Keeping More of What You Make

Part 2 - Tax Strategy

Instructors:

Garrett Gunderson

Garrett Gunderson

Garrett B. Gunderson is a financial advocate to dentists.  Through the value of Soul Purpose, he empowers people to build sustainable wealth consistent with their passion, purpose and knowledge. Last year, his firm saved doctors over 7,800,000 dollars in recovered cash through his Financial FastTrack program.

Garrett Gunderson discusses how traditional tax strategy may be costing you thousands of dollars more than you should be paying.

So we've talked about credit here. And I've given you quite a few tips. We know why credit score is important. Some of the thing that you can do, you know soft inquiries are okay anytime. So you can check your credit as often as you want and make sure everything is good. But you want to check those loan-to-values, your debt-to-income. You want to make sure everything is consistent and once you improve your credit score, now what you do is go back and negotiate better interest rates, which is going to mean more money in your pocket, keeping more of what you make. Next point. Let's move to tax strategy here. And I've alluded to some of this. That accountants, good people, but trained kind of to be reactionary. I have yet to find many accountants that do a really good job at talking to the dentist a couple of times a year before the year is over. See if it's past December 31st and now you want to talk about tax strategy, it's too late. You needed to talk about it in the year not the next year. And I know you have till April 15th to file or if you file an extension even longer. But the problem with that is this. They're just going to tell you to put money on an IRA or retirement plan. And yes you may payless tax this year but here's the consideration. Do you really save tax or only delay the inevitable, only defer the tax to the future. So let's think about this with a qualified plan. That's a 401(k) and IRA, SEP IRA, a traditional IRA, a key of whatever its name is. It's something that you put the money in before tax and then you pay tax when you pulled it out. No.1, do you plan on being in a higher or lower tax bracket in the future. I mean do you think the government is going to raise or lower taxes in the future. Ask yourself that question. When I ask that in a room of dentist guess what I hear. Everyone thinks they're going to raise tax in the future. No. 2, do you plan on being more or less successful in the future. I would hope more. And if you financial planner says you're going to be in the lower tax bracket in the future, maybe they need to be fired cause maybe they're admitting that they aren't doing an adequate job here. So this is something to think about taxes is it true savings or just deferral. And I know you get talk about with ROI and qualified planning conversation and contribution, let's get a little bit more detail and let's give some better strategy here. No. 1, I'm amazed how many sole proprietor are dentist. No corporation. Earning a decent living and their account says it's too complicated or you don't need to become a corporation. Well no. 1, an accountant doesn't do corporate documents, an attorney does. And so typically their advice is conflicting because they don't have the capacity and it's another step and they already constraint for time with their tax preparation anyway, right. So a corporation is essential. No. 1, you're a doctor. You want to have liability protection. Whether you're extraordinary successful or on your way to being successful, people perceived you as being successful and having deep pockets. Therefore you're open up to liability when you're not a corporation. A sole proprietor has unlimited liability. A corporation has limited liability. From that standpoint, you got to consider that. No. 2, when you set up a corporation now you could pay yourself a little bit different and you were two hats at least as a dentist. No. 1, if you're the business owner you wear the business owner hat: hiring, firing, managing teams, monitoring scripts, talking to the front desk, talking to the hygiene department, doing team meetings. There're all these things that are business oriented things. But you probably didn't sign up for when you went to school. You thought you're going to be a doctor. You show up as a business owner. You're like wait there's a lot to this. The second piece is there's a time you're operating as a doctor. You got your hands in the person's mouth. You're chair side and you're taking care of a patient. Okay. Those two things get tax differently if you're an S corporation. Dividends are not subject to self-employment tax which is 15.3%. That's likened you to Medicare. It's a bunch of taxes that way. So if you're taking a dividend because you're offering as a business owner, you're saving that tax. When you're taking a salary because you're operating as a dentist then you pay full taxes on that. See that save a lot of money and it's always up for debate by the way. It's always in congress whether they're going to allow that in the future or not, but it's not likely they're ever going to retroact it. So I highly recommend you consider that. No. 2, if you're a dentist that owns your building, there's something called cost segregation and it's simply you get to depreciate your building for tax purposes. And normally it's straight line 39 year depreciation meaning each year you're going to take a little bit of a right off because things are wearing down, the carpet you have to replace different structure in the office. There's equipment all that kind of stuff. Cost segregation most accountants don't recommend it because they have to have an engineer. So once again this is the problem. They aren't fully equipped for this, right. It's kind of like you're going to refer out your perio work or your ortho work because you don't do that in your office. Well you guys