Compared to professionals in other industries, physicians rank among some of the highest-paid individuals in the United States. And, as all American workers know, the more you earn, the more you pay in income taxes. While many in the medical field operate thriving practices – and may even earn a substantial income – without putting the right tax strategies in place, they may also be unknowingly (and oftentimes, needlessly) losing out on credits, deductions, and other tax-reduction methods that they qualify for.
The tax season is quickly approaching. If you haven’t already started planning how you’re going to file your tax returns, the time to start is right now. By putting the right strategies in place, you can reduce your tax burden and devise a sound financial plan for retirement.
Having the Right Strategies in Place
If you’re a sports fan, it’s likely you know a thing or two about the importance of strategy. The talent and agility of an athlete adds points to the scoreboard. But while racking up a high score is beneficial, what really wins games is having a good solid strategy - and regularly practicing that strategy until it becomes second nature.
The same holds true for high wage earners and business owners who bring in a substantial amount of income and revenue each year only to have it reduced – in some cases, significantly – by taxes. You may be earning a comfortable living. Unfortunately, if you’re a higher income earner without a solid strategy, taxes will typically take the first third of your pay. Revolving debt can zap another third of your income, too. So, it can be difficult to get ahead – regardless of how much you earn – with only the remaining third of your income to work with for daily living, retirement planning, or investing.
You won’t find an easy fix for putting more spendable cash in your pocket. You may have thought about taking on additional patients to earn more wages, for example. The reality is, going this route could make things even worse, at least from a tax perspective. So, what is the answer? For most medical professionals, it’s implementing tax planning strategies that lower or even eliminate taxes.
Why is Tax Planning Important?
There’s a lot more to tax planning than keeping receipts and making a couple of last-minute charitable contributions at the end of the year.
Those are minor components of an overall solid strategy, but effective tax planning goes well beyond that.
With proper tax planning, you can reduce your tax liability. You can keep more money in your pocket. You can build a more robust retirement plan. Tax planning requires that you think about what you want your financial future to look like. It’s not just about doing what you can do before you file your next tax return to pay less in taxes.
Efficient and effective tax planning is a long game, not a short one. The taxes you pay in your 30’s, 40’s, and 50’s will affect you in retirement.
Regardless of your age, it’s time to start thinking about the bigger picture. It’s time to start thinking about taxes as one component of your overall retirement plan.
What Tax Planning Is and Isn’t
Tax planning involves a series of moving parts. Tax plans are not set in stone. They can evolve and change over time, depending on your taxable income and employment circumstances.
In addition, tax laws change from year to year, so what might be a part of your plan one year may not be applicable the next year.
To stay abreast of the laws, including the tax credits, deductions, and exemptions you are eligible for, hire an expert.
As a physician working long hours, it’s almost impossible to know every in and out of the tax code, how it works, and how it can hurt or benefit you. The best thing you can do is work with a tax professional who is always on top of the current laws.
A trusted tax advisor will be able to guide you through all these details. If you haven’t already done so, hire an expert to help you put a plan in place immediately. It’s never too early or late in the year to start tax planning.
A tax advisor will let you know what steps to take throughout the year in order to maximize deductions. They can also help you make mid-year tax changes, which can make a huge difference in your short-term tax liability and your long-term financial goals.
A professional will also tell you exactly how much you can contribute to IRAs and other retirement funds. In addition, they will guide you on how to plan for and make those payments throughout the year. Retirement planning is at the core of any solid tax strategy. With retirement goals in place, you can start to build a solid foundation for a robust, thorough plan.
Tax planning isn’t something that should only be considered at the time you’re completing your annual tax return. Rather, making smart year-round decisions like designating deductions as they occur instead of the last thing before tax is due can significantly reduce your tax liability and ultimately put more money back in your pocket.
Tax Planning Can Improve Your Medical Practice and Your Life
The right tax planning strategy is a vital step for any high-income earner and business owner. Yet, while there are many tax-saving strategies available to you, it’s likely your busy schedule keeps you from knowing and fully digesting the myriad of available information from the IRS.
In many cases, deductions, credits, and other benefits you may be entitled to are going unearned. On top of that, not following all the IRS’s rules could end up costing you in penalties. Having a tax coach on your side can help you take advantage of little-known tax incentives that can add to your business and your personal bottom line and save frustration.
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