If you’re like me, taxes are my biggest expense and one of my biggest frustrations. I had talked to numerous local accountants and was always told there wasn’t anything I could do about it. Last year, I was introduced to a proactive tax planning firm and had the opportunity to work with a certified tax coach. You might ask, what is a certified tax coach? They are an elite group of tax professionals that include CPAs, tax attorneys, and enrolled agents with advanced training in year-round proactive tax planning. There are fewer than 500 of them within the U.S., but, based on my experience, they are worth their weight in gold.
My tax coach helped me renegotiate my W-2 contract last year with my hospital to become an independent contractor, kept all my most important benefits (and allowed me to replace some of them with better ones). He created a strategic tax blueprint with specific recommendations, then helped me set up a couple of LLCs, one which was an S corporation to provide medical services and the other a C corporation to provide consulting/management services. Each one had certain tax strategies and benefits that allowed me to take advantage of deductions and loopholes under the tax law that helped me pay a lot less tax.
Your situation may be different than mine, but some of my favorite deductions include:
- Reduced FICA/Medicare taxes by paying a smaller salary from my S corporation
- Increased contributions into my spouse’s and my retirement plans
- Hiring my kids and funding their future college education
- Renting my home office to my LLC
- Getting the most deduction for my business vehicle
- Deducting a home office
- Writing off a portion of my business meals and fun business trips
- Taking advantage of corporate “fringe benefits,” including a medical reimbursement plan, dependent care plan, education assistance plan, employer-provided athletic facility, and other de minimis benefits.
All in all, my tax savings were over $58,000 last year and are projected to be more this year.
In conclusion, here’s why you should work with a tax coach:
The tax laws are not fair. The tax laws are written to incentivize or disincentivize certain behavior – through businesses and investments.
The ideal way to reduce your taxes is to do exactly what the government wants you to do. Why fight the Internal Revenue Service when it’s a lot easier just to follow the rules, make more money, pay less tax, and sleep better at night?
It’s not how much you make, but rather how much you keep. How much taxes you pay is not determined by how much money you make but instead by how you make your money. Earned income (i.e., W-2 income) is the highest tax income there is. A proactive tax plan only works if it is based on your personal situation.
The tax laws are always changing. It’s one of the certainties in life. To pay the least tax legally possible, you need a team of seasoned professionals specialized in understanding the ever-changing deductions and loopholes available under the tax law.
Your proactive tax strategy works only if you act. Waiting until April 15th is too late. Tax planning starts as early as January and continues throughout the year. The sooner you start putting the dozens of ideas into action, the sooner you’ll put money into your pocket.
There are some great tax coaches out there. I’m so glad I found one! With physician burnout at an all-time high, physicians cannot afford to waste money, paying unnecessary taxes that erode their ability to help them achieve financial freedom. It is more important than ever to have a sound tax plan, and a team of experts behind it, focused on freeing physicians from financial stress so that they can enjoy what they do best – taking care of people.
Melanie Kramer-Harrington is a family physician and is on the advisory board, Physician Tax Solutions, LLC.
Image credit: Shutterstock.com
