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Year-End Tax Issues, a Field Guide for Doctors


The last 60 days of the year are a key selling window for both good and bad tax reduction schemes. Make sure you cover all your bases.

The last 60 days of the year are a key selling window for both good and bad advisers who seek to put doctors into a variety of tax reduction schemes of questionable value. Today I will provide a variety of resources to help you navigate these offerings and ask the right questions.

Make sure you run the projected savings by a CPA that's experienced with such plans (not all of them are - some are very educated and proactive, and others just fill out returns) and discuss alternatives. The truth is in the math, so ask your advisers to show you comparisons of what several different plans would do for you. I've seen a variety of third-party resources over the years that provide a simple overview of different plans including this one from the 401K help center that was updated earlier this year.

Timing is everything, stop shorting yourself

It has been my experience with thousands of doctors that many wait until the last few weeks of the year to think about and act on tax planning. This is bad for a number of reasons:

• This often leads to physicians making a decision at the cost of doing any real due diligence about the legality and effectiveness of the options they are being presented;

• This leads to poorly thought-out plans that often have legally onerous and/or expensive exit strategies if you decide you don't like them in the future;

• Acting late often does not allow your trusted advisers to investigate all the options and comment on your behalf, as they are busy with other clients or the holidays. Remember, we like Thanksgiving, Christmas, etc. too;

• The best advisers, plan administrators, and others are in high demand; this often means that doctors who procrastinate are left with second- and third-tier providers who had time to get you in, while the best ones were too busy.

• Even if you do get lucky enough to find a top provider that "squeezes you in" do you really want something so important done on a rush basis?

Life insurance

Many tax savings plans involve the purchase of a significant amount of life insurance. In some cases life insurance is the right tool for the job and provides benefits like tax-free growth and the ability to take loans as tax-free income. In other cases advisers aggressively push the structures as a way for them to sell you large amounts of life insurance. I highly suggest you do some detailed reading of their sales materials, run the idea by your CPA, and use our previous due diligence guide on life insurance to ask questions about any policies they may be suggesting.

Too good to be true

I've provided several warnings about tax scams  that are often sold to doctors and covered the "frivolous argument"  variety in detail last week. I find that rushed decision making, tax sensitivity, and the desire to make commissions and fees are a deadly combination for doctors. If you add the other pressures we all feel about the economy, politics, and world events in general, it becomes even easer to make bad decisions based on fear and a general feeling of uncertainty that grips so many smart successful people. The scammers know this and prey on it, so make sure that you've reviewed both my look at trust and tax scams that prey on the fears of conservative doctors and the list of common tax time schemes to avoid.

As always, the advice here is general and not specific to your facts and numbers, so get some real help. Legally and predictably minimizing the taxes you pay with expert help is good business and makes sense, so don't let these warning discourage you from acting within the law, I just don't want you to make a mistake that could cost you more than the tax itself would have.

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