Taxes 101 for Dentists: Making Better Tax Decisions at Every Stage of Your Career

On the final episode of a 5-part tax series of the Dentist Money Show, Tom Whalen, CPA joins Matt to break down tax planning strategies for dentists at every career stage, from early associates to practice owners nearing retirement. They explain how tax brackets and effective tax rates really work, why entity selection and timing matter, and the common mistakes dentists make when  chasing deductions. This episode emphasizes the importance of proactive planning, building good habits early, and having clear communication with your advisory team as your income and career evolve. Whether you’re just getting started or planning your next chapter, this episode will help you put your taxes in the right context and make smarter decisions. If you missed the last episodes of the tax series you can find them here!

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Year-End Tax Planning Checklist for Dentists

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Podcast Transcript

Matt Mulcock: Welcome to the Dentist Money Show, where help dentists make smart financial decisions. I am a guy named Matt and I’m with Tax Guru Genius, master of all tax accounting, everything. Tom Whalen, Tom, how are you? I just get too big. ⁓

Tom Whalen: Thanks for having me back again. That name is going to stick for the rest of my career. ⁓

Matt Mulcock: That’s there’s the nickname people are you the tax master of the universe accounting genius guru. no, excited to have you again. ⁓ we’re wrapping up the tax series. normally we say, if you haven’t listened to the other ones, go listen, but I think we’re going to do everyone a favor and, ⁓ let’s assume that you haven’t listened to any of these, or you just kind of want to recap.

Tom Whalen: Thanks

Matt Mulcock: And we’ll do that today. So I think we’ll kind of break this up in sections where we’re going to kind of again, wrap up the series. We kind of just to recap of like the big picture stuff we talked about in every episode, we’ll go episode by episode and just again, hit the big ideas. That’ll be hopefully helpful. And then we thought to wrap this all up. It would be helpful to kind of go through tax priorities and mistakes and Sort of a pseudo kind of hypothetical case study, if you will, not like in great detail, but just kind of saying for an early career dentist, for a mid career dentist, and then for a late stage kind of transitioning dentist, here are the kind of the big things like a checklist, if you will, of things to be prioritizing common mistakes we see in those kind of stages of career. ⁓ I think that hopefully would be helpful. We feel like that’s a good way to, to, to wrap it up. anything you want to, you want to. Say Tom, as we get into this.

Tom Whalen: No, I think that the recap, like you said, you know, typically we always tell people to go rewatch them, but this is kind of like that group project in college where, you you waited until the end and then it just worked out for you. So I think this is right.

Matt Mulcock: Just all the, I’ve never done that, That was never me. Yeah, it’s so true. ⁓ so to kind of set the stage for this, ⁓ we’ve talked about this in every single episode, but just talking about, we’re talking more, we’re not talking loopholes here. We’re not talking like secret strategies. We’re talking as we’ve done in every one of these episodes, more kind of frameworks. talking about thinking about the long-term, lot of it just practical. And that might not sound fun to people. They they want, they want the secrets, but, ⁓ we don’t have any, guess that’s the.

Tom Whalen: It’s kind like the fundamentals and then once you understand the game a little bit, then you can kind of work with your advisor and maybe get a little more specific. But I think overall, this is just kind of infrastructure type information that is, you know, that’s what it’s geared for.

Matt Mulcock: Yep. Yeah, definitely. So, uh, and I think the good thing about going through kind of the career stages here, the second half of this is good because we’ve addressed this on past episodes, but what you’re doing when you’re first getting out of school from a tax perspective and maybe into your first associate job, your tax situation and the things that you’d be thinking about there are so different than what you’d be thinking about when you’re 55, 60, 65 and trying to get out of dentistry possibly. So I think it’d be good to kind of highlight those different things. ⁓ and because we have such an array of different listeners at different stages, hopefully that’ll be helpful for them to kind of hear where they’re at and general things to be thinking about. But before we go there, let’s just, let’s just do kind of this recap of the episode. So prior to this, we’ve did four, four kind of core series or sorry, four key episodes in the series, total of five episodes now today. So episode one, way back when can’t even remember when that was Tom.

Tom Whalen: you isn’t even part of that.

Matt Mulcock: Yeah, you weren’t it was Ryan and I that was as far as we could take our knowledge and before we brought in the tax guru ⁓ but we talked about just how the tax system works and tried to set the stage for the progressive tax system and common things that we hear misconceptions we hear from people from dentists around and whether they’re saying it or just the way they’re talking about it being confused around the differences but like things like marginal tax bracket versus your effective tax rate. So we kind of set the stage there and just talking, trying to dispel the fears around just the misunderstandings around tax brackets in general.

Tom Whalen: Yeah, we hear people and whether they think it or not, like you said, the way they talk, it kind of insinuates they think it. But we hear a lot of times where people are almost afraid to make more money because it’s going to push them into a higher bracket. Therefore, they’re going to end up worse off if they make that extra dollar or that extra 10,000 or whatever. And that’s obviously not how it works. It’s your next dollar is your marginal rate. Your effective rate is all prior dollars.

Matt Mulcock: Yes. Yep. Yep. And to that point, I think the takeaway there is it is always better from a tax perspective to make more money.

Tom Whalen: Yeah, you will have more cash in your pocket if you make one more dollar. Yeah, you’ll pay more tax. Maybe that maybe pay more tax on that dollar than the prior dollar, but you will still end up with more cash in your pocket if you make another dollar.

Matt Mulcock: Yep. Always. Always net out positive. Yep. ⁓ the closest you’re going to get to that not being the case is in California. ⁓ RIP, the super high tax earners in California, but literally we see you and I talked about this recently, Tom of the 50 % tax effective tax rate for some of these people in California. It’s brutal. That is really that honestly is so brutal. ⁓ okay. Episode two, you up?

Tom Whalen: Brutal. ⁓ They get nice weather though.

Matt Mulcock: They do, you got to pay that sunshine tax. That’s a significant, I lived there for a few years and it is pretty nice. Let me tell you, especially as we enter these months for you and I in our, in our respective places, Southern California weather seems, seems really nice. ⁓ so the episode two, we talked about kind of when chasing tax savings backs fires. ⁓ so talking about write-offs, not equal equaling wealth.

