When David reached out to Cerebral for help, tax planning became more than just saving money. He was able to walk away with a long term financial plan.
David had never had a tax conversation that focused on his individual needs. An internal medical Physician and family man, he wanted to find an expert who catered to physician families and could understand his specific situation.
“I was looking for the exact opposite of what I had. Someone who would come up with options available to me to lower my overall tax or improve my knowledge regarding the overall practice. I went off recommendations from friends and colleagues as well as searching online to finally book a meeting with Cerebral.”
Before David met with us, he was struggling to even arrange a meeting to talk tax strategy.
“I would send in my yearly information and get a tax return telling me how much I had to pay.”
David wanted to know how he could reduce tax overall. But he also wanted to be able to see the bigger picture and understand the strategies for himself. He knew there had to be a more customized option on the table.
A personalized roadmap for maximum tax savings.
We helped David by taking a thorough look at his current situation and future goals. We gave him a personalized plan for the maximum tax savings and liability protection allowed by law.
What David gained from the plan:
- Our very best tax recommendations based on his desires, lifestyles, and plans for growth.
We identified the potential deductions, credits and strategies he could use to reduce his overall tax liability, and ran projections and calculations to determine the tax consequences of each move.
- A plan to save more for retirement
We recommended creating a Professional Corporation (PC) and filing an S corporation election for David’s side business. By structuring his business in this manner, David put away $95,000 a year through a Defined Benefit retirement plan while only earning $40,000 in his side income. The Defined Benefit Plan retirement account included a Cash Balance Plan and 401(k) plan, to contribute more to retirement than he would with any other retirement plan.
We also advised David to make a nondeductible contribution to a traditional IRA and immediately convert it to a Roth IRA. This is called a Backdoor Roth and, although it doesn’t save him tax in the year of contribution, it allows him and his wife to put away an additional $6,000 each per year for retirement. This retirement income comes out tax-free upon distribution.
- The ability to run losses through the businesses and put aside more of his W-2 earnings.
We advised David to open a retirement account. The more critical reason for changing his entity structure to an S Corporation is the ability to run losses through the business. He is eligible to put aside more of his W-2 earnings through his business retirement plan and run a loss through his PC to lower his taxable liability on an annual basis.
- An understanding of deductions he wasn’t aware he could make use of.
We discussed the use of many "hidden business deductions," which involves identifying personal expenses that can be recategorized as potential business expenses and using them as deductions in your corporation. Examples of hidden business deductions are travel and meals per diem, charitable contributions, and home office.
- An opportunity to invest 4-5 times more into his charitable endeavors.
We recommended investing in a land conservation easement (LCE), to align with David’s charitable endeavors. LCEs allow you to invest in land which will be conserved from development and provide you a charitable deduction worth 4-5 times the amount you invested, thus lowering your taxable income.
The results - Increased trust, decreased tax
By implementing our tax strategy, David will save approximately $29,000 per year or $145,000 over a five year period. He’s seen a marked reduction in the amount of tax he has to pay each year but has also gained more understanding of the tax strategies that can be applied to his business.
“Look for someone that you trust and feel comfortable with. It’s important to feel heard, but also to have a plan that is tailored to your specific situation, rather than a cookie-cutter plan that fits everyone.”
Are you feeling like David was at the start? Looking for the complete opposite of the service you’re getting right now? Book a discovery session to speak to a Tax Specialist who caters exclusively to physicians just like you.