Reduce Your Tax Burden with Doc Wealth - WCI Webinar

Welcome to this White Coat Investor webinar where we're going to be focusing all about how you can reduce the tax burden that you've faced ever since you got out of residency and realized your tax bill was larger than your income used to be. Today we have the folks from Doc Wealth. We have Dr. Mark Applegate. He was one of the two founders of the company. We have Laxman Pitch a panel who is a co founder and a cpa. Welcome to the webinar guys.

Thank you for having us. We're very excited to be here.

Yeah, I'm great to be here.

Let's just talk about the beginning of Doc Wealth. I mean what really initiated the idea for it.

So yeah, I am an emergency medicine physician and basically what happened was I went through all of my training, ended up finishing residency and went straight into a 1099 contract. Actually I had, you know, a general knowledge base thanks partly to White Coat Investor reading, kind of being somewhat prepared. And then I got out and you know, I didn't want the burden of having to manage all of my taxes myself. I wanted to focus on patient care and you know, working shifts and not so much stressing about everything that comes with being a 1099 physician. From the tax financial side. I picked up the phone and what I noticed was I struggled to find a CPA firm or a tax firm that was exactly what I was looking for. So what I kind of realized was, you know, there's do it yourself. There is a lot of tax firms that are focused on W2 individuals. There's a lot of tax firms that are focused on businesses but particularly larger, larger businesses. And I think I was struggling to find a firm that was used to working with single member such as, you know, single member physicians that are single member S corp and are kind of niched in that area kind of understanding as well as I was doing locums and working in multiple states and the correct entity type and foreign qualification and just a lot of nuances that I was struggling to find. That's when I was, you know, I've tried to pretty entrepreneurial in the past. Before medicine I was an electrical engineer engineer. So always creating and building things and I just had the idea, hey, why don't we just build a better tax firm specifically for physicians. That's when, you know, I picked up the phone, I gave Waxman a call. Laxman is actually a long term friend of mine. Back in undergrad prior to med school we were college roommates for multiple years. Laxman ultimately ended up going the CPA route, switching more into the finance side. And that was kind of the birth of Doc wealth.

Awesome. It's a classic startup story, right? College roommates start an incredible company and change the world. For those interested in just going straight to the source, you can go to whitecoatinvestor.com docwealth and take a look at their website as we're going through this webinar. But let's start with I think the biggest, the big elephant in the room, right, which is the difference between tax strategy and tax filing. Right. A lot of people hire a cpa, hire an accountant, hire an enrolled agent to file their taxes once a year. But you guys differentiate what you're doing from that in that you do quite a bit more tax strategies. So tell us a little bit about that approach.

Yeah, absolutely. So tax filing is typically when you meet with your CPA at the end of the year, you provide all your documents and forms. They essentially, it's a one way form of communication. They input all the details and they provide your tax filing. There's not a lot of discussion on how to be proactive. What are things that you could do to minimize your tax liability? Whether it's investments in real estate or other assets that depreciate retirement accounts, it's just very one directional tax strategy is bidirectional. So we are proactively communicating with all our physicians year round. There's multiple touch bases. As your own financial situation or income generation changes, you typically want to reach out to your CPA or tax strategist, say, hey, my income's changing. What do you recommend? What can I do? And so it's continuously fine tuning as the tax code changes or your own personal situation changes. Because every dollar you can save is money back in your pocke leads to wealth generation.

So when does somebody know that they need tax strategy, it makes sense to evaluate their tax strategy. I guess that's kind of a question of who's it right for, who's it not right for?

That's a great question. I would say that every single person that is looking to minimize how much they're paying in taxes should evaluate, at least have a discussion with a tax professional and evaluate their options. Typically, W2s are far more limited in their scope of possibilities and tax strategies versus someone who's a business owner. The tax code heavily favors those that create their own business or 1099s or even part of a partnership. But getting on a call with a cpa, just understanding what options do I have, is that something I'm interested in is I think everyone should evaluate at.

Some point in time maybe a few examples of how a proactive year round tax planning strategy actually contributes to building long term wealth and getting to financial independence.