Tom Whalen: It’s nasty right now, yeah.

Matt Mulcock: ⁓ spending to save taxes at the cost of like destroying your liquidity, ⁓ and the tax tail wagging kind of your wealth dog. talked a lot about that chasing deductions. Anything you want to say about this one?

Tom Whalen: Yeah. you know, write offs don’t equal wealth. Well, a dollar over write off doesn’t even equal a dollar of tax. What I, like we said earlier, your marginal rate is. if you’re, if you’re in a 42 % marginal rate, that means $1 of write off saves 42 cents. So it’s not only a dollar write off doesn’t equal a dollar of wealth. It’s just a dollar of write off doesn’t equal a dollar in your pocket at all. So.

Matt Mulcock: Yeah, yeah, yeah, yeah. Yeah. Yeah, I think it’s a really good distinction to make because I think deductions and write-offs are so misunderstood as well. And just to highlight here, I think we talked about it in the episode, but if we didn’t, we’ll hit it here. The difference between ⁓ a deduction and a credit. I think that gets confused a lot where to your point, a deduction is not a dollar for dollar reduction in your taxable or in your tax benefit. A credit is exactly.

Tom Whalen: Yeah, you know. Right? A credit is a yeah, a dollar, a credit saves you a dollar of tax versus deduction. It just reduces your income by a dollar, which again, huge. Yep.

Matt Mulcock: Yep. Big difference, big difference. and again, we talked a lot of that episode of just, think that’s the episode we kind of set the stage for talking about the name of the game is improving after tax wealth. It’s not chasing every tax deduction you can possibly get your hands on because we’ve seen this in real life so many times where that lead, you might have a, a great tax bill, a lower tax bill, but you are far worse off from an after tax wealth perspective. Cause you’ve got You just wasted all your liquidity or whatever it may be. So huge, huge part there of, of episode two was just being careful with chasing deductions. ⁓ episode three, talked a lot about entity structuring and tax allocation. This is a big one, Tom, you know, every other week you come on with our team and we talk a lot about, ⁓ case studies, internal case studies and things that we’re dealing with and get, know, trying to get as much knowledge from you guys as possible. I would say a good chunk of these conversations, at least 50 % of these conversations, I think, usually circle back to any of some kind of tax allocation. Is that what you say that?

Tom Whalen: Yeah, there’s a lot of that conversation and then how much should I pay myself if and when I’m an S Corp. So this is a really, really prevalent conversation, not only with us and our clients, but us and you guys as advisors. So it’s across the board.

Matt Mulcock: Yeah, huge, huge. This, is something again, we’re always trying to wrap our minds around when it comes to individual situations. It’s confusing. It’s confusing when to elect S corp versus not how to handle W two salary, how much to put it? How does that, how does that interact with your retirement planning for like retirement accounts? How does that interact and offset QBI possible like issues? FICA taxes. Like it’s, it’s complicated. And it’s really important to understand that and be able to work with a specific CPA that understands your situation.

Tom Whalen: Yeah, this one’s really important and I think this is one of the topics, there’s many of them, but I think it’s one of the topics where ⁓ we hear a lot of people say they talked to their friend or so and so and this is what their buddy did and that’s why it makes sense for them and I think this is one of those topics where you really can’t use your buddy or your colleague or whatever, you really need to hone in with your own advisors and have a plan that’s very specific to your facts.

Matt Mulcock: So true. Yeah, I love that. we’ll talk, speaking of that, as we get into kind of the case study type stuff, we’re obviously going to be talking in generalities because we have to, but if you take nothing else away from this, it’s that, it’s that all of this is general educational, but you’ve got to be meeting and having your own team to help you with your specific situation.

Tom Whalen: All right, like take these general concepts and go work with your team to apply it to your specific scenario.

Matt Mulcock: Yep, exactly. Uh, episode four, we talked a lot more about playing more offensively when it comes to taxes. And so talked really about what is tax planning even mean? That’s a term I think that gets thrown around a lot that people don’t fully even grasp what it means. think they want it to mean something more maybe sophisticated than it really is, which it’s, think a lot of times it’s just about being practical and proactive as it then, then it is like,

Tom Whalen: I could do.

Matt Mulcock: anything fancy, some strategy that, mean, you said it when it comes to tax planning. think a lot of times people point to their buddies, buddies, buddy who went to some seminar that talks a lot these tactics and strategy. But in that episode, this was the most recent one we did before this one. Where we just kind of talked about having a year round system around tax planning, being more proactive, having better communication with your team and your CPA. being able to not just at the end of the year have what we hear a lot, either it be the end of the year or the beginning of the next year, have this massive tax surprise. There’s ways around that is what we talked a lot about.

Tom Whalen: Yeah, and we hear a lot of the ⁓ relationships clients have with their former or prospects with their current CPAs. Sometimes it’s just a miscommunication. They think that there’s this tax planning going on in the background when really it’s just a tax preparation relationship, which we talked about in that episode four where tax preparation is just getting the forms done. There’s no planning involved. It’s just kind of regurgitating what happened throughout the year onto these forms. The real place, I mean, it’s just like practice when you’re in a sport. The game day is the tax return, whereas practice is the tax planning throughout the year.

Matt Mulcock: Yeah, yeah. It must be the heart of getting near ⁓ NFL playoffs and the college football playoff. Can we have it on our mind? I like that.

Tom Whalen: go, right? And that was all we kind of use some NFL analogies there too.

Matt Mulcock: We did. We did for sure. Um, okay. I think it’s a good recap. Those are the first four. If you want to go get more deep into those episodes, hopefully you can kind of use that summary to maybe point you in one direction or another. If you want to go, you’re like, Oh, I need more about it. And the restructuring, I’m to go listen to episode two or whatever it may be. But we just wanted to, again, kind of give you an overview of the things that we talked about in each of those episodes and then kind of bring it all together today. So let’s break down Tom. if we, again, talking in general terms, but more narrow, right. And when it comes to career stage, so number one, I don’t even know if I want to call these case studies. Like that’s what I wrote down, but I’m like, they’re not really case studies. We’ll just, but for lack of better term, that’s what we’ll call it. Unless you can think of something else. Yeah, we’re not the wordsmiths, but let’s talk about early career stage for a dentist. So let’s say in the first five, well zero really up to 10 years of a career.

