Three Steps to Ensure You Choose the Right Tax Team

Sep 27, 2020 at 03:48 pm by pj


 

Too many high-income earners ($500K+) continue to overpay their income taxes. Unsurprisingly, when these individuals are asked if they would want to pay less in taxes, the answer is overwhelmingly “yes.” Unfortunately, most working professionals don’t have the time to research and understand the tax code. Time can be a common and prevalent impediment for physicians when seeking lower tax bills. The nature of their work requires an abundance of time and they become limited or even restricted as a byproduct of their working requirements. Moreover, most physicians aren’t able to spend what little spare time they have exploring how to pay less tax and transform their wealth. The result is that they consistently miss out on deductions they are legally entitled to and deserve for all their hard work. 

As such, these are the taxpayers with the greatest opportunities to save on their tax bills. Physicians who overpay their taxes miss the opportunity to compound interest on any tax savings collected over their career and into their retirement. 

 

The “Tax Disparity” 

Twenty-one years ago, after becoming frustrated with his own tax dilemma a young attorney decided to do something about it. He knew there were wealthy people paying far less tax than others. “But why?” he asked himself. The answer became clear when he started digging into the history and reasons why some taxpayers with identical incomes paid significantly less tax than others. He knew there were published laws, rules, regulations, and guidelines about taxes available to anyone who was willing to read and learn them. 

Essentially, time and awareness were the only two requirements for him to learn how to legally cut tax bills by 20-50%. He put his knowledge to work and started personally using the deductions and strategies he found through his efforts. Over two decades later, two things remain true: There are may wealthy physicians overpaying their taxes and most are unaware of legal strategies they can employ to reduce that burden. Per the Internal Revenue Service’s 2019 IRS Data Book, “During Fiscal Year (FY) 2018, the IRS collected nearly $3.5 trillion, processed more than 250 million tax returns and other forms, and issued almost $464 billion in tax refunds.” 

 

The IRS Refunded $464 Billion in 2018? 

This means Americans overpaid their taxes by $464 billion that year. Chances are most of those people could have done something to reduce the amount of tax owed but were lacking in the knowledge and resources to do so.  

Many physicians lack access to the specific resources needed to address the complexities within the tax code. The continuing “Tax Disparity” remains static and serves as the pivot point between those who overpay and those who don’t. Traditionally, only the ultra-wealthy could afford a “team” of tax professionals to decipher and individually translate the cumbersome thousands of pages of the Internal Revenue Tax Code to save them large sums of money on their tax bills. 

Many physicians secure their tax guidance by asking a colleague early in their career to recommend a CPA. Some CPAs will know about the available deductions and strategies; however, they are reluctant to allocate the time it takes to substantiate and validate (document) these deductions and strategies on their clients’ behalf. 

To compound the issue, many physicians assume their tax preparer will save them money on their taxes (without any agreement or confirmation) and later become disappointed when they are told by their CPA to write a check at the end of the year because there is nothing the CPA can do. However, the disparity gap can be, and is being, narrowed. By creating a movement of awareness requiring physicians and tax professionals to share the burden equally, high income earners can take action to pay significantly less tax over the course of their lifetime. 

Noah Kaufman, M.D., in his article “How to Keep More of What You Earn: Tax Tips for Physicians,” published in a 2019 issue of OpMed stated, “The bottom line is that taxes are a complicated game that most physicians are losing. We are so focused on our practices, that we default to simply paying taxes in a very normal way. Moreover, we don’t have the professional network to actually find help. Many of us go to the first CPA we can find right out of residency or ask another doctor who they use. It’s the blind leading the blind. Employing proper strategies with top tax professionals can create asset protection, and the ability to achieve financial freedom much earlier in your life. Then you can focus on the practice of medicine for professional fulfillment instead of for money.” 

 

How and Why Should a Physician Choose a Viable Tax Advising Team? 

For a lot of physicians, choosing a tax advisor team can be a tedious task. With limited knowledge about the differences in credential, approaches and service structuring, knowing how to choose the right advisors is critical for success. 

Brian O’Connell from TheStreet.com sums up the definition of a tax advisor and why someone would need one in his July 11, 2018 article, “What is a tax advisor and how do you choose one?” 

“An accounting professional who specialized in the complex U.S. tax code, and who uses that knowledge to help taxpayers minimize their tax burden to Uncle Sam. Tax advisors possess the proficiency to understand the massive, complicated and often confusing U.S. tax code. Buried in those pages are both trap doors and tax breaks that average Americans likely wouldn’t recognize, but a professional tax advisor would. A tax advisor can also steer individuals and businesses to tax-advantaged money moves in key areas like retirement, estate planning, investment management, and small business planning. In addition, major life events, like a marriage, the birth of a child, or buying a home can also be scenarios where consumers could leave money on the table if they don’t consult with a professional tax advisor.” 

