If you’re a physician, your finances are unique. Your income tends to be high, your time tends to be in short supply, and your tax situations tend to be… complicated. It’s why, in this guide, we want to go over what a financial advisor does, what a tax advisor does, how the two should coordinate on your behalf, and why, if you’re going to pick a first move, tax planning is where you’re likely to get the quickest, biggest returns.
What you’re about to read:
- Who to call for what: financial advisor vs tax advisor
- Why tax planning should probably come first in the physician world
- How to get your financial advisor and tax advisor on the same page
- What you’re going to look for in a tax advisor that works with physicians (and plays nice with financial advisors)
- Where things like CPA, EA, and Certified Tax Strategist or Certified Tax Coach come in
Your physician “money team”: here’s what everyone does
Your clinical education likely didn’t include how to build and protect your wealth, but as a physician, your finances tend to be a bit more complex. It’s why your income level, student loans, practice opportunities, and your tax liability can all affect your money strategy significantly compared with that of your peers.
Most physicians can benefit from having two core professionals on their money team:
- A financial advisor to help build and manage your overall financial plan and investment portfolio
- A tax advisor to help keep you compliant and lower the amount you have to pay in taxes
These are very different roles, yet you’re going to get the most out of both when they work together.
What a financial advisor does for physicians
A financial advisor focuses on your financial life and your long-term goals. This might include retirement, your investments, risk management, etc. It includes ensuring your money supports the kind of work and life you’d like.
Core responsibilities
A good financial advisor for physicians typically covers the following:
- Holistic financial planning
- Setting the stage: where are you retiring by? What kind of lifestyle are you after? Are you looking to buy into, or open, a practice? What about college for the kids?
- Developing a long-term plan around cash flow, savings, investing, and debt
- Investment management
- Establishing an asset allocation strategy that fits your risk tolerance and time frame
- Selecting investments and monitoring how they are performing (funds, ETFs, etc.)
- Rebalancing your portfolio and re-tweaking your asset allocation strategy as time passes and things change in the market (and in your life)
- Retirement planning for doctors
- Help coordinate 401(k)/403(b)/457(b) accounts, backdoor Roth IRAs, and taxable investing
- For practice owners: evaluating 401(k)s, cash balance plans, and defined benefit plans
- Determining how much you need to save (and at what rate) to retire when and how you want to
- Behavior coaching
- Encouraging you not to sell everything out of fear during a market crash or to try and “play the market”
- Encouraging you to remain disciplined during market ups and downs, and when life happens in the meantime
- Debt management
- Building a plan for student loans, practice loans, and personal debt
- Ensuring the balance between paying down student debt, investing, and living your life is in sync
- Insurance/risk assessment
- Working with the insurance professionals you see, and/or recommending them, to help evaluate how much you need (and whether it’s worth it to) carry disability insurance, life insurance, excess liability (or umbrella) insurance, etc.
- Ensuring that you’re protected in ways that line up with your overall financial strategy
Benefits of working with a financial advisor
- Holistic view: They bring your retirement, investments, insurance, debt, and objectives together for a single, integrated strategy.
- Saves time: You don’t need the luxury of time to live on financial blogs; they undertake the analysis, portfolio management, and continuous planning, and then you can get back to your work and home life.
- Professional knowledge and perspective: They bring experience and an objective point of view so you can avoid costly mistakes and emotional decisions.
- They keep you accountable: The regular meetings keep you working on implementing the plan, rather than simply thinking about it.
The drawbacks of working with a financial advisor (and how to deal with them)
- Cost: An advisor may take a percent of AUM, a set yearly fee, or an hourly fee, so make sure to clarify: How they are compensated, What is provided, How to evaluate their value each year
- Possibility of conflicts of interest: If your advisor is paid on the products they sell you, their interests may not be entirely in line with yours. Look for a fee-only fiduciary, who is required to put your interests first and is transparent about all compensation.
- Not feeling like you’re the only one steering the ship: Some doctors are concerned that they might feel as if they have handed over control of their financial decisions. To minimize this problem, look for a partner who will teach you, not just give you orders. Clearly state how you want the advisor and you to communicate and make decisions.
What a tax advisor does for physicians
A tax advisor is intimately knowledgeable about the tax code. They may be certified as:
- EA: Enrolled Agent
- CPA: Certified Public Accountant
- Tax attorney: a lawyer specializing in tax law
Some also have special qualifications in advanced tax planning, such as Certified Tax Strategist (CTS).
A tax advisor’s value is most important when you utilize their services for throughout-the-year planning, rather than simply around April and tax season.