are really good at referring those things out. Accountants aren't. They're not really good at building that team. So an engineer can come in and say hey as we look at your building what we found is you can actually accelerate depreciation here, get a bigger tax advantage today when it's certain and then in the future if you just turn around and sell those building yeah you might have to recover that tax deprecation. But here's a cool thing. This is just a seed. You don't have to learn what I'm about to say but I'm going to give you just a high level strategy. You can build family foundation of your charitable trust that whenever you sell, your building your practice, not only will you not have to pay tax but you would get a tax deduction from being charitable. The charity would pay you a portion of that every single year until you die, so anyway there' a way to give your money away and still spend it while you're alive. The thing is you're just cutting out the government. The government is one that came up with the rules for congress back in the 70s. So something to may be look into. I'm just letting you know. It's not just a deferral but there's really some ways to get through deduction. So I guess my real point here is if you aren't no. 1 organize with your accounting because that's part of the problem is you get organize in January, February, March or April or file an extension that's too late. Have your bookkeeping done so the numbers can tell you a story throughout the year and get on the phone with your accountant and say what strategy style are you looking for. What things are going on with the new economic recovery act? What things are going on with taxes in general? And let me just tell you this. Only go with black and white strategy. See because there's a difference between avoidance and evasion. Avoidance you get rewarded for. Evasion you go to jail for you go to fail for or you get fines and penalty and all that kind of stuff. So you want to be smart about it. I'm not telling you to go off shore, become the severing citizen. I'm just telling you to look at how you take your income and how you structure your taxes and prepare and plan your strategy. If you're not planning that strategy, well then you're missing out on the deductions. And I told you its $11,700 on average that we're finding that 93% of dentists are missing each and every year. That's bottom-line dollars. That's not creating new space, seeing more patients, selling more procedures, that's just bottom-line dollars that come to your pocket. What can you do for your business? What could you do for your lifestyle? I mean there's just so much because that comes in each and every year. Now final piece on taxes that I just want to mention is if you have a corporation and you miss tax deduction for the last three years, you can amend your taxes. Another reason to be a corporation. If you're an individual sole proprietor you cannot go back and look, you cannot go back and do an amendment. But if you're a corporation you can. And I've seen people get a lot of money. I even in the financial word was able to get money back on an amendment ones because I forgot to disclose I had a loss in real estate here. I'm a financial guy admitting that I made a mistake in real estate. That's how I learned some of this philosophy but I was able to go back and capture that loss from the tax benefit. And I would never recommend that by the way. Never lose or spend money just to get a tax benefit. Don't let the tax tail wag the dog. The best tax shelter in the word and this is something to write down and review this regularly. The best tax shelter in the world is to always earn another dollar. The best tax shelter in the world is always earned another dollar. And here's why. There are average tax brackets and marginal tax brackets. Marginal is when you hit new bracket, when you earn more money, you start getting your dollars tax with a higher rate. But here's the news whether it's me, you, or Bill Gates we all get tax the same on the first $15,000 we make and its 10%. After 15,000 and that's not the exact bracket, it goes tax at, you know, it goes from 10% to 15% but it doesn't revert to the old dollar. It is only on every new dollar. So it always makes sense to earn more cause it never hurt past dollars. I came from a small coal mining town and these coal miners would say I can't work anymore with overtime I'm going to get kill with taxes. What do you mean kill with taxes? Well I'm going to get the higher bracket. Right. Only on the next dollar you earn not any previous dollars. You're always keeping more making the next dollar. Even if you're paying the government more you're still keeping more than not earning the dollar. So never shrink your way to wealth. That doesn't work. Saving taxes has never got anyone to be wealthy. What happen is more production and being production minding with your accounting not just saving and setting aside or delaying or worst just spending and buying to get tax advantage. See there's a thing called success tax. That's when you earn enough money that you have to pay quarterlies or you get that big tax bill and you're like oh crap this is a bunch of extra money I have to pay. That's the success tax. Those are the best kind of tax by the way, is the success tax. What I don't like is the ignorant tax. That's when you don't know something and it cause you a whole bunch. That was like that piece of real estate that I lost money on. I had the ignorant tax going on. I got involved in something I didn't know, I didn't love, I didn't have any passion for, any purpose behind other than I want to make more money. And the gurus will tell you, you should invest in real estate, invest in the stock. No. Invest in things that you know. If you don't know, you're going to have to pay for it with the lesson in real life not just through education. And so I think that's real key.