#258 The Best Tax Strategies for High-Earning Physicians

Hey, everyone, I hope you've had an amazing week. Thanks for tuning back in to the Passive Income MD Podcast. My name is Peter. Now, if you're a high earning physician, you know what your biggest expense is? I need to tell you. It's taxes. Today we're going to talk about the best ways to keep more of your hard earned money legally and efficiently in your pocket. So stay tuned. Welcome to the Passive Income MD Podcast where we talk about creating your ideal life through multiple streams of income. If you enjoy hearing about this stuff, make sure to hit subscribe. Now, let's get on with the show. Okay, as I mentioned, as a physician, your biggest expense isn't your mortgage, it's not your rent, it's not your student loans, it's taxes. But this is what I believe. So many doctors out there listening to this, including you, maybe pay more in taxes than you need to because you don't take advantage of the right strategies. The tax code is written as a series of incentives. It's not actually meant to be punitive. In a way, it's to get the outcome the government wants. Now, if you don't know how to use it to your advantage, in many ways, you're missing out. I mean, it's documenting doctors. We spend so many years learning how to take care of our patients, how to be better at our craft, how to be a great anesthesiologist, how to be a great surgeon, how to be a great dermatologist, but almost none of us are taught how to take care of our finances. And I think that blogs and podcasts like ours and some of our friends are trying to do a better job at getting that education out to people. But we know we don't get that kind of education in medical school or in our training. And especially when it comes to taxes, we don't get any of that. I will tell you, it's not a subject that most of us love talking about. In fact, when we hear that term taxes, it probably causes us to tighten up. It does for me. But it's an area that we have to spend some time on learning and then find the right team to help you. Otherwise you're going to be overpaying. And here's the reality. I think many of us rely too much on a CPA who simply just files taxes instead of having one that's more of a strategist that helps us plan proactively to figure out the best situation for us. Now, I know many of us are W2 earners, and over time, more of our population has become employee W2 earners. There aren't a lot of tax advantages compared to many people are getting 1099s or owning your own practice or being business owners. But there are still ways to be a little bit more tax efficient and we definitely don't take full advantage of those about. And yeah, we don't, we don't know what deductions could actually lower our taxable income and help us out in the end. But I can tell you, with the right knowledge and planning and getting the right team behind you, you can significantly reduce your tax burden. Now I have to let you know a little disclaimer here. I am not a tax professional in any way. This is for informational purposes only. So my recommendation is find a tax professional who can help you and verify a lot of the things I'm talking about today. But here's some of the top tax strategies that I think are available out there for physicians. Number one, this one's easy just to maximize your tax advantage. Retirement accounts. I think all of us know that one of the simplest ways to lower your taxable income is through your contributions to tax advantage accounts. There's our 401s, 403bs. I mean if you have side income, you have these solo 401ks or SEP IRAs. Don't forget the backdoor. Don't forget the Roth IRA or if your income is too much, the backdoor Roth ira. There are ways to get tax free growth or to get deductions based on the amount that you contribute to some of these investment accounts, like every dollar you contribute pre tax reduces your taxable income on these things. That's probably one of the easiest ways to get started. Now if you get a little bit more advanced, I think you can start to leverage real estate and investing in this area for tax benefits. Real estate investing is one of my favorite ways to create income. Not just for passive income, but because of its ability to be a tax shelter in so many ways. You probably heard of this thing called depreciation. What that means is that lifespan of a building, the government sets it at a certain amount. You're able to count that as a loss towards your investments. Now I will tell you for most of us this only counts as a passive loss. And in passive losses it can't offset your day job or your active job income. It has to offset passive income. Passive losses offset passive income and active losses offset active income. It's important to know that there's a distinction there. And so when it comes to passive losses, if you have passive income and gains. Maybe a syndication or fund is paying you distributions or they exit and you've gone full cycle on one of those deals and you get a big payday at the end. Those passive losses can offset that income. And if you don't use all the passive losses, they continue to roll over until you can use them. Now, many of you know there's a way for passive losses to offset active day job income. That's probably the holy grail of real estate investing in terms of getting it to maximize your benefit. And that's possible if you get something called reps reps or real estate professional status. Now there's some conditions to that, meaning that you have to work in real estate more than you do in your day job. So if you're working full time as a doctor, it won't work. But it's possible if you file jointly with your spouse. Your spouse can be the real estate professional, maybe they work part time or your partner is at home. They can be the real estate professional status and make sure you meet those conditions. And if so, you're able to take some of the losses on real estate and offset your day job income. It can be a powerful wealth creator for you. At the end of the day, it's going to be a game changer. Another way is if you use certain structures for some of your side income. Many of you do consulting, maybe do expert witness. You have other side of side hustles like telemedicine. Now if you can create an llc, in some cases an S corp might make sense. Again, you got to consult your tax professional for this. You might be able to save on some self employment taxes. You can deduct some standard business expenses like travel, home, office, continuing education. All, all