Start Receiving Our Blog In Your In-Box Regularly

Providing content that inspires and informs doctors on how to thrive as micro-corporations!

Is That Deductible? "Tax Planning Team Work"

Dec 18, 2023

The End of The Year at Home

Every year at this time, I experience a wide range of emotions. Within our home, we celebrate the holidays of Thanksgiving, Christmas, and New Year's, which can get a little busy with our five adult children, two of whom are married. Additionally, we have four layers of blended families within our social circle, including my late wife's family. On top of that, our immediate family has five birthdays that fall between December 7th and January 6th. That entails a multitude of obligatory family events and gatherings filled with gifts and a strong presence of togetherness.

As a rural family doctor who provides maternity care and hospital-based call, navigating through this minefield of special dates over the course of these six weeks has always been challenging due to my professional obligations. These obligations include predictably working at the clinic, hospital rounds, and call coverage. Additionally, the unpredictable nature of maternity care means that a laboring patient could require attention during any of these events. Managing this personal and professional schedule each year is indeed daunting. There are many things that I am looking forward to with my retirement this summer. However, one thing that I will particularly savor is removing this stressful element from our family calendar.

We all love and embrace the spirit of the season, and cherish our families. However, by the time we enter into this six-week period, it can feel overwhelming. This is especially true when considering the additional commitments of seasonal work and church events.

I am tempted to do a reverse countdown to January 6th and check off each box as the events unfold. As a doer, having a 6-week checklist feels satisfying. However, I am making an effort to resist this temptation and be more present in each day, allowing myself to fully enjoy every special moment. I encourage you to do the same during this holiday season.

50th Birthday

This year happens to include my wife's 50th birthday, so we'll be doing a little extra planning for her special day, which occurs just prior to Christmas. I am incredibly thankful for my wife. She truly is an amazing woman - creative, fun, loving, Godly, intelligent, and beautiful. I consider myself one lucky man to have her by my side. Given the complex scheduling puzzle that this month presents for our family, we have always agreed to celebrate her birthday during any available clear space in the calendar. This allows us to block out distractions and truly enjoy her special moment, even if it falls on a different day than her official birthday. This week, we decided to celebrate about a week early by going on a date to a Christmas play with musicals (as she absolutely loves them) followed by a delightful dinner. It was a wonderful time for just the two of us, although I have to admit that it included a few errands along the way and was interrupted by a pressing phone call regarding a real estate deal. Thankfully, we are both resilient to date-stealing obligations and can handle these minor interruptions without much trouble.

By the way, Ellen's passion is scrapbooking, and she excels at organizing, recording, and scrapbooking each of our events during our annual 6-week odyssey. It's no exaggeration to say that we have multiple massive bookshelves filled with her impressive creations throughout our house. One of her goals for her fifth decade is to elevate her scrapbooking micro-business, Scrapping In My Sleep YouTube channel to new heights. I have no doubt that she will soar!

Graduation

In addition to Ellen's milestone, my fourth child has just completed her creative writing degree and will be graduating from the program in December. She will now enter the gig economy as a freelance writer/editor, all while continuing to live with us at home. We are proud of her, especially considering that she initially resisted the idea of going to college—which changed after she was inspired during a six-month mission trip to South Africa a few years ago. I will be working with her to help set up a sole proprietorship as her initial business model.

Notably, she is also a bit of an outlier since the rest of the family has chosen to pursue careers in the medical field. This includes our third child, who has taken some time to figure out his direction in life and has recently declared his desire to go into the nursing field. Life has been a bit harder for him overall because he is on the autism spectrum, but we are cheering for him in this most recent endeavor. Our youngest child just returned home from college, where she is currently in the middle of her Junior year in a BS-RN program. We always love having her home! At the end of the week, our married children will come home, with one being a family doctor and the other being a nurse.

As you can imagine, and my wife often reminds me of this, the amount of medical knowledge, complex vocabulary, case discussions, and profound thoughts that permeate our family time is truly impressive. It is certainly what sets our gang apart and makes us special!

Gathering everyone together at home during the holidays is always a fun and special occasion. Our guest house and primary house are filled with family and seasonal guests, creating a warm and festive atmosphere.