Tom Whalen: that’s here, okay.

Matt Mulcock: what this profile I’ll break down the first, like the profile, and then let’s start talking about from your perspective, what you’d want to be them to be focusing on. So this will obviously be possibly an associate or a new owner. Their income is most likely the lowest it’ll ever be in these stages and growing each and every year. I think it’s a pretty safe assumption that generally speaking in the first 10 years of career, every year is going to be an increase most likely. ⁓ you’ve got, I don’t know I believe this entirely. wrote down low complexity, but I don’t know if that’s totally true. think complexity is actually growing with your income is how I’d phrase that. that’s. Yes.

Tom Whalen: I think it start lower though, right?

Matt Mulcock: You’re saying complexity as it will say this as an associate is going to be far lower than when you’re a new practice owner. So there’s some nuance there for sure. ⁓ but complexity can get, can, can increase drastically as you go into like.

Tom Whalen: Sure,

Matt Mulcock: new practice ownership, whether it be a startup or an acquisition, complexity immediately increases. So, but that’s the general profile. You’re an associate or a new owner. Your income is rising. Complexity is rising with it. You tend to have higher debt loads, of course, in most cases. ⁓ that’s the general profile. What would you say from a tax perspective, these people need to be focusing on at that stage?

Tom Whalen: Yeah, so I think I almost want to break this down into two. We’ve got an associate, associate and owner. Now let’s just say the first, what we see a lot is where people will graduate from dental school and then they’ll spend, let’s just say three to five years working as an associate somewhere or maybe a couple of different places. But it’s really, really common that we see a few years of getting some hand skills up to speed. ⁓ Just learning the, how to be an actual dentist rather than being in the

Matt Mulcock: Let’s do it. Love it, love it, let’s do that.

Tom Whalen: classroom, so to say. And then from there, let’s just say year five to 10, they might have bought that practice and they transitioned to that ownership role. So I am almost wanting to break it down further into two. ⁓ As an associate, like you’d mentioned, ⁓ our incomes as low as it maybe will ever be, and then we’re on the rise. So from a tax perspective, if we’re, if we’re an associate getting a W-2, things are rather easy. ⁓

Matt Mulcock: Love it.

Tom Whalen: You know, we’ve got our income, we’ve got taxes withheld. Make sure your withholdings are set. Make sure if you’re able to put money into your 401k, make sure that’s set up appropriately. But also not only a tax thing, it’s just about kind of figuring out what is this whole personal budgeting, personal finance look like. I’ve got obviously student loans. Maybe that’s on deferment for a while. I’ve got maybe I bought a new house or something like that. It’s just a matter of understanding what is my personal cashflow now look like now that I’m in the real world. and making sure again my withholdings are set and I’m putting money to my for-

Matt Mulcock: Yeah, and you’re saying that specifically for the associate. Yep.

Tom Whalen: That’s for the associate. Yep. ⁓ Now, if we were to say, buy a practice at year five, six, seven, whatever. Now we’ve got debt loads that are not just my student loan or a mortgage. We’ve got a practice loan. We might have real estate debt. ⁓ You know, so there’s, there’s obviously more things being thrown around. I think the first few years of practice ownership are the most favorable. that you may ever have in the tax world because you’ve got high interest write-offs on your loans. ⁓ And we all know how that works, You look at a 30 year loan payment on a house, the first couple years of payments are almost all interest, right? Exactly, yep. Same thing with the business loan. Your interest is as high as it’ll ever be in your first couple of years, but then also your depreciation expense is as high as it’ll ever be. So…

Matt Mulcock: Basically renting the house. Yep.

Tom Whalen: Your deductions are front loaded, even though your debt payments might last 10 or sometimes 15 years. A lot of the deductions are front loaded. So you’re actually getting more deductions than you are paying cash, which that will come into play in a little bit here on the other side of that, because that’s got to reverse itself out. But on the front end, you’re in a pretty favorable tax situation. So obviously you want to understand the system, learn with your CPA, your advisor is kind of what we’re actually dealing with. What are we? Again, go listen to that earlier episodes, but understand the game a little bit. Learn the practice, learn how to be a boss, learn how to manage the staff, deal with patients, et cetera, because the tax situation is actually, it’s pretty favorable. Now, yes, there are more moving parts than there ever were before when you were an associate, but it is pretty favorable because we have all those frontloaded deductions. So to me, it’s about getting, getting your hands around, just running this practice and understanding all the nuances of practice ownership.

Matt Mulcock: Yeah, I think that’s so good. And I’d say this is the area like this. I’m glad you made this distinction between associate versus like new practice owner because the associate that is true. Like the complexity there is, is pretty minimal, ⁓ which is a good thing. It’s really simple situation. You got to get your withholdings, right? I like what you said. You got to understand your cashflow where your cashflow is going. So try to anticipate that based on you try to model that a little bit of like based on like production goes here. This is where my income goes to and You can kind of model that out a little bit. Also understanding it, say as an associate early on, like, what do I want out of this career? Do I want to be a practice owner? Cause that’s going to maybe change how you approach things just even outside of tax. ⁓ on the new practice owner side, ⁓ to your point, all those things still apply, but complexity goes up. Tax becomes favorable for those first few years. I would say, Tom, you and I’ve talked about this a lot on previous episodes and just in meetings, not like, like this is where entity and specific tax allocation timing and really thinking, setting the proper stage and foundation for the, you know, three to five years and then beyond becomes really, really important. And we’ve seen personally, a lot of big mistakes made specifically around, say like rushing to elect S corp is a big mistake.

Tom Whalen: Watching for like S status and then taking way too much depreciation. now, yeah, that’s like entity election is very, very important here. So, ⁓ you know, everybody thinks they want to be an S-Corp. And again, when your income’s high enough, it always makes sense to be an S-Corp. So I think that’s why people want to be an S-Corp, because that means they’ll have more incomes. Like that’s not the case. It’s a lagging indicator, right? That we have more income and therefore, We elect S not, we elect S and therefore we have more income. ⁓ So yeah, you wanna get there, just again, just because your friends are doesn’t mean you should be quite yet. ⁓ we’ll get there, we’ll get there.

