Is That Deductible? Tax Optimization

Income Squeeze: Doctor’s Tax Woes

I speak to physicians every week about the business of medicine, and one of the most common frustrations they express is the significant amount of taxes they pay. The tax burden can be quite painful, as I recall from over a decade ago when I was traditionally employed. It's somewhat invisible when all I saw was the direct deposit paycheck every few weeks. However, when I received my end-of-year W-2 statement from my employer, the total amount of taxes really stood out. I’m sure you have a similar feeling when that W-2 statement arrives. I remember my spouse and I taking standard deductions, maxing out our retirement funds, and the resulting effective tax rate was 32% on my $400,000 income. Ouch!

Now, compare that to my previous year when the tax efficiency of my professional micro-businesses resulted in a single-digit effective tax rate on over twice as much income.

Let that sink in… a single digit tax rate on nearly 7 figure income!

Hopefully, it prompts you to ask, "How did you do that?"

A Simple Solution Within Your Reach

The short answer is that I started a business and then was coached on how to take advantage of all the tax efficiencies built into the US Tax Code for small businesses.

Even better, the business I started was not a risky startup or a non-medical venture that would consume more of my time. Instead, it involved rethinking and reorganizing the fundamental work I was already doing - my professional services. This new business is the lowest-risk corporation you could ever start because there is minimal overhead and there is an unquenchable growing demand for your professional services.

Every one of you have earned the power to incorporate yourself as a micro-corporation. You can do exactly what I did, and gradually lower your effective tax rate as more of your income and business activity is pushed through your micro-corporation.

But the first step is to adopt a new mindset about your professional life and your professional services.

Starting your professional micro-business should be the capstone to your training process and the foundation for your career

I wish someone had told me this when I started my career, but I was completely unaware due to the lack of business education associated with my training. This business illiteracy has continued to plague and undermine our profession over the past generation. It’s reached the point where you don’t even know what you don’t know—a truly sad state of affairs!

Don’t Let Fear Control You

And it’s the awareness of your business illiteracy the informs what assume is a binary professional choice as you enter the market place. But as I have uncovered in a previous post Empowering Physicians: The Rise of Virtual Practices and Micro-Corporations that binary choice is a myth and it must be dismantled!

SimpliMD is here to help you overcome your fears about your business competency and your associated limiting belief that you lack the knowledge and skills to operate a micro-business. As a highly intelligent life long learner, I am here to tell you that you do have the capacity to overcome this problem. At SimpliMD, I aim to empower you with inspiration and practical business education.

I understand that as doctors, we like to be the smartest person in the room and are conditioned to get things right the first time. These two behavioral strengths make you a great doctor, but they can also cause you to avoid anything that might reveal any personal incompetence. This is why many doctors struggle in areas like personal finances and business knowledge—it's easier to hide your shortcomings behind false self-confidence, relying on your high income to mask any flaws.

I invite you to tap into your brilliant mind and empower yourself through the self-guided resources provided to our community at SimpliMD. You can choose to take control of what you want and outsource components that can benefit from the coaching and expertise of other professionals.

Two Principles

How did I discover and start implementing these small business secrets for doctors? I received business coaching on harnessing my marketplace strengths. They revealed the personal micro-business assets that I had overlooked as unnecessary. Under their guidance, I slowly began to activate and utilize these assets in the marketplace.

At SimpliMD, my goal is to pay it forward by sharing what I've learned with you—my fellow physicians who need these resources.

During my competency journey, my coaches emphasized two important small business principles for operating my micro-business and managing expenses in my life:

1. Use pre-tax dollars to pay for things, rather than post-tax dollars.

2. Use business funds to cover expenses in your life instead of post-tax household dollars.

In my weekly post "Is that deductible?", I explore how two key principles shape the activities in my life, which I share with you as a sort of demonstration or case study. It's akin to using social stories to convey truths, rather than presenting dry content. For many of you, this provides a more engaging way to learn. So let’s talk about my week.