Yes. So for example, many of the physicians we work with from residents as they become attendings, they typically take a 1099 role or a combination of W2 and 1099. So evaluating that 1099 as a sole proprietor LLC or PLC based on which state you're in and doing an S corp is a good starting point because just by having an S corp it allows you to structure it where you get a reasonable compensation as well as remaining amount as a distribution. And so this allows you to minimize potentially the self employment taxes as well as the fica. Right. And so there itself, you know, there's probably a material amount of money that you're, you're able to get cash back in your pocket to reinvest as you see fit. From there, you know, there's a, there's many, many opportunities so you can look at okay, well what expenses do I have incurring on know that are ordinary and common for this role as a local physician, for example, is it travel, is it food, equipment, home office, retirement planning? All, all of these different are pretty popular categories that, that you know, you're probably spending already as is to do the, to do the job. But now as a business, there are things that you can deduct against your income that you're generating that ultimately lowers your tax liability.

So everybody's tax situation is unique. I mean, you know, different state laws, etc. Different business entities, you know, maybe their spouse is working, maybe their spouse is also has their own business. You know, everything, everybody's unique. How do you tailor your tax strategies to fit those unique situations, especially those working across multiple states.

So we would look at every single person very specifically, you know, whether it's, you know, they're a no state tax like Florida or Texas, whether they have state taxes, each state has its own rules and compliance as CPAs. Our entire team services all 50 states. We would look at detail, okay, do they have a city tax? Is there a state tax? What is the federal, what is your spouse's income? Are they W2, 1099? Does it make sense to file married, jointly or separately? Many physicians that have student loans, you know, we'd also do the analysis side by side whether it makes sense to file separately. But no matter what, we would run the calculations as any good CPA tax strategist does is to look at what makes sense to optimize at the end of the day, paying the least amount of taxes.

Okay, let's talk about some of the systems and practices you have in place that help you to answer the client questions quickly and efficiently.

So when you onboard with us, we've created. So I come from a tech background. I spend about a decade in Silicon Valley and so customer experience user interface is very, very central to my experience and background. So from the moment that someone enters Docwell's platform, we have our, it's called Circle. We have a ton of educational content in there. You'll have direct access where you can schedule a time with one of our heads of tax. We have a team that includes tax attorney, a JD, LLM, CPA as well as multiple CPAs. And in there you will be able to have a one on one session. They will look at your prior tax year returns as well as what is your financial situation currently and what you expect going on in the next 12 months and beyond and start evaluating and understanding. Okay. What are the different possible entity structuring or tax strategies we can implement. From there we will leverage the platform where you can interface with the CPA or the tax team any day throughout the year, unlimited number of times because we know that you know, things happen day to day. And so even if you have a question, should I buy a car? You can reach out. So there will always be a team member that is available to jump on a call or answer the question. And typically within 48 hours you will always get a response. And so the platform has several engineering and integrations built in where that you will quickly get a response by someone from the team within 48 hours or at least point you to one of the, the sources of information within the platform that specifically walks you through step by step, how to handle that, that situation.

Right. And I would say, you know, that's one of our main focuses. Right. Especially me coming from the physician side. I understand fellow physicians are, you know, working long hours, they're working shifts, they're working nights, weekends and they want a tax team that can get back to them. So we really put a lot of pride and focus on the response time that we're servicing our clients well as well as offering, you know, multiple hours of availability. Even our, our, our head of tax, we do multiple hours of calls, weekends, nights, multiple availability to kind of service around physicians who can't always just fit in, you know, the Monday through Friday 9 to 5 because they may be seeing patients.

Can you describe the process walk us through it, from the initial call to implementing your plan for a typical client, what does it look like, how long does it take, how much input do you need from the client, so on. Yeah.

So typically when a client onboards, they will have within a couple days a call with one of our heads of tax. On that call, it's probably about 45 minutes to an hour where they will upload their prior tax return. They will sit and run through all of their details, how many kids, where their investments are, what is the total estimated W2, 1099. Any side investments, and kind of go through different tax strategies that could possibly make sense. From there, the tax team, we all kind of get in a group where Our tax attorney, CPAs and rest of the tax team will sit together, evaluate the situation and. And everyone has their own expertise and come up with a list of recommendations, potential savings, and what are the detailed steps in documentation that is required to achieve those savings? All the way from retirement accounts, whether it's SEF, IRA, SOLO, 401k cash balance plan, all the way to looking at real estate. Does STR make sense? Short term rental, long term rental, what are the rules? The documentation required, we'll share that back within another few weeks to the physician. At that point, we'll likely have a call to walk through if there's any questions. And the goal from there is, together, through a partnership, we will look to execute that tax plan because end of the day, we are advisors. And so ultimately, whatever our physician wants to implement or feel comfortable with, we will look to streamline that and handhold them all the way through execution. So come filing time, we can recognize all of those tax saving initiatives.