Matt Mulcock: Yep. Well, and to that point, Tom, I think I told the story, but the punchline of it was I had a CPA tell me with a new client that now works with us that she’d come over to us. This is a couple of years ago. ⁓ She had elected us Corp way too early and it had created all sorts of huge issues with basis and early depreciation that she now couldn’t take money out of all this stuff is a big mess. And I got on with the CPA and his response was, well, she’s going to elect S-Corp anyway. So might as well be right now. And I was like, that’s the worst answer I’ve ever heard in my life. Like timing and sequencing of this is more important than the S-Corp election itself. That is such a horrible answer.

Tom Whalen: Yeah. Yeah, that’s tough. Yeah, just don’t sign S-Corp paperwork yet until you know what’s going on, right?

Matt Mulcock: Yeah, timing matters with this. Timing is, it is the thing. Like when you do it is like the most important part. So, and to your point, even if it’s like, I’m gonna make a lot of money at some point, okay, we’ll address that as it comes. But I think entity and tax selection is a huge part of this kind of early career decision to make.

Tom Whalen: Exactly. Yeah. And, and another thing too is you, this is like a year by year review, just because we didn’t elect S status in your first year, doesn’t mean that’s on the shelf now for five years. Like let’s revisit it. Right. Year two, year three, like it’s just very much based on where your income is and where it’s going. ⁓ and obviously in those first few years, not only is your, know, you’d mentioned earlier, like your income’s as low as it may be ever will be, but it’s also it’s. maybe as volatile as it’ll ever be too, right? You might have a 50 % increase in your take home pay in one year, right? Or because there’s all this depreciation, maybe your cash flow’s good, but your taxable income might dip. And that’s okay, but then in year two or three or whatever, again, we might have that 50 or 75 % bump. So it’s just all over the board. So.

Matt Mulcock: Yep, we’ve seen it. We’ve seen it.

Tom Whalen: I really encourage people to be in touch with their accounting advisory team really a lot in the first few years.

Matt Mulcock: I’m really glad you brought that up because this applies to each of these stages of like how proactive and how proactive and communicative do you need to be in these certain stages? And you, I think you just hit it on the head that like, especially early career practice ownership. And then, and then on the backend of like transitioning out, those bookends are probably, again, generally speaking, probably the most frequently, like the most proactive and frequent communication you need to have in your life with your advisor team. When it comes to things like planning out depreciation and deductions and entity structuring and income, and to your point, the volatility of it, this is really critical to get organized and have a system in place, a foundation in place early, early on. It’ll just set you up either for success or failure, depending on how you approach that. But I’m really glad you brought that up because this takes a lot of planning early on.

Tom Whalen: Yep. And you don’t know what you don’t know. So by, by year, say 15, 20 of practice ownership, you, you’ve been in the game a while now and you know, maybe you don’t know the finer details of all the rules, but you kind of know what to expect when tax payments are due and when filings are due and when we touch base and this and that, and how my bank account activity, my bank balances kind of how that correlates with my income. But when you’re first starting, it’s like, there’s so, there’s so many things flying around that it’s hard to. know anything and then like I said, you’ve never been through it before. So, ⁓ yeah, those first few years are really crucial to be in touch pretty regularly.

Matt Mulcock: Yeah, definitely. So we’d say here, far as kind of stage one, whether you’re an associate or a practice owner, especially as a new practice owner, our approach here would be don’t worry too much about like optimization. That’s a lot of things that people are talking about when it comes to tactics and strategy. This is really at this stage is really just avoiding big mistakes and setting a good foundation of organization.

Tom Whalen: Yeah, exactly. That’s where I come back to really try to get a good job or a good grasp of understanding your practice, your staff, your patients, how, makes everything tick. Again, yeah, your income’s going to bump and fall or whatever, but lay the groundwork to have a good clean practice, make good decisions business wise. ⁓ and the cashflow will follow and then the tax will kind of take care of themselves, but Those first few years are huge for just getting a good foundation.

Matt Mulcock: Yeah. And not, yeah, just not chasing anything. So I think that’s great. Number stage two, we’ll call it, uh, really that mid career level. So same thing kind of goes, I think when it comes to, you’re an associate still at this stage, so let’s say you’re seven, eight, let’s say 10 years in and beyond kind of we’ll call it again, call this mid stage career. Um, if you’re an associate, same thing, your complexity is still going to be low. But if we’re talking about. a practice owner, Tom, what changes here possibly are things that you’re thinking about for a dent or dentists should be thinking about at a mid career versus maybe early on.

Tom Whalen: Yeah, so this is when kind of the loan flips a little bit, right? Now a lot of our depreciation might’ve dwindled away. Our loan payments are now turning into heavy principal instead of heavy interest. So you might think my cashflow is the same as it was four years ago, but how come my taxes are going up? Well, it’s because again, we had those front-loaded deductions at the beginning when we bought the practice, and now those deductions have dwindled or vanished, but we still have those loan payments. So it might feel like your cashflow is worse and then we’re still getting, or it might feel like your cashflow is the same, but then we’re getting taxed more heavily. It’s just, that’s how the schedules work. So I want everybody to be aware of that. your first couple of years are pretty gravy. And then you have a few years that it just kind of seems to match. Like my income and my cash seem to match. And then the final few years of your loans, it feels like you’re getting stuck pretty good or it can feel like that. So I just want people to be aware of that. And again, it doesn’t necessarily change anything, but. just being able to plan for that. So when our income is higher, when our debts are just about wrapping up, we still have them. We need to do the tax planning and the cashflow planning around that. So just again, one thing to be aware of, but the beauty is that, these loan payments are going to go away. So now we’re in, once those debts are gone, high cashflow, really high cashflow phases, assuming we don’t just keep piling on more debt, but. At that point, that accumulation phase, right? Like that’s not just in dentistry. That’s kind of in all of, you know, all industries where you’re middle age, you’re in that accumulation phase. So it’s again, getting our buckets filled from a, from a tax efficiency standpoint. And you can kind of talk on that, like the pre-tax versus Roth versus brokerage account. ⁓ and just kind of steadying the ship, so to say.

