The start of 2013 found Congress in frantic negotiations to avoid the so-called fiscal cliff, which it did (barely) with passage of the American Taxpayer Relief Act (ATRA) on Jan. 1. As a result, most Americans, including physicians, will see their taxes increase. For those who earn more than $400,000 and/or have significant investment income, the added tax bite you will feel beginning this year could be especially significant.
Nervousness over the potential of falling off the oft-publicized “fiscal cliff” was averted when the American Taxpayer Relief Act of 2012 (ATRA) was approved by the House and Senate and signed into law by President Obama. The legislation addressed and resolved most of the tax uncertainty that made year-end tax planning for 2012 so difficult for many people. Unfortunately, however, the final resolution of issues related to spending cuts and the debt ceiling was delayed.
If you’re like most Americans, you feel less secure about the U.S. economy. Certainly, this is justified. Western European countries have run out of capital, unemployment-based riots have broken out in the streets of Great Britain, and the United States debt shield political debacle has caused our government debt to be downgraded from “AAA” for the first time in history.
Are you the owner of a medical practice taxed as a flow-through entity, such as an S corporation? Most physicians are. We would estimate that 70 percent of medical practices operate as S corporations. As such, you may be paid both as an employee of the practice, receiving a W-2, and as an owner of the practice, through a K-1 distribution.
We have consulted with thousands of doctors in all specialties during our combined 35+ years in practice. From this experience, we have become intimately familiar with how most physicians build their financial plans (what we call “wealth plans”). Too often, they have ignored the most important factor in a sophisticated long-term plan — flexibility.
“I hate the stock market.&rdqou; That was the subject line in a lengthy email I received yesterday from an old friend. The body of the message was equally firm.
The single most common mistake we see in our physician-focused practice is in the doctors’ choice of specialists. The successful delivery of healthcare is based on the patients’ need for physicians to refer them within and between various specialties and subspecialties when unique challenges arise. When it comes to the successful navigation of their own financial health, however, physicians do not apply the same logic or expect the same level of sophistication from their advisers.
Being an employee at a