these little things do add up and they can help over time. Hey, what's up everyone? Just want to ask you a quick question. Are you ready to take your medical career beyond the traditional boundaries of medicine and amplify your impact? Well, I want to tell you about the Leverage and growth accelerator community. Just so you know, we created this exclusive community just for physicians like you who want to expand their identities without giving up their doctor identities. It's an add on, it's not a replacement. But when we hosted our first Leverage a Growth summit, I know many of you have been part of that. We realized that so many doctors were inspired by the what and why of entrepreneurship, but needed help with the how and when. And that's why we created this community called Leverage a Growth Accelerator to help doctors learn how to start, grow or scale a thriving business and connect with like minded individuals who also want to make a positive contribution to the world. Within this community you can experience a life of greater fulfillment. It's really a powerful antidote to burnout where you can leverage your medical degree for new opportunities and take command of your time and schedule so you can invest in your family's future while enjoying today. In the Leveraging Growth Accelerator, you're going to have access to educational materials, you can have insights from expert speakers, small group coaching, and most importantly, you're going to have community support to help you realize your untapped potential in 2024 and beyond. And we're so confident in the transformative power of this members only community that we're offering the first 30 days for free. If you're interested, I want you to take advantage of this. This window of opportunity is not going to last forever. So go now to lgacommunity.com again that's lgacommunity.com if you're ready to take your medical career to the next level and make a profound impact in the world and do it together with other like minded people, it's time to join us. We can't wait to see you inside. Number four. You can optimize Charitable Giving I know that many physicians are focused on giving back to others, whether it's through patient care. And many people also through their wallet have charitable causes that they want to donate to. There's a way to do this strategically that can reduce your taxes. There's something called a donor advised fund that many of you should know about where you can contribute now, take the deduction today and then decide later where the funds go. A lot of people take their gains in taxable stock accounts. Transfer that and donate that to a donor advised fund and they're able to take the full benefit in terms of writing off that deduction. Another thing you can do if you bunch your donations, maybe you can give multiple years in a single year. If you are smart about it, you can push yourself over the standard deduction threshold and maximize your tax benefits. Just know there are ways to charitably give get the benefit you want, make an impact, but be smart with your taxes as well. And then there's some other strategies for physicians depending if you own your own practice. Now I know many people are legally able to hire their children for tasks that are appropriate for them. Whether it's paperwork, whether it's doing other sorts of office type work. Maybe it's through social media marketing, maybe it's acting as model, as a model for your business. So you can pay your children and set up accounts for them, set up retirement accounts for them. It can act as a deduction against your business. There are ways to do this absolutely legally and do it right Now. Is there anything on this list that you are not doing or thinking about? And if not, I would offer you that potentially you're leaving some money on the table when it comes to taxes. So what's the takeaway here? I think doctors work way too hard to give away so much of their income to taxes. Now I understand a lot of these taxes are beneficial, but I think there oftentimes there are things that are legally available to us and actually would benefit even society in different ways, like these donations that we don't take advantage of just because we don't know about it. And many of us use CPAs, again only as tax filers, but not as strategists. Or we've grown over time and we haven't found a CPA who has grown with us. You don't have to implement all of these strategies at once, but even just adopting one or two of these can make a significant difference in the amount of money that you have at the end of the day after either April 15th or if you extend it into September, October, depending on when your extension is for. So here's my action steps for you. I would make sure that you're working with a proactive tax strategist. Ask them about tax planning for you and if you haven't had a tax planning meeting with your cpa, then you know you're not working with a true strategist. You don't want just somebody who files for you. But fixed it helps you figure out a short term and long term plan when it comes to your taxes. I'd also consider looking into real estate investing or maybe a business or a better business structure. If you have some side income, make sure you're not leaving money on the table there. I would start taking some of these small steps today to make saving on taxes a priority. The earlier you implement these, the bigger impact it will have later on. By the way, I put all these on a PDF, a nice little download for you. If you check out the show notes of this podcast episode through our website, there's a free PDF you could download as a checklist to make sure you hit all these points. You don't have to think about it. It's all there for you. Go ahead there and just grab it. I hope you found this episode useful. Let's take this time where it's normally stressful when you think about taxes and the money and then try to turn this to our advantage. Our community can do this together if we help each other get smarter in this area and that's my hope through these podcasts, through all of the things we do together in terms of getting together as a community. And I hope it helps you in some way. Thank you for listening as always. You're amazing. You're incredible. Have an awesome week and let's talk again soon. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, be sure to hit subscribe. Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. Learn more at our website passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next time.