Matt Mulcock: Yeah. I’m really glad that you brought up the, the debts part of this, the debt cycle kind of part of this for a mid career dentist, because this is also a huge misconception. ⁓ and I think when you bring this up to dentists, like in a one-on-one setting, like, yeah, I totally get that. But a lot of times they don’t, they don’t act like this, meaning they don’t act, they don’t fully grasp the debt is always paid down with after tax money.

Tom Whalen: principle, right? Yep.

Matt Mulcock: The principle, well, your actual debt balance is paid down with after tax money. And I think that’s a really, really core distinction because we’ve, to your point, we see this with dentists at this stage where they’re like, where’s all my money going? Like it feels like, and you’re right, they anchor to this early career. I took massive depreciation, my tax bills were really low. Now we start doing cashflow statements and they’re like, Where’s my money? don’t feel like I have this money. It’s like, well, yeah, cause you still have a few years left on a pretty big debt load. And the principal is always going to be paid down after you pay tax.

Tom Whalen: And I think too, it makes a ton of sense. then maybe this is something for you to chime in on, but having a, we talk about this all the time, but having a plan. If my loan payment’s $10,000 a month and it’s gone in six months, what’s the plan? I’m hoping we’re having this conversation before, but a lot of times people will maybe delay starting a brokerage account or delay whatever that might make good sense because they’re like, I’m just going to do it all when my debt’s gone, because I’ll have $10,000 a month of free cashflow. Um, and therefore I’m that’s, I’m just like, that’s $120,000 a year. can really pile it up at that point. Um, but I’m sure you’ve seen it. I’ve seen it. Not all that 10 grand goes to savings. can almost guarantee that.

Matt Mulcock: Nope, nope. It’s so easy to be disciplined in the future with everything, right? Diet starts tomorrow, diet starts on Monday, whatever. I’ll save this down the road. Oh, my house is going to be paid off in retirement. I don’t need to worry about that. Like it is so easy to be disciplined in the future. I love that you brought that up because planning starts and the habit formation starts kind of really in stage one, but absolutely should be formalized in stage two here in mid-career. of having a sound, like if stage one is like, okay, organization avoid big mistakes, get our feet underneath us. Stage two is like, like this is where I don’t know if I want to say optimization, but creating efficiencies and good habits. If those are not set in this stage, it’s going to make things really difficult down the road.

Tom Whalen: Yeah, we’ve seen a lot of people in this stage of life where their cash flow is starting to become really, really strong. Their debts are getting paid down. They’ve got a little bit of money squirreled away now and things are great. And they think the good times are gonna roll forever. And it’s like you might dial it down a notch when you’re older, right? Or in retirement, you’re not gonna be cash flowing like you are now. So if you have the… kind of form these poor habits now, it’s really hard to change those along the way or down the road. We do see a lot of times where people kind of run their business checkbook, maybe like a little bit of a personal playground. And then when it’s time to sell, they don’t have that flexibility to do that. Everything they touch at that point is taxable. So again, it’s about getting, like you said, good habits, good foundations at this point that ⁓ future Tom is going to appreciate current Tom for doing that.

Matt Mulcock: I’m again, you must be a tax guru. Cause I’m so glad you brought this up too of, ⁓ this stage is so important to start again, if stage one is just kind of figuring things out, right. Which is totally fine. And like you said, kind of working through things like a team and how’s this all going to work and just kind of like almost like a whirlwind for those first few years in this stage, is truly skidding the mindset around treating your business like a business. is so, so important when it comes to transitioning into phase three, which we’ll get to. But I think this stage is so important. The common mistakes we see in this stage is one of them, you just said, not treating your business like a business, treating it like a personal kind of like, but I’m going to call it a piggy bank, just mixing up your personal and your business on the P and L side. Another thing we see in this stage more so than any other stage is This is where chasing really starts to happen. Getting bored and chasing tax deductions. If there’s any one phase that it’s going to happen, I’m going to say you’re most susceptible to this. And I think it makes sense because you already highlighted it. You’re kind of out of massive depreciation zone. Income is higher and it hurts more. And this, and you’re bored or you’re starting to your reference groups maybe expand to higher income people and you start to get pitched more things and want to chase more things. Those are the, this is the big worry for me in this stage.

Tom Whalen: And it’s a cheesy thing that I ask people, but I say, you hey, what do you want to be when you grow up? Right. Well, it’s like, well, you’re 40 years old. What do you want to be? Yeah, right. That’d be awesome. But I asked that to a dentist where I’m asked, like, what do you want out of this? Do you are you trying to just work and make a good living and retire comfortably at a good age? If that’s the case, which I think most people say that, but then, like you said, they get pitched on X, Y. Yeah. So it’s like, let’s try to really

Matt Mulcock: Dental specific advisor. Do you act like it? Yeah.

Tom Whalen: Focus up on that because these swings that people take, they’re bigger swings because you can afford to take bigger swings, but that’s, it’s like a bigger miss then, you know what mean? ⁓ so I just, want people to be mindful and just, Hey, what are we trying to get out of this career? And then let’s try to point the ship in that direction and keep it pointed in that direction.

Matt Mulcock: Yeah, yep. Yeah. Yeah. I love that. And yeah, people always will say things that they want or that they’re like their goals or whatever. And then it’s like, but that’s not exactly how you’re, how you’re acting. So I think it’s a really good distinction to make. ⁓ just, I’m just making sure we’re hitting everything here. ⁓ I think here, if we’re talking about just kind of a quick hitting summary or checklist is in this stage is mid career stage. I think this is where you start to, you start to need to get really intentional about. Obviously, if by now you should have your entity structure kind of figured out, I’d imagine and, ⁓ your tax allocation, but you know, figuring out your W2 pay and versus how much you’re taking in, in draws or business income. ⁓ this is where retirement plan coordination becomes really, really important.