This Past Week

The week has been filled with multiple meetings and activities. We hosted a 5-day conference at our church aimed at deepening our connection with God and guiding us to say "yes" to His direction in our lives. The speakers, worship sessions, and prayer times were excellent! As part of the conference, we welcomed 3 young men to stay in our guest house and dine with us. It was enjoyable to gather around the table with them each day, along with our twenty-something children, discussing a faith-filled life. Many positive experiences occurred both at our home and church.

My wife and I have started a Christian Yoga program that we do together every morning to center ourselves and stretch a little. I find it enriching for our relationship to share this experience..

I have aspirations of participating in some triathlons this summer, so I am increasing my running and biking mileage this month. Training in Northern Indiana at this time of year can be challenging due to the unpredictable weather. One day it could be 70 and sunny, and the next day 25 and snowing. I recently purchased a new gravel bike for my triathlons and will be using it. I also bought essential gear like a GPS computer, which I will be adding to my bike soon. It's quite enjoyable to personalize a bike.

Speaking of bikes, my wife and I hope to get our e-bikes out of the garage and take our first ride in the near future.

This week, I had several professional meetings in the early morning hours. These included discussions on succession planning at my clinic as I prepare to retire, as well as the challenge for the hospital to find a new doctor to replace me. Additionally, I have been collaborating with my development team for my new startup. The benefit of working with a team in a different time zone is that early mornings work well for both of us. The process of creating an innovative MVP product has been exciting, albeit filled with unexpected challenges - but that's all part of developing something entirely new for the market!

I also have had several business development meetings for SimpliMD, and look forward to sharing more about those growing relationships that will benefit our community. On a personal level, I have accepted a request by CME Away to speak at their CME conference on the business of medicine in September of 2025 at the Ashford Castle in Ireland. That will be really cool! As we get closer, I will tell you more about it and invite you to join me!

My recently widowed mom experienced a credit card crisis when she discovered that someone had stolen her card number to make purchases. Luckily, the charges were not significant. We assisted her in contacting the credit card company to report the fraud and request a new card. The final step will be updating her auto-pay accounts once we receive the new card.

Is That Deductible?

Well it’s time to figure out if there was a business purpose associated with any of the activities this week.

1. Church Conference: no cost and therefore no deductions, unless you want to include the “love offering”

2. Hosting Church Conference Workers: Allowing the workers to use our guest house involved no financial transaction; it is part of the benevolent hosting purpose we have for this STR type LLC. Providing three meals a day for three ravenous young men was a deductible business expense for the guest house LLC, which was nice with rising food prices! As for home cleaning, we are still deciding whether to outsource it or do it ourselves, but we are leaning towards the latter option.

3. Christian Yoga: This online health membership is covered by our out of pocket health reimbursement program through our business enterprise.

4. Equipment for Triathlons: Although it is for my health, this is not being covered by our health reimbursement program. We are working with the accountant to see if there are any identifiable expense options for this among our 9 businesses—TBD

5. Professional Meetings: From Calendly to Zoom to any number of other home office/business products needed, these are covered as deductible business expenses. However, my time is not deductible.

6. CME Away speaking engagement: A deductible business expense.

7. Mother’s credit card crisis: The drive to her home was not deductible, nor were the flowers that I brought to cheer her up on her“bad day”, nor was my wife’s expert financial skills in helping to get everything settled with the credit card company.

    

In your day-to-day life, you may be surprised to find numerous business purposes associated with your activities. As a micro-corporation, it can be hard to separate your personal interests from your professional interests, but that's exactly the point—they are all tightly connected. So why miss out on the deductions!

If you are looking for a great virtual accounting firm that will help you optimize your small business tax efficiency, I invite you to check out Tax Elm. They have an incredible virtual platform for tax-planning that can help you save money through your professional micro-corporation year after year. They are one of our preferred partners with our SimpliMD Network, so you can trust the quality of their work! Check them out today!