Is That Deductible? It Depends: "Beach Week"

Business Mindset Deficit

As I launch this new weekly post about the intersection of small business ownership and your holistic non-medical life, I believe it's crucial to approach the content with the right mindset.

The mindset of viewing oneself as a businessperson is no longer ingrained in our conditioning and training to become a doctor. As a result, there exists a deficit in business knowledge and experience, which acts as a barrier to thinking in this way..

The mission of SimpliMD is to help provide you with resources to overcome this barrier on your journey to business competency. One of the greatest resources we have is our physicians-only small business community, created by SimpliMD. Here, we can learn from one another about the week-to-week experiences we have as micro-business owners. My blog posts will transparently demonstrate what this looks like in my life. However, I also invite others in our SimpliMD community to share their experiences so that we can learn and grow together.

Micro-Business Owners Are Unique

One of the key aspects of operating a physician-owned micro-corporation is the fact that medicine is all-consuming for many of us. Despite our best attempts to separate our work and non-work lives, they inevitably blur as hospital & practice calls, texts, emails, neighbors, friends, and family encroach upon our non-work lives. Being a doctor often means that our identity is a 24/7 experience.

Therefore, when you establish a virtual presence as a professional micro-corporation, your "business" also becomes an immersive 24/7 experience. While there may be some downsides to this lifestyle, it does offer the advantage of allowing your micro-business to deduct expenses in your non-medical world.

Traditional physician employees don’t have this luxury to deduct these business expenses.

In practical terms, let’s see how this works:

Dr. Smith has a micro-corporation that he uses in an employment lite agreement. The hospital as asked him to take some extra call and will pay him $400/night for doing this. Dr Smith and his wife go out to eat so that can have an indistracted location to talk about whether he should do this. The extra money would be nice, but it also might mean more time away. Because the $100 dinner was for business purposes to discuss the call job opportunity, Dr Smith can deduct it as a business expense(pre-tax) to his micro-corporation.

Dr. Jones does not have a micro-corporation and is traditionally employed by the same hospital as Dr. Smith. She is made the same offer to take extra call for $400/night. Dr. Jones and her spouse have dinner at the same restaurant to discus things the new job opportunity as well. Their $100 meal will come out of their household funds (after tax) because W-2 employees have no way to manage business expenses.

Small Business Mindset: Find The Hidden Gems & Keep More Money

Ah, the small business mindset. It's a powerful force that drives entrepreneurs to chase their dreams and make a difference in the world. One crucial aspect of this mindset is understanding deductible expenses.

Deductible expenses are like hidden gems for small business owners. They are the legitimate costs that can be subtracted from your total income, reducing your tax liability. Think of them as a way to keep more of your hard-earned money in your pocket.

From office supplies to marketing expenses, there is a wide range of deductible expenses that small business owners can take advantage of. These include rent, utilities, advertising costs, travel expenses, and even professional fees.

By understanding and meticulously tracking deductible expenses, you can optimize your tax strategy by paying the least amount in taxes as legally possible, each and every year all while maximizing your savings. It's not just about saving money though; it's about embracing the entrepreneurial spirit and making every dollar count.

So let’s go ahead & dive into the world of deductible expenses with passion and enthusiasm. We’ll explore every opportunity to claim what is rightfully yours as a small business owner. Let these deductions fuel your drive to succeed and propel you towards financial success.

Remember, the small business mindset is all about seizing opportunities and leveraging every advantage available to you. Deductible expenses are just one piece of the puzzle - embrace them with fervor and watch as they contribute to your growth and prosperity.

Beach Week

During the first week of August, our entire family gathers at North Beach in South Haven, Michigan, along the shores of Lake Michigan. This week holds a special significance for us, both in terms of relationships and our lifestyle. It also marks the culmination of extensive planning within our micro-business enterprise, which consists of nine businesses.

In the heat of summer, there's nothing quite like gathering with our 5 children and their spouses at a vast beach that resembles an ocean, while enjoying the "Pure Michigan" outdoors in the comfortable 70-80 degree weather. It's absolutely perfect!

Our annual family ritual is to gather here for the week.

Is It Deductible?

The answer to whether this gathering is deductible is yes, but only partially. Allow me to explain.