Tom Whalen: Huge, and I think we see sometimes, this could be, it sounds like a good problem, it’s still, good problems are still problems, but we see sometimes where people have just been piling up so much money inside of these like pre-tax 401Ks and profit sharing and sometimes cash balance plans. Maybe they just got loads and loads, it’s almost like they’re house poor but 401K poor. ⁓ They might not be able touch it for another 15, 20 years. And when they do, it’s gonna be so much that it’s like, hey, now,

Matt Mulcock: Yeah, totally. Yeah.

Tom Whalen: like we might need to balance the scales a little bit. having a plan in place, again, not that you might retire for any time soon, understanding what does this tax bucket look like versus that versus that, and just kind of thinking long-term.

Matt Mulcock: Totally agree. Totally agree. We’ve used that term before being careful about being 401k poor. We’ve hit this so many times that liquidity is such a important thing to be thinking about at this stage. Well, every stage, but certainly at this stage of don’t forego or miss the opportunity to build up liquidity at this stage as your income starts to increase and cashflow starts to widen. I think that’s a huge, a huge piece of this. And as you said, Philip, Trying to optimize and fill up all your buckets. your, your after tax brokerage, your pre-tax 401k or IRA, and then, and then Roth, this is a time to start really putting all that together and set a good foundation. ⁓ as your income can get paid off and cashflow continues to increase, just be really thoughtful and intentional there.

Tom Whalen: And I’m sure you’ve seen it before where people do a great job. Some people do a really fantastic job saving and then all of a they get to retirement. But it turns out every nickel they ever saved was a pre-tax. Now you’ve got a big balance, which again, things could be worse, right? But at this point you’ve got however many millions of dollars in a pre-tax 401k and now our R &Ds are kicking in and it’s like, I wish I would have a little bit more balance. So this is a really, really good stage to be kind of focusing on that balance as

Matt Mulcock: Yeah. And it takes a lot of planning, right? It takes a lot of planning and being really intentional at that stage versus stage one, where you’re probably just more reactionary and just kind of figuring things out stage two, you got to start to be really, really intentional, which leads to stage three being more of a later career dentist. So, um, you’re multiple decades in, this is where you’re starting to think of, well, I said, again, generally speaking, You’re at least starting to think about what a transition out of dentistry looks like. would imagine you might still be years and years away, by the way, you should be thinking about this years and years before you actually pull the pull the trigger on it.

Tom Whalen: Yeah, I think that’s the biggest issue is that people don’t do that. ⁓ They might be wanting to retire in five years and think or say that we will have that discussion in four years then. That to me is the number one issue.

Matt Mulcock: Yep. Yep. huge issue there. totally agree. So the, the, the person at this stage, again, we’re assuming you’re for the practice owners, you still have a pretty high level of complexity. Your, your net worth is much higher. ⁓ this stage you’ve built up quite a bit of practice equity. ⁓ and you’re again, you’re starting to kind of think about what the next stage of your life looks like. What, what things are you thinking about Tom for this type of person at that late stage when it comes to taxes specifically and, how that might differ from the other stages.

Tom Whalen: Yeah. So when we’ve got people who are either selling or on the verge of selling, they’re going to have a big taxable event at some point. So ⁓ some point soon. we’re talking about the structure of the deal. it going to be, ⁓ we, is the real estate involved? Are we splitting that up between the practice ⁓ in the, in the real estate? we closing those in two separate years? And how much do we have in ⁓ capital losses that maybe we could, ⁓ we can harvest some losses to offset. the cap gains are gonna be coming through from the sale. ⁓ we have this big, very clearly defined income event that’s happening at some point soon. So understanding not only, I’ve got Goodwill being sold for my practice and I’ve got some depreciation recapture from all the equipment and I got the real estate. How does that correlate or jive with all of our other sources of income? So we might have some other real estate out there and some brokerage account assets that are kicking off income and. We want to be mindful not only of just the practice related issues, but everything and how do they all jive together. ⁓ I guess that’s the, just strictly from a tax perspective, just planning around that key event is huge.

Matt Mulcock: Yeah, I totally agree. And I think not only for taxes, but just all of financial planning, but taxes specifically will say, I think one of the biggest, um, like, I don’t know if I want to say misconception or people, just something that the dentists don’t think about is how the game is going to completely change once you exit dentistry, like about from a financial standpoint at almost every level for, for again, withdrawals with how you handle your retirement accounts, going from accumulation mode to distribution mode, completely different ball game with completely, you’re playing a different sport at that point, completely different sport and taxes included. And you already said that, but I think one of the biggest mistakes that dentists can make at this stage is not thinking about it early enough. Like making a plan.

Tom Whalen: Yeah, difference. Right. Yeah, because right. if we think about if I want to be done in five years, the time is now because we need to have a couple of years of good clean financials when we’re presenting our information to the seller, to the buyers and to the banks. So we need a couple of years of just clean data. It might take a year to find a buyer. It might take six months. It might take a week, but it might take a year and then it might take another year to effectuate the transaction. So. If we’re talking about wanting to be done in five years, it’s like, okay, hey, let’s have a good few years. And then it might take another year or two for this all to wrap itself up. ⁓ We see that people don’t give it enough time and then, you know, they want to sell and be done, but now their financials aren’t great. And it’s not, not that it might be a bad thing. It just might be something like, ⁓ I had a grand kid across the country. ⁓ And then my other child was getting married on the other side of the country. And now I’m taking 15 weeks of vacation a year to see. you know, this family and that family and all good things, right? But it might take its toll on the practice and that, right, you might be losing hundreds of thousands of dollars of value. And if you don’t necessarily need it, like, okay, that’s fine. But a lot of times people maybe don’t need every single dollar from the sale practice sale, but it kind of stings if they don’t get it. So just planning a good clean sale is huge. And then obviously

Matt Mulcock: yeah. Yeah.

Tom Whalen: structuring that to fit your tax situation is going to be important as well.

Matt Mulcock: Yeah, I think you hit it on the head. I think in this stage, people treating retirement almost like you’re like a cliff, like, all of sudden, one day I’m not retired. The next day I am. It takes so much more forethought and planning years before you actually decide to transition. And taxes are a massive, massive part of that.