Primary functions
In particular, a tax advisor will help physicians with:
- Tax compliance and filing:
- Help with all of your federal, state, and local filings
- Ensuring filings are accurate and correct
- Proactive tax planning
- Planning for tax-saving strategies throughout the year
- Timing of your income and deductions
- Tax planning for major financial events (acquiring or disposing of a medical practice, purchasing investment real estate, partnership buy-ins, etc.)
- Choice of business entity and determining your compensation
- For business owners: helping you choose between sole proprietorship, S-corp, partnership, or C-corp, etc.
- Determining reasonable compensation for S-corp owners
- Helping you design an accountable plan and reimbursement policy
- Retirement plan design and its tax implications
- Helping you decide among 401(k), 403(b), 457(b), Solo 401(k), and cash balance or defined benefit plans
- Making sure you are able to take advantage of these plans to minimize taxes for the current year while keeping in mind long-term goals
- Navigating complex transactions
- Helping to deal with situations involving stock options, K-1s, investment real estate, side gigs, locums income, and more
- Tax audit support and representation
- You can have the EA, CPA, or tax attorney deal with the IRS or your state tax authority on your behalf during any audit. (Note: If they are a NTPI fellow, this indicates that they have additional training in dealing with IRS practices in an audit situation.)
The advantages of working with a tax advisor
- Tax savings: They dig up deductions, credits, and strategies that are less visible, especially in areas like practice-related expenditures, retirement vehicles, and entity choices.
- Specialized expertise: Tax law updates every year. Working with an expert protects you from unexpected penalties or lost opportunities.
- Peace of mind: There’s a tax professional watching your tax situation throughout the year so there are fewer surprises in April.
Drawbacks of having a tax professional (and how to fix them right away)
- Narrow focus: A tax expert primarily concentrates on tax. They generally aren’t crafting your retirement savings, or investment strategy, or wealth plan. How to fix it: work with a tax professional and a fiduciary fee-only financial advisor, and ensure they meet at least twice a year (ideally at mid-year and in Q4). Below we will explore how that collaboration should occur so that the “narrow focus” becomes more of a benefit than a flaw.
- Reactive vs proactive: A lot of doctors only meet with their tax professional near year-end, which forces the advisor into a reactive role. Ask your tax pro for year-round planning and a clear annual calendar of planning touchpoints.
- Execution problems: Many tax specialists focus on advising, but not on the actual steps needed to make the tax strategy real. If you prefer not to manage the details yourself, ask whether they will handle the execution for you, including elections, payroll, retirement plans, and documentation, and how it’s handled.
- Expense: Like financial professionals, tax professionals require a fee. For most physicians, the tax reductions and decreased risk of good tax planning outweigh the cost of solid tax planning.
Tax planning first: Why doctors need this
For the majority of doctors, tax is the single largest yearly expenditure. Most of the time, it makes more sense to plug the biggest leak before obsessing over investment tweaks.
Tax-first doesn’t ignore investments; it just means, first, that:
- Every dollar you do not send to the IRS is a dollar that can go into your financial plan
- That dollar starts out after tax, which means it is already “clean” money you can invest or use for goals
Why a tax-first strategy matters
It’s usually the smarter move to start with tax planning:
- Immediate impact: Tax strategies often create current-year savings you can see and feel. For example, if a practice-owning physician shifts $100,000 into a properly designed cash balance plan at a 37% marginal federal tax rate, that can reduce current-year federal tax by up to $37,000 (state taxes are separate). Those savings can then be invested.
- Unlocks opportunities: Tax planning guides the structure of your financial plan. Entity choice, retirement plan design, and timing of income all shape what your financial advisor can do.
- More efficient growth: With tax-efficient investing, a larger percentage of gains can be left in the account rather than taken to pay taxes.
- Prevents backtracking: Starting with the investments and “fixing” taxes later can mean redoing payroll, changing entity status, or unwinding accounts. The first tax step ensures the financial advisor works with a set of guardrails from the get-go.
How your tax advisor and financial advisor should work together
When you work with a financial advisor and a tax advisor who function independently of each other, the end result can be ineffective. You might discover that your growth ideas are tax-inefficient, or, conversely, find great tax strategies that do not align with your long-term financial plan. A successful, collaborative model for physicians looks like this:
- Tax-first strategy: First, have your tax advisor analyze your personal and professional circumstances, such as W-2 versus 1099 income ratios, business entity type, retirement plan offerings, deductions, and your anticipated needs for the coming years. From there, they should highlight major potential tax-saving opportunities, such as electing S-corp status, implementing an accountable plan, utilizing the Augusta Rule (if appropriate), or deducting home-office expenses. Finally, they should review and compare retirement plan choices, among other recommendations.
- Developing a financial plan within the bounds of this tax strategy: Next, have your financial advisor construct your savings, investing, and debt management recommendations within the tax framework established by the advisor above.
