Want to keep more of what you earned this year? Here are some basic tips to get you thinking now about the end of the calendar year.
In a previous article I covered the huge amount of tax fraud that targets doctors in the fourth quarter of every year. As detailed, tax planners of questionable skill are aware of your frustrations and know those pressures may be greater than ever given the economy in general and the reimbursement shortage many physicians are dealing with.
I encourage all my clients to investigate appropriate and relatively well-proven strategies like Section 79 plans and defined benefit or contribution plans to see if there is a good “fit” and cost/savings benefit at play, but those plans are often complex and expensive. As a start, I also remind them that there are many good, simple tax reduction strategies you can discuss with your CPA that are often overlooked.
These kinds of articles typically appear later in the year, when you are swamped with other issues, distracted by the holidays and can do nothing but read the tips about what you should have done wistfully. I hope this helps you get a jump on keeping more of what you earned this year. This list is just a start, and no portion of it can be considered specific tax advice. Make sure you’ve got a great accountant to help explore and expand this list in way that’s specific to you.
1. Get a great accountant. What’s the difference between a good accountant and a great accountant? A good accountant is technically proficient, takes basic deductions, and calculates what you owe. A great accountant does all that and finds and explores every legal means to reduce your tax bill and help you plan for it in a tactical way.
2. Defer income until next year? Maybe, maybe not. If you will be in a higher bracket or if you and your CPA believe taxes will soon increase, it may make sense to take more income now and pay a lower tax rate. Examine the possible benefits of deferring receivables and income carefully and see if you can make it work. Available strategies will be at least partially dictated by your corporate form, or lack of it.
3. Audit your books now. Get a good idea of what you owe and what/how much you have to work with. Get a handle on the tax liability you are likely to face and decide how much of that you want to keep. Balance the costs and contribution obligations of the plans with your cash flow needs and projected earnings. Don’t be “poor” because of your tax plan, but contribute right up to the edge of your comfort zone, then push a bit more. The extra money in the bank will make it worth it down the road.
4. Spend down profits on fixed expenses. This commonly includes issues like early year rents, insurance, office and medical supplies, marketing and stationery, equipment upgrades, recurring bills to vendors and service people, and even maintenance and improvement of your physical facility. I’ve also seen recent articles with tips on pre-paying fixed expenses like travel and professional education. If you know you are attending that conference across country again this year consider buying rooms, tickets, and even continuing education credits for courses now.
5. Investments; consider selling off winners and losers to offset your profits. Do this carefully and purposefully with your financial advisor’s help. While a consistent “hope and hold” is a good sign you need better help, there may be specific issues to consider on each holding. Make sure you get the answers before you sell. If you had a bad enough year, you may also be able to offset several thousand dollars in ordinary income.
6. Max fund what ever plans you do have in place. I’m amazed at how many people say things like, “I didn’t even bother because it was only XXX thousand dollars...”
As you can see from even this admittedly basic list, a number of small wins can add up at the end of the year. In this challenging business environment keeping more of every dollar should be at the top of your business plan.
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