End Of The Year Extended Family

With my dad's recent passing just before the holidays, it has been particularly challenging for my mom as she adjusts to a lonely home and the absence of him. While I also miss my dad, my experience of grief is different from my mom's. As I mourn my dad's loss during this season, I am reminded of what my mom truly grieves:

the memories of our lives before my dad passed away
the conversations that can no longer happen
their emotional closeness
their unique and irreplaceable bond
the sense of safety and comfort he brought her
the inability to create new memories
life without him in the upcoming events
the empty chair in the living room

These are some of the emotions that are intertwined with the joy of the season. It's a bittersweet experience, but it's a natural part of the circle of life. My wife and I are making every effort to handle our emotions while supporting my mom with hers. Additionally, we are also dealing with a range of personal and financial matters that I am working on with my mom. However, we are taking it one task at a time and making progress.

In addition to everything else, the end of the week brought an unexpected and significant family crisis within our extended family circle. This situation has required our prayerful support as we stand by our loved ones through these challenging circumstances. We are more than willing to help them bear this burden, as it is a testament to the strength and unity of our loving family community.

End Of The Business Year

With 9 micro-businesses, the end of the year also brings the need to close the books and engage in tax planning before December 31st. We have developed a business architecture and enterprise model that effectively connects these businesses with our household finances. Our accountant and tax planning team have always emphasized the importance of having the following 4 basic business tax entities in our portfolio in order to maximize our tax strategies because each has it’s own separate tax rules and advantages. With these tools in place, our tax planning team can effectively manage the flow of dollars into our home using each of these channels.

Those business entities include:

Sole Proprietor
S-Corp
C-Corp
Partnerships

We have each of these in our enterprise of 9 businesses and therefore the end of the year brings a series of inter-locking levers and decisions that are all inter-connected to our personal tax planning.

The Power of a Tax Planning Team

I believe that every physician micro-corporation should have a dedicated team of professionals to provide them with professional advice and counsel. This team should typically include experts in accounting, legal matters, wealth advising/management, and business coaching.

There is a small number of you who can get by without this team.

There are many of you who recognize the need for each of these team member but access them haphazardly.

Similarly, there are many of you who hire these professionals to help you, but they operate in silos and never collaborate on your affairs. This can lead to conflicting advice and a lack of a unified approach to your professional and personal well-being. The professionals on your siloed team often provide myopic advice within their area of expertise but struggle to work with others due to perceived threats from the other professionals.

There is a small number of professionals who come together as your team and work collaboratively on your behalf. This is what I have through my concierge legal retainer with Lattice Legal and my business and fiduciary team at KDU. We meet quarterly for tax planning meetings, taking care of our 9 micro-businesses and personal household. Having a team like this may not come cheap, but the fixed fee agreements with clearly outlined scopes of service make it a low-risk investment. In the end, it can be considered a deductible business expense, and this team has consistently proven its worth by paying for itself year after year.

To clarify, I am actively involved in managing my micro-businesses, which means our quarterly meetings are a blend of my agendas and their agendas/analysis. My wife, who serves as the bookkeeper for most of our businesses, also attends these meetings. It's always amazing to witness the collective wisdom and collaboration that takes place as we work together to manage the financial aspect of our enterprise. Listening to the team engage in lively discussions is not only a learning experience for me, but also a source of enjoyment as they enthusiastically brainstorm solutions to effectively grow our net worth.This last meeting was no exception, and I believe we were all delighted with the projected impact of our quarterly decisions on our 2023 tax year. These decisions collectively support both my personal and professional goals that are an important part of the mix.

Wins

My wife and I are averse to debt, especially as we aim to achieve Coast FIRE by June 2024. Therefore, our primary goal was to eliminate all our personal and business debts before I retire this summer. Fortunately, we will be able to achieve this goal by making wise use of our assets and implementing smart tax strategies, such as utilizing cost segregation studies for some of our properties.

We are acting as the bank for one of our commercial properties. With interest rates on the rise, we have restructured the loan terms to reflect a national commercial loan rate. This will result in a substantial monthly loan payment to us for the next four years, with a safer high yield return than any other low risk investment that we could use.

Even more impressively, using all the levers and tax strategy options available to us this year, we were able to reduce our projected effective household tax rate to <5%. Wow that is a huge win for us, and a tax rate that most any doctor would love to have!

On top of that, after the meeting, I was able to confirm with my realtor that I have a purchaser for the last available lots in my real estate development company. I simply had to arrange for the movement of an electric box and my realtor was taking care of this for me. This would wrap this nearly 20 year project that began as an angel investment for low income home ownership in our community. It has felt good to help our community with this housing project during this time!