfortunately business owners become selfish and they want it all for them and that any different as a business owner, however, I like it all for everybody because today is one of the hardest times of retention of your staff and your team. I’m not just talking about the owner and the owners partners. I’m talking about everybody underneath your PAs, your NPs, your RNs, your LVNs, your estheticians, your directors of first impressions, your PCC. We can go all your your surgical techs. All right, everybody in your business don’t think that they don’t need more. Just like you want more, you’re either going to pay it to the government at a 25%, 30%, 40%, whatever your tax rate is. Or you can give it to your staff. All right. And keep some for yourself and it will go a lot further. Now, I am of the belief to create programs and incentives for your people instead of just giving them cash. All right? It doesn’t mean as much cash is a very short term temporary reward. At the end of the year, you give them money. Why? Because they’ve been there all year. No, you get to keep your job if you’ve been there all year. All right. You get a bonus for outstanding performance and because you help the company make a profit. So when you tie it to metrics, I know we’re getting off the beaten track of taxation, but when you tie it to metrics, people will appreciate that bonus a whole lot more than the expectation of it is Christmas. It is Hanukkah. It is Kwanzaa. Whatever the holiday is that people feel they’re entitled, I’ll use that word again. People feel they are entitled to the bonus because it’s always been like that everywhere else. No. I tie bonuses and other additional incomes into performance metrics. If you don’t make the metrics, you don’t get paid more. All right, because of I as a company owner, don’t make more money. I don’t get paid any more money. And I have no more extra money to distribute out to my team. So once again, that’s a double edged sword. Make people appreciate the moneys that you’re going to give them. And Nan you mentioned something about having your bookkeeper and your accountant checking all this. What about your consultant?

00:27:38:02 – 00:27:40:17
Nanette Maddox
Of course, that goes without saying.

00:27:40:21 – 00:29:21:13
Jay Shorr
Of course. Okay. Many times your consultant is going to have a better eye on your numbers because I can’t tell you how many clients we have that we go over monthly and quarterly P&Ls and I mean monthly. And these are your seven figure practices that do it monthly. You know, I’m not talking about and there’s nothing wrong with the half a million, three quarters of $1 million in revenue. You don’t need to do a PNL every month. But in the Multi-millions, you need to do it just to check to make sure that the money is funneling into the right categories and the right charts of accounts. We actually are more tied to a client’s P&L than their actual bookkeeper and their accountant. And let me share why their accountant and their bookkeeper just puts the money in the proper boxes and categories, and they don’t analyze whether or not it is profitable. They look at the bottom line, net profit, and many times they don’t even have meetings with you about that. They just put the money in the categories. Whereas us as consultants actually review the subcategories. We actually review the incoming money, compare it from one month to a next, compare it from one month to the same month last year. Is there a trend? All right. And it’s also different if you share with us that your end game in one, two, three, five years is to sell. All right. Now we look at things a whole lot differently because we are going to look at it as what would a buyer look for because we represent buyers and we represent sellers, right?

00:29:21:13 – 00:30:17:19
Cristian Devoz
Wow, this has been an amazing episode guys. Thank you so much for taking all those strategies. And to kind of summarize it all, I think that, you know, we gave you a lot of strategies. But the first step I would say is maybe your accountant or your consultant and discuss about how you can implement some of these strategies. How would they work for your specific needs? Because if you’re a new practice, you might not have a lot of profit. At the end of the year, you might have more of a loss. So let’s talk about how you can even use that to deduct your taxes as well. Your personal taxes. So yeah, it’s just meet with your accountant, meet with your consultants and start planning ahead of time, start today and then make sure that you implement some of those strategies. And we hope that you can save as much money as possible and make the best of your tax deductions. So thank you everyone. Thank you Jay. And then for joining us for this episode. And thank you to our listeners and we will see you on the next episode. Good luck and God bless.

00:30:17:21 – 00:30:56:02
Jay Shorr
Don’t go anywhere just yet. If you enjoyed today’s episode, make sure to subscribe so you never miss the latest insights! New episodes are released every two weeks. For more valuable information and resources to elevate your practice. Sign up for our newsletter. You’ll get the latest industry updates, expert tips and exclusive strategy straight to your inbox. Also, don’t forget to follow us on social media at Shorr Solutions. If you’re ready to take your practice to the next level, schedule a free consult with our team today. Thank you for joining us on Shorr Solutions: The Podcast.