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Tax Planning Strategies for Physicians and Small Business Owners

August 19, 2022
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Optimizing cash flow, planning for retirement, and developing a tax strategy are important considerations for physicians and small-business owners. These groups of professionals face tax exposure due to a number of factors, including their potential for multiple sources of income. If planned accordingly, there are advantageous tax credits, deductions, and strategies to help offset exposure.

Many people ask when they should start planning — the answer is as soon as possible. It’s also important to start earlier in the year as some strategies are time-sensitive, and tax saving does not begin until you implement them. Summertime can be an excellent time to plan for the following year. Tax season will have just ended, giving you insight into where you might be able to make some gains and take advantage of upcoming tax programs and incentives.

Taxation and Geography

Simple geography plays a significant role in the amount of tax we pay. Living in a high-tax state can significantly impact your long-term strategy. For example, New York State is a high tax rate state — not only for income tax but for property tax and cost of living as well. The rate of taxes in your state is something you should consider when implementing your long-term tax strategy, especially as a physician or medical professional. Working with a qualified advisor and tax professional is recommended to optimize your tax plan to suit your needs.

When It’s Time to Retire

As physicians and small business owners approach their business exit, they should consider several items in preparation for the sale. Much can be done prior to retirement to reap the many rewards from the hard work and progress that have been put into your business. A dual Certified Exit Planner and Financial Advisor like us is positioned to help you grow, protect, sell, and use the sale proceeds to help you through the distribution stages of your financial plan.

Potential Tax Deductions and the IRS

One of the most common frustrations business owners experience regarding tax planning is being denied tax deductions by the IRS. It is essential to document everything and keep all receipts. Proper documentation and record keeping are necessary so that all income and expenses are correctly recorded and adequately allocated, removing any potential dispute from the IRS.

As financial advisors, we look at your income and find creative ways to distribute more money back into your household or business. Reinvestment opportunities from tax savings help you create more value in your assets. As part of the advisor’s role, we may recommend that you create a separate LLC for additional income sources such as rental properties or partnerships in other businesses. The LLC may help protect you and your practice as you funnel more money into your household.

Huskey Financial can help you create a cash balance plan, profit-sharing 401k, and many other options, to help ensure that you can better plan for retirement and adequately plan your taxation strategies.

If you are a business owner or a physician with multiple sources of income, we suggest you leave your financial planning to the professionals. Check out our podcast for all the details of tax planning for physicians and small-business owners: Episode 47: Physician Specific and Small-Business Oriented Tax Planning Strategies.

Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.