Tom Whalen: Yeah. then like you said too, what about now? I we sold now what? Well, what if we sold and did some seller financing and what’s our gain recognition going to look, how are we going to structure that? Are we going to take the gain in year one or are we going to spread it out over the payments? And am I working back at all? Do I have accounts receivable flowing in and do I have RMDs kicking in? There’s all these things that I think the conventional wisdom is that you put everything into a pre-tax bucket now because that’s your highest tax years. Well, you might still have a couple of years. in retirement that are still pretty high. So again, not only the year of sale, but kind of mapping out the next couple of years as well. What does that look like for me in my tax situation? Cause it, it’s not like you’re going to have $0 of taxable income once you retire.

Matt Mulcock: Yeah. ⁓ definitely. Most likely not depending on your situation, but most likely not at least, at least as you said in those first could be several years post post sale, depending on how you structure it, there’s a very decent chance you’re going to have still quite a bit of income coming in. So that’s something to be thinking about. The, the other thing I would mention just, we mentioned in phase two of like optimizing retirement plans in that level and like being more intentional about that. I think that becomes. That carries over to this stage as well. And just in your last few, or let’s say your last decade of your career, this is where in most cases, or I’ll say generally speaking, debt’s usually gone or close to being gone, or it’s not, it wouldn’t be out of the realm of possibility to say this dentist has no debt, but at least on the business side, I think it’s actually pretty reasonable to say that. we see this all the time. so cashflow is max level usually in those last, that last decade. This is where again,

Tom Whalen: Yeah.

Matt Mulcock: carry over from stage two is being even more proactive and thoughtful about your asset location, where you’re putting money. But this tends to be the years in that last decade, we’re doing something like a ⁓ cash balance plan starts to make possibly make a lot of sense. you’re like over it. Maybe you maybe in stage two, you built up a ton of liquidity. did a good job building a brokerage account. Now it’s like, okay, we actually might be able to backload a lot of this pre-tax money. because this is the highest income you’re ever going to have. And from here, it’s going down. We see this quite a bit of like, how do we, how do we back load retirement accounts? ⁓ if you, but you gotta be thoughtful about how you’re locating those assets.

Tom Whalen: Yep. And we’ve seen it too, where, um, let’s say we’re in retirement now and we retire at, I don’t know, 62, 63. So it means we’ve got about 10 years before RMDs kick in. Well, people have been paying taxes at a high rate for the last, I don’t know, 30 years. And we see it sometimes where there’s like, I’m so sick of paying taxes. I get it. But now we’ve got this 10 year window where our income has definitely dropped because we haven’t been taking RMDs yet. We got the practice sale. ⁓ that’s out of the way. we’ve got this roughly 10 year window where there’s a lot of opportunity to do some, Roth conversions. And I have heard it a number of times where people just get pretty annoyed. They’re like, you’re telling me I should go pay some tax right now. Like that’s exactly what I’m telling you because we’re doing it at a really low rate to lock it up. You know what I mean? So for the future. So the issue I’ve seen there is that people just.

Matt Mulcock: Yes.

Tom Whalen: don’t want to do it. They just don’t want to talk about it. They’re like, I paid enough tax, we’ll deal with the RMDs when they come. And we could be locking in really low rates for this 10 year window until the RMDs kick in. So again, it’s not just about the year of sale, and it’s not just about the year RMDs kick in. There’s a lot of time in between sometimes.

Matt Mulcock: Again, so glad you brought that up. I just had a conversation, two separate conversations, Tom on with you before we got on to record. Um, but even before that, had a meeting with a client who is at this exact stage. He’s retired. He’s completely sold out of his practice. Um, starting next year is the first year he’s going to be at a stage where income drops significantly. We’re talking about like multiple six figures because he just finished the trends, the second half of his transaction in 2025. So now in 2026. Income is going down quite a bit. still has income, but not even close. So we just got off a year end call where we’re talking about accelerating some deductions for like charitable giving and things like that. ⁓ but also we started setting the stage for Roth conversions and whether that happens next year or beyond, but he’s young. I mean, youngish, like he’s, younger than the typical, ⁓ Dentist retiring. And he’s got a big window of time where his income is now drastically dropped. to where we’re starting to convert, having that conversation to your point is tough, but just generally speaking, the idea here is you’ve maximized your tax deductions on the contribution to a retirement account at your highest marginal rate. And then when you go to convert it, assuming that your tax brackets are now lower, you’re now converting. So let’s put some math to this. Let’s say you’ve taken the deductions at 37%, the highest federal tax bracket. You’ve saved the 37 cents of the dollar in retirement. Let’s assume you’re now down on the 22 % bracket and you’re going to max up to that bracket and convert those balances. That’s a 15 % what we’d call arbitrage. It’s a legitimate tax savings that you just locked in. That’s a real number. It’s a real savings number. And I don’t know if people fully think about that all the time or they’re like, like you said, it just sucks to pay more tax. get that. hurts.

Tom Whalen: Yeah, that’s a real conference, right? ⁓ Yeah, and I think people think about the first half of that, hey, I know it makes all the sense in the world to deduct this against my 37 % bracket. They love it. But then it’s time to pay the 22. It’s like, ah, I don’t want to do that. Well, if you don’t and this balance keeps growing, growing, growing, and now your RMDs are huge, you might have some other sources of income as well. You might be back in that 35 % bracket if we don’t do it. So let’s lock it in. Let’s complete the plan that we talked about 10, 12, 15 years ago.

Matt Mulcock: Exactly. Yeah, totally agree. the other thing I’ll say, did you just said it around Roth conversions? The other piece of this is this at this stage, you need to start thinking, generally speaking, you’re going to be thinking a lot more about estate planning as well. And one common thing we get that I think dentists get confused is the understanding around probably never before had they thought about like gift tax and what does that actually mean? And how, how is that different than ordinary income tax or capital gains tax other tax? questions and complexities possibly could start to come in at this stage as well that you need to be really thoughtful about when it comes to things like again, converting Roths or how you’re going to pass assets or what goals do you have? Like your, your mindset around financial planning can have a big impact on your tax strategy when it comes to, I want to leave a legacy, like a financial legacy to my, to my heirs or do I not? That’s going to be a huge. that’s going to change how you approach taxes now and in your retirement years.