- Scheduled mid-year and year-end meetings: Schedule mid-year meetings where you, the financial advisor, and the tax advisor review your current status. These meetings allow for necessary adjustments based on performance projections. In the fourth quarter, a final meeting confirms projected contributions, compensation, and other actions to be taken before the year-end tax deadline.
- Clear division of roles: Finally, clearly define each individual’s responsibilities. For example, the tax advisor manages taxes, entity structuring, retirement plan design from a tax angle, projections, and IRS interface, while the financial advisor focuses on portfolio design, asset location, retirement income planning, behavior coaching, and insurance coordination. This team-approach, in which each person is a limited expert in his or her area, will help you maximize your tax-advantaged opportunities.
How to Vet a Tax Advisor as a Physician
Here are a handful of good questions to ask potential tax advisors when considering who to hire:
- Do you regularly work with physicians? Look for specific examples you can verify. Is your potential tax planner experienced with practice owners, employed doctors, physicians who work locums, and physicians who are owners and partners within a group practice?
- How do you typically communicate and collaborate with financial advisors? Ideally, your tax advisor should meet with your financial advisor at least twice a year to coordinate your plans and discuss tax implications. Find out what methods they prefer for sharing data and recommendations.
- Do you provide proactive tax planning or only year-end filing? Some tax professionals provide advice and recommendations year-round to optimize tax strategies. Ask if they review tax planning scenarios, conduct entity-level reviews, review retirement plans, and project future tax scenarios. Ask how often they reach out proactively. Do not hire someone you must chase all the time.
- What specific tax strategies have you helped physicians with? Inquire if they’ve helped with entity structure, S-corp election, reasonable compensation, cash balance plan implementation, the Augusta Rule, home office use, accountable plan implementation, and real estate planning.
- What are your credentials? Are you an EA or CPA, and do you possess any credentials for auditing support? EAs (Enrolled Agents), CPAs (Certified Public Accountants) and tax attorneys can represent their clients during IRS audits. An NTPI Fellow designation indicates advanced training in IRS representation and procedure. If they are also a Certified Tax Strategist (CTS), that signals additional formal training in proactive tax planning.
- How do you handle the implementation of the tax plan? Ask if they will be assisting you with executing the strategies they recommend, including the filing of elections, coordinating with payroll, assisting with the setup of retirement plans, and the preparation of supporting documentation, or if that work will then be your responsibility.
- How many clients do you currently work with, and how many team members do you have? This gives you a sense of their client-to-employee ratio and how available they will be to provide the level of service and responsiveness you want.
- Do you earn any commissions on the products or services you recommend? This will tell you if they receive referral fees or commissions on strategies, insurance, investments, referrals to other professionals, or other products, so you understand how they are compensated.
- How do you charge, and what does that fee include? Flat fee versus hourly versus other structures. What does that fee cover: returns only, or also planning, meetings, and email questions?
CPA, EA, and Certified Tax Strategist or Certified Tax Coach: What’s the difference for doctors?
Here is a quick overview of common tax credentials that you will likely encounter:
- CPA (Certified Public Accountant)
- State-licensed; broader accounting and assurance background.
- May handle accounting, financial statements, and tax work.
- Can represent you before the IRS.
- EA (Enrolled Agent)
- Federally licensed; focused on taxes.
- Specializes in tax preparation and representation.
- Can represent you before the IRS in any state.
- Tax Attorney
- Attorney with a focus in tax law.
- Often used in complex cases, disputes, or advanced planning.
- Certified Tax Strategist (CTS)
- Extra designation focused on proactive and strategic tax planning.
- Indicates additional training in tax planning that goes beyond basic compliance.
For most physicians, the key is not the specific letters; it is finding a professional (CPA, EA, or tax attorney, ideally with CTS training) who:
- Works regularly with doctors
- Offers a year-round process for tax planning
- Will work closely with your financial advisor
- Is someone you trust to communicate well and give you unbiased advice
Putting your physician money team together
Your journey to becoming financially independent as a physician is not only about earning more money. It is about keeping more of what you earn after taxes and putting that extra money to work in a simple, consistent, and clear long-term strategy.
In summary:
- A financial advisor designs and maintains your financial plan and investment portfolio.
- A tax advisor lowers your tax drag and keeps you compliant.
- Starting with tax planning gives you more after-tax dollars to plug into your financial advisor’s plan.
- Your best result happens when both tax and financial professionals work for you and with each other.
If you are ready to take a tax-first approach and would like to work with a tax advisor who understands physicians and is willing to collaborate with your financial advisor, Cerebral Tax Advisors does exactly that. You can take this article and any questions you have to a discovery meeting, and we can discuss whether our year-round planning process is the right fit for you and your situation.