Yeah, I would just add we've put a lot of effort into designing the onboarding process. I know, like kind of from step A to Z, we kind of walk you through the entire pathway. It depends on each physician what's needed along the onboarding process of how long the onboarding will take. But we really tried to bring and service everything in house. Right. So if you need an entity, we will go ahead and work with you to set up the entity. Instead of, you know, having to go do it yourself or having to go find somebody all the way through payroll, we'll work with you, we'll set up payroll primarily. We use gusto as well as if we need bookkeeping, we'll walk you through and set up your, your qbo. We try to streamline everything so the physician can come to one, one place and kind of get full service.

So a lot of Business services in addition to tax preparation and tax strategy.

Exactly.

We do anywhere from entity creation, as Dr. Applegate mentioned, all the way to bookkeeping, payroll management. The tax strategy is really at the heart of everything. And then all the way through tax filing.

Now what do you hear from the clients? I mean, sometimes people do this just because they don't have the expertise, they need the help, they don't know what they're doing. But sometimes they want to reduce the mental load. They want to be able to focus more on patient care and growing their practice. Talk a little bit about how handing over the tax and business services to Doc wealth helps them do that.

Yeah, I could answer that. So I would. You know, this is kind of where I was myself as a physician and a physician customer. Right. So we make really good money seeing patients and we trained hard 10 years plus to get to that point. I think a lot of our focus and our interest are on seeing patients and not so much, you know, managing your books and managing payroll and setting up entity. Although there are some that really enjoy those topics, there's others that really just want to focus on the clinical side and they don't want the extra administrative burden. So I think, you know, that's one of our, you know, main points that a lot of our physician customers like is just not having the additional stress of worrying about setting up all the business structure and the payroll and managing your books.

Now a lot of firms out there, you know, measure the success of their tax strategy in, you know, some return on investment. They look at the fees and they look at how much the tax bill decreased from the prior year and calculate a 400% return on investment. How do you guys measure the success of your tax planning strategies?

I think there's two elements to that. One is how much can we save you time from even having to think about the tax process, Whether it's quarterly tax estimates, what entity structuring that you need. And so because ultimately the most valuable thing at the end of the day is time, that time could be used for family or to go back and do more shifts and generate income. The other element is the actual strategies that are implemented and what tax savings that that they yield. And so Those have an ROI. Typically so far we've been averaging around 3 to 4x. But it really ultimately depends on the individual and what they opt into. Because if they're deciding to do, you know, a short term rental and do cost segregation, they can be 10 times what they pay us. But we typically see that there's a lot of low hanging fruit with, with most physicians just from energy structuring, retirement planning, home office deduction, general expenses that are already incurring. Right. And so it's a combination of time and headache and being hands on as well as the actual dollars at the end of the day.

Yeah. And I would say, you know, a lot of our focus is on long term tax planning. Instead of just, you know, focus solely on a quick roi, we look at the individual, we go through the whole plan and year after year as things change, a lot of our physicians, they even come to us quite often and they say, hey, I'm considering this job, it's going to be in this state. How's that going to affect me from, you know, say, a tax perspective? So a lot of our focus as well is on a long term relationship and back and forth kind of relationship with our clients.

Now, is it fair to measure as savings taxes that are only deferred? For instance, you set up a cash balance plan that allows somebody to defer $90,000 this year and they have a 33% marginal rate and you're like, well, I saved you $30,000 this year, even though you're really only deferring those taxes and may or may not be able to, you know, have some sort of arbitrage between the rate of contribution and the rate of withdrawal.

Yeah, that's a great question. I, I think it comes back to time value of money. So money that you, that you have in hand today, what do you ultimately can you do with it? So many of our positions are very much the real estate game. So even if you do a cost segregation and you are deferring that through accelerating the depreciation, they're taking that additional cash and being able to reinvest it into another property. Right. That is, that is generating a return as well. So there's different elements that are deferred as well as those that are just, you know, pure deductions. Hopefully that makes sense.

Yeah. Sounds like you have plenty of expertise to walk people through real estate professional status or the short term rental loophole, those sorts of common deductions that people are very interested in when they start talking about the tax benefits of direct real estate investing.

Yes, I would say that probably more than 50% of all the physicians we work with are all doing real estate rep status, short term rental or long term rental. We ourselves, me individually, you know, I'm doing that personally, my wife has rep status, we're buying properties. So we, we definitely live and breathe what we're, what we're sharing and walking our clients through.

Now as I go through your website, I paused on your pricing page. You know, your, your concierge service, Start 3799 and that includes lots and lots of stuff. Now I'm used to seeing tax strategists that charge 12 or $15,000 or more a year. What makes you able to offer these services at significantly less than other firms?