Tom Whalen: Yep, sure. hopefully you’ve got a good estate plan set up with the trust and, you know, all those good things. So, if you don’t, maybe talk to an attorney sooner than later.

Matt Mulcock: Yeah. Yeah. Yeah. We also help with that as well. I did as advisors, so we can certainly help. ⁓ so, okay. So if we just hit like a summary checklist here, we talked about this modeling your tax bracket is really critical here of understanding where am I at now versus where am I going to be as much as you possibly can having a proactive tax team is going to be helpful with this planning. ⁓ go ahead.

Tom Whalen: Yeah, and real quick, jump in there. Like you said earlier, the bookends, like this is absolutely right, where at the first stage, your income’s kind of going up, up, up. And on the back end, it’s kind of on other way. So modeling out those future few years to just have a, not just a today plan, but a next three, five, seven year plan.

Matt Mulcock: huge. It’s so yeah, this is, I do think dentists tend to think once their careers over as a dentist planning stops, and that could not be further from the truth. I think planning actually sometimes I’d say gets even more critical at this stage. ⁓

Tom Whalen: Yeah, and to be clear, it’s not like we know what’s going to happen in five years, but I always say I’d rather have a plan than make small adjustments as needed than have no plan at all and just kind of free for all everything.

Matt Mulcock: No. Yeah. And make a plan on the things that we do know, which, and we can, we can know like within a pretty decent range of, okay, here’s my income now in my final years of practice ownership. We can guess pretty close once you sell the practice where cashflow is going to be and model it out based on current tax brackets. So it’s, it’s still some guessing. don’t know if like, okay, the midterm elections makes changes, tax policy or whatever. We don’t know those things, but we do know quite a bit about your situation and can, to your point, build that plan around the things we can control.

Tom Whalen: Yeah, just make those minor tweaks as necessary.

Matt Mulcock: Yeah, exactly. ⁓ okay. We talked about being strategic with, just planning withdrawals, intentionally thinking about not just now, but what is it? How does this relate to RMDs in the future? Being really specific and strategic around Roth conversion strategies and things like that. ⁓ social security, that’s going to be a big part of this. just like we said earlier in phase one, the tax tales should not wag your financial planning dog or your wealth dog. Right? It’s the same thing here. It’s not that you’re making decisions solely based on tax, but you need to be understanding the big picture and then optimizing secondarily around taxes. Like, what do I want? It’s kind of like what you saying earlier with stage two, what do you want out of this career in stage three as you’re getting ready to exit? What do you want out of retirement? What does that look like? Okay, cool. We have a good clear understanding of that. Now, how do we get thoughtful and strategic with how to like, fit the tax strategy within that. So that, that comes down to two charitable giving Roth conversions, practice cell timing. You mentioned like, are some big, big decisions we have to be making and being thoughtful. So I think, ⁓ it goes without saying you hopefully have a really proactive and engaged tax and advisor team that you’re working with. Like it’s critical and those conversations we cannot stress this enough need to be starting several years out.

Tom Whalen: Bingo. Absolutely.

Matt Mulcock: ⁓ okay. I think that summarizes the three or we, guess we kind of broke it up into four depending on associate or non, but like generally three stages, early, mid and end of career. ⁓ Tom, anything that you would say, ⁓ to wrap, wrap this up regarding the whole tax series, what Dentist is going be thinking about from a tax perspective.

Tom Whalen: I think we’ve said it, think almost if not every episode, probably almost every episode that the goal really should be accumulating. If we’re just talking about dollars and cents, the goal is to accumulate the most dollars and cents, right? Taxes alone aren’t going to solve that equation for you. They’re certainly a tool in that equation or a piece of that puzzle, but they are not the be all end all. So let’s look at the best economic outcome first and foremost, and then let’s bring taxes in secondarily to supplement that. So I think my big takeaway I want everybody to have is that, yes, they are certainly a tool, but it shouldn’t come before running a good clean practice, structuring a good asset purchase agreement or asset sale for your practice. So ⁓ we want to use taxes to our benefit when we can, but again, let’s think about some other stuff first.

Matt Mulcock: Yeah. I think that’s great. I totally agree. I don’t have anything to add. The only thing I would say is don’t let it, don’t let it take the place of running a good business, a good, profitable, clean business, and also living a good life and stressing yourself out to the point of like, I have to maximize every little thing and optimize my whole life around taxes. I’ve seen this too, at the expense of being present and intentional about not only your business, but again, your life.

Tom Whalen: Bingo.

Matt Mulcock: And thinking about this big picture, ⁓ think that’s, that’s great for a great way to end it. anything else, Tom, any other, we’ve, this has been a five part series. I think we’ve hit, hit quite a bit, quite the journey. Hopefully it’s been helpful. ⁓ if you’re out there listening and you’re thinking whether this be the first tax episode you’ve listened to, or you’ve listened the whole way, first of all, thank you. We appreciate it. We really, really hope it’s been helpful. Everything we do with this is just.

Tom Whalen: Hey, we did it. It’s been a fun ride. Yeah.

Matt Mulcock: Hopefully educational and adding value to the dental space. But if you’re out there thinking, man, I’m at whatever stage you’re at, you’re at, and you’re like, I need more help because this, as we’ve mentioned many, many times, this is general discussion. You really need to be diving into this to your specific situation. If you need help, we are here to help a dentist advisors. do tax planning, accounting, ⁓ bookkeeping now at Dentist advisors with the help of Tom and his team. ⁓ you can go to dentistadvisors.com/accounting If you want to book a consultation, ⁓ and we’d be more than happy to dive into your situation and see how we can help, ⁓ with your specific situation. ⁓ for now though, we, if you’re still listening, you’re one of the cool ones, Tom, we appreciate you being here and sharing your, your guru words of wisdom, truly, truly helpful. And I know everyone appreciates it. Everyone. Thanks for listening until next time. Take care. Bye bye.

Keywords: dentist tax planning, tax strategies, financial planning, dental practice ownership, tax deductions, effective tax rate, entity selection, retirement planning, wealth accumulation, tax mistakes.

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