Dare To Dream

My wife and I have chosen to get away for 24-48 hours every year in the late fall to dream, pray, make and annual budget, discuss life, and make annual goals. It is a sweet time and I so thankful for all those times away. Over the years, this has evolved into a fully-fledged business development retreat (expenses covered, of course) for our nine micro-businesses. Our household components are just an integrated icing on the cake. If this sounds like something that can help you, I have a “Dare to Dream Guide For Doctors” available for a free download here.

5 Years Ago

Five years ago, as our five children were gradually leaving our home to explore different parts of the country, we were inspired to utilize our resources to establish an annual gathering place for the entire family. Our aim was to create an environment that offers enriching experiences combined with a tranquil atmosphere. This dream was inspired by our deep commitment to the bonds of family.

We were simultaneously approaching the mark of financial independence and beginning to dream about what early retirement would look like..

These two ideas merged into a combined concept: starting a new micro-corporation that would include an STR (Short-Term Rental) to generate passive income, serve as an annual gathering spot for our family, and also function as a retreat center for mindfulness and focused writing (and scrapbooking for my wife).

Location, Location, Location

I have plenty of experience in commercial and residential real estate, as several of my nine companies focus on this industry. However, this would be our first venture into short-term rentals (STR). As you may already know, real estate is a fantastic source of passive income that high-income earners should seriously consider.

IIf this idea is new to you, I highly recommend checking out Semi-Retired MD's course on how to add real estate and rental properties to your portfolio. You can join their fall waiting list here and make sure to mention that SimpliMD referred you (I do receive some affiliate credit).

As my wife and I dreamed about finding an STR that met our criteria, we were drawn to three areas we have repeatedly visited over the years: Florida, Maui, Pigeon Forge, TN, and South Haven, Michigan. After conducting a thorough STR analysis and considering our preferences, we decided on South Haven, Michigan. This choice was primarily based on its proximity to our primary home, as it is only 1.5 hours away. Additionally, South Haven is located directly on a large body of water, providing a picturesque setting. It also offers the convenience of being a drivable destination for a 3-day weekend retreat from our home..

From there, we surveyed the layout of South Haven, identified the ideal location for a short-term rental (STR), and began our search. Ultimately, we purchased prime land in a perfect location and built a custom home nestled beautifully on a peninsula between the Black River and Lake Michigan. You can check out your own rental of Simpli SoHA here.

STR

The 5 BR home was completed in early 2021, and since then, we have had the pleasure of hosting two memorable family gatherings. We are currently experiencing our second successful peak rental season, and the unit has consistently demonstrated strong financial performance for us. But even more importantly, it has been the perfect spot for our family to create the annual tradition of gathering. Our son and daughter-in-law live in Fort Worth, TX and have especially enjoyed the reprieve from the 100-degree heat!

Business Expenses

So here is the part that we hadn't exactly planned for, but it has turned out to be a great way to "pay ourselves" by utilizing the unit. We have rented it for several 3-day weekends for business purposes, including strategic planning and writing retreats for Dr. Incorporated and SimpliMD. Furthermore, we consistently manage the unit to ensure that we meet the 100-hour requirement for real estate professional tax status, as mandated by the STR loophole.

The fortunate coincidence of our August gathering this year was that it overlapped with the Semi-Retired MD's Fast FIRE to Freedom Virtual 4-day summit, which I had eagerly registered for. Like any astute businessperson, I recognized the opportunity to expense the unit rental for business development purposes. Additionally, there were a few other business meetings in South Haven on separate days that needed to be accounted for.

The end result was avoiding a loss of $15,000 in peak season rental income due to personal use. Instead, I allocated the $15,000 to one of my businesses, resulting in a reduction of my corporate taxes through this legitimate business deduction..

To clarify, there was a wide variety of food, activities, and experiences that were all of a personal nature. Therefore, they were paid for personally as non-business expenses.

Keeping business and non-business expenses separate financially requires some effort and consideration. However, it ultimately allows you to retain more of your hard-earned money. My course “Book-Keeping For Your Professional Micro-Business” will walk you through all this once it’s built (under construction currently). In the meantime sign up for SimpliMD membership in order to save 20% on my courses.

I would love to hear about any of your summer adventures that you were able to expense through your business! Please share them in the comments section below.