Leveraging technology. We built a platform, we spent about seven months just building out the platform, hiring several engineers where we are able to minimize the overhead and administrative tasks and let technology be able to streamline the communication, make sure that messages are being answered. And really our core team is all those that are actually having the technical skills to go and interface with the clients at the end of the day. And honestly, at the end of the day like you know, we're able to achieve and provide this hands on service at $3,800, you know, and, and our goal is not to have this, you know, super high margin business, but to, to really work with as many physicians as possible and really kind of make an impact at a broader scale.

Yeah, right. I think that's been, our entire goal is servicing physicians, servicing them. Well, not so much just looking at, you know, how we could maximize our profit or intake, but we're more focused on physicians, fellow physicians.

Now the add ons can certainly add up if you have a very complex tax situation like I do. I mean I think I had 21 K1s last year and filed in non state, nine states. I mean you put on the, the add on fees. I think you're 199 for each additional state and 500 for each additional LLC or rental property. But even so, you're still, you know, only barely getting into that range where, you know, I'm paying almost that much just in tax preparation. I'm not getting any tax strategizing out of my current accountant.

Yeah, that is overwhelming. Like almost every physician that we get on a call with has two things that they bring up. One, my CPA does not understand tax strategy. I can never reach them. I have a question. And they are charging me 6, 7, $8,000. How, how are you guys ensuring that you're able to answer within 48 hours, provide all these services? And so, so yeah, I mean at the end of the day we've been able to really spend a lot of time and investing into the end of the company to, to provide the best user experience. And really the goal is at scale. You know, that's what the goal is right at the end of the day, we want to be able to be the go to for a full service, hands on and having a meaningful impact.

Now I've heard from some people, they complain that all the benefit of hiring a tax strategy company seems to come in the first year where they teach them the new techniques and maybe not as much in ongoing years. Why would somebody decide to stick with the program and continue to have you as an advisor and a tax preparer in an ongoing way?

The tax code is constantly changing. Each individual's own life, their income, you know, spouse, kids, what's going on is constantly changing. And so tax is not just a single year. And then you close your eyes and it just continues, it's ever changing. And if you want to really maximize, you know, the tax savings and wealth generation, it's really having a CPA that is for the long haul, that is innately understand your situation because a lot of the work really happens that first year where you're building a relationship. The CPA understands exactly, you know, your style, what your investments are, your family. And then from there they can basically take, save you more and more time where they're taking care of all the quarterly tax estimates. Right. As anything changes, they're able to adapt and kind of communicate with you because at the end of the day, again, it's how much time can you save me so that I can spend time on anything that is important to you, whether it's family or doing more shifts.

Yeah.

Earlier, Laxman, you mentioned working with the federal student loan programs, right? Which are in constant flux as we record this. It feels like they change every three days. But we're talking about the income driven repayment programs. We're talking about maximizing the amount you can get in public service loan forgiveness by finding additional tax deferral plans or, you know, reducing your taxable income using depreciation or, you know, filing married, filing separately versus married, filing jointly. How much assistance do you think you can give people that have all these concerns as they try to maximize their public service loan forgiveness?

I mean, from the tax perspective, we are always doing an analysis side by side on whether, you know, married jointly, married separately, what are the implications? You know, we don't give formal advice on the actual student loan or how to strategize beyond it. But we've been working with whoever they partner with on that side, whether it's financial advisors or on the student loans. And our goal at the end of the day is we will get as much data as possible and Give you the recommendation that makes sense from a tax perspective.

Now, if you recommend to somebody, you know, put in a solo 401k or for their practice, put in an Ariza 401k or cash balance plan or whatever, how much assistance do you do in helping to set up those plans? Or do you refer that out once you've made the recommendation?

Yeah, typically we refer that out, whether if it's a Solo 401K or a SEP IRA, we will give you the step by step by wherever you already have a brokerage or you have a 401k, you know, because usually that's more straightforward with the bank itself. Cash balance plans are definitely more complex. You need an actuary. There's administrative setup. It takes time. We work with, you know, several different partners where we refer that side out. At the end of the day we want to make sure, you know, we're tax specialists, CPAs, and we are happy to work with those that, you know, that have expert on that side to make sure it all makes sense.

Now if somebody's already working with a capable financial planner, how much additional benefit are they going to see from engaging with Doc?

Well, yeah, great question. So most financial planners will say they will not provide formal tax advice. They are not CPAs. We have had multiple financial advisors reach out to us and look to us to be partners on this side because they don't feel comfortable giving out that advice. And so when we talk about actual savings, one is focus more on where the investment is made and the other is what are the actual tax implications in the tax code? Most financial advisors, if not almost all, don't really aren't experts in the actual tax code or the nuances of how it's changing. They're typically deferring that. But I would say working side by side with your financial advisor makes a lot of sense that we're on the same page.

Can you give us a sense of your philosophy behind some of the more, for lack of a better term, I'll call them the gray tax strategies that you sometimes see firms using land conservation easements, you know, playing the audit lottery. A recent one I saw involved purchasing some tribal tax credits or setting salaries very low, you know, in an S Corp kind of situation. Where do you guys stand on those, you know, more gray tax strategies that you hear about out there?

Yeah, I mean, the gray areas. I mean we are always open to doing the research and looking at them, but we are not a big fan of the like, for example, the conservation easement that's been Highly, highly audited the last couple years. And so no matter what tax strategy, we will always let you know, is it a high risk, is it a medium risk or low risk? Based on what we've seen and we're able to have a discussion with it at the end of the day, you know, we will give you our recommendation. No one wants to get audited. But no matter what the strategy is, we'll walk through it and tell you what the risk is. But something like conservation easement, we probably highly recommend against it. It's just not worth the risk to reward ratio.

And I would say, you know, that's part of our, how we've built our team. Right. We, we don't just have CPAs eas, we also have brought in tax attorneys. So we look from a tax perspective and true experts to understand the whole scope. So we try to look and bring in all the experts that can really analyze the situation and look at the actual tax law.

Another question for you. If somebody decides they don't like the strategies that were implemented, you know, I don't know what they might be a business entity or something like that, how much trouble would they have unwinding the strategies you've recommended and assisted in implementation if they decided they didn't want to do it in a couple of years?

I don't think that would be too much of an issue. We're pretty hands on and so even though it could be administratively painful, we would be happy to kind of walk them through a dissolution of say the S Corp. Right. And let them know what are the implications if you do unwind. Is it something that you can quickly just wind back up or what is the implications of that decision. But no matter what, we are here as advisors and not to say, hey, do XYZ and we'll always share with the benefits and the cons are for everything.

Tell us about the service you offer in the event of an audit. Somebody gets an audit notice and they're going to get a full audit of their return. What service do you provide in that situation?

Yeah, so within the feed that you mentioned, we do a full audit protection. So we will go communicate with the IRS and make sure that everything is taken care of. Because at the end of the day, as we do the tax return, we don't just input the numbers into the tax return. We're going to review, make sure we have the right documentation. If we don't have the right documentation, we will let you know that something is missing, certain receipts are missing, and ultimately make sure that we are aligned that if this is something that we can include in tax return or not.

Now, when you bring somebody on board, do you routinely go back and look at their last two or three tax returns to see if they should be refiled? If they left a bunch of money on the table, is that like an additional service with an additional fee or how do you look at past returns?

Yes. So we always look at the pass return as a tax professional. For us, looking at the prior tax return is like a blueprint of what's been going on historically. And so that gives us a lot of knowledge of what's been optimized, what has not been optimized, and where to what's the starting point for the tax plan. During that process, we can tell if it makes sense to do an amendment. An amendment is a one off, so it's not included within that fee because the fee that you mentioned is really looking at from the data you're starting for the next 12 months. Tax filing and tax. So anything prior would just kind of be a filing fee. It's typically is what, $750 to 1,000, I would say because it requires a full refiling when you do an amendment.

Very cool. Well, Lastman and Mark has been very informative. Thank you so much. What have we not talked about today that you feel like white coat investors ought to know about tax strategizing in general and doc wealth in particular?

Yeah, I would say that what is the most important, when is the right time to even evaluate if tax strategy makes sense? And I know that we covered a bit of this in the beginning, but I would say we work with a lot of graduating residents and setting the right foundation at the very beginning goes a very long way because wealth compounds and the more money that you put back in your pocket, the more it'll grow over your career. And at docweld, our focus and our ethos is very much in enabling and helping you to maximize your wealth at the end of the day through minimizing tax liability. And so through our education platform, we very much believe in teaching our person to fish will feed them for life. And we're continuously adding to that. So I really look forward to, you know, getting on a call and evaluating and helping as many as possible.

All right, we appreciate your time today. For those who want to learn more about Doc wealth, you can go to whitecoatinvestor.com Dockwealth and learn more or sign up for their services. Thank you so much for your time today.

Thank you.

Thank you.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.