 

Three Key Areas Where Physicians Should Concentrate Their Efforts When Choosing a Tax Advisor 

  1. Know Who You Are Recruiting

Competencies for tax advisors can vary greatly and each of their individual areas of expertise should be considered to fit a physician’s needs. Tax advisors come in all shapes and sizes with a myriad of select skill sets. 

Consider a firm that uses a team approach, consisting of the following professionals: CPAs, Paralegals, IRS Enrolled Agents, Financial Advisors, Risk and Investment Experts, and Client Service Advisors. It is important to cover all tax bases with the appropriate advisors who work in a team setting. This promotes seamless service delivery and communication with minimal disruption and gets all team members pulling on the same side of the rope. 

A tax advising firm’s track record should also be explored prior to engagement. This allows you to mitigate any risks associated with poor performance or a troubled history. Ask about audit rates and results from those examinations. Moreover, any reputable firm should stand behind their work and represent their client in the event of an examination. (This should be included in your service.) Make certain every recommendation is safe and proven. Furthermore, all prescribed recommendations should have a track record of withstanding any scrutiny from the IRS. 

  1. Gain an Understanding About the Firm’s Approach to Tax Advising

Taxation isn’t something that only occurs during your working years. Many physicians continue to overpay taxes on retirement distributions, investments, and the like once they are done earning money through their labor. The odds of these “after work” types of income streams being taxed at the physician’s high tax rate is very common. Unfortunately, there are some tax advising firms that make no effort to reduce a physician’s future tax liabilities. A safe and smart approach to tax advising is one that is “holistic.” Using a holistic approach now and in the future ensures engineered outcomes for a physician’s tax liabilities. It is important to note that tax will be the single greatest expense physicians will have over the course of their lives. It is paramount that levels of predictability are secured for tax liabilities today, in the future, and for future generations who may inherit family wealth. 

Tax advising should not be offered as a “one size fits all” service. Physicians have different wants and needs, personalities, risk tolerances, and knowledge about money and taxes in general. A tax advising firm should take a detailed interest in these characteristics and be able to design a tax savings plan aligned to all the variables brought forth. The ability to scale and remain flexible without sacrificing quality or quantity of service is a true attribute of a great tax advising firm. Customizing a physician’s tax planning is critical for successful tax liability reduction. Taking a personal interest in the physician’s goals and ideas is essential to executing successful holistic tax advising. 

A reputable tax advising firm should also embrace the opportunity to work with the physician’s other advisors. An “all or nothing” service proposal from a tax advising firm should be a clear sign to stay away. Customizing a tax advising service/plan should be free of caveats and contingencies related to working with other professionals. All advisors should take into consideration other advisors the client may have and give recommendations in the physician’s best interest. 

Like anything else, the amount of benefit received is commensurate with the amount of time spent. Top tax advising firms will do the lion’s share of the work of the work for the physician; however, physicians should take an active role in their plan and service. Successful tax advising firms should make the client experience positive by using an inclusionary model. This allows all stakeholders to focus on attaining results. 

  1. Consider How Their Offering Works

Choosing a tax advisory firm is a business decision at its root. The one question to ask above all is, “How much of a return will I receive on my investment?” It is vital to understand the value proposition and other promises that are made. They physician should have some assurances as part of the offer to legitimize the engagement. Be aware that not all tax advising firms will include results-oriented promises or guarantees. If a physician is going to sp3en money to save money, he or she should feel confident about the expected return on investment and other promissory components in the service. Tax advisory services, when applied correctly, should create significant return for the taxpayer. 

 

How to Get Started with this Information 

Like any change, getting started is the hardest part of the journey. The ball starts rolling when the physician gets to a “more furious than curious” position about taxes. Physicians should gain an understanding that the value of time spent is equivalent to their knowledge and choices about taxes, tax advisors, and, specifically, the long-term impact on their financial fitness. Seek out guidance from professionals who have demonstrated competencies in the areas that most affect you. Hire the professionals who invest time in you. In other words, choose a tax advisory firm that is working on your behalf. Once that constantly makes suggestions, allocates time throughout your tenure to introduce, modify, and plan for the unexpected, as well as the expected. The terms of your service should be value driven with assurances and clear and acceptable expectations for both parties. Be prepared to work and be involved in your tax planning and wealth journey. Favorable results happen when physicians choose to actively participate. 

 

Tax Saving Professionals is a national tax consulting firm headquartered in Vero Beach, Florida. Offering advanced tax saving and wealth strategies, Tax Saving Professionals serves medical professionals seeking to keep more of what they earn by highlighting powerful solutions to build and preserve their wealth. Tax Saving Professionals’ extensive experience and stellar track record helping high-income earners reduce tax liabilities has kept them in an elite class of tax advisory firms for over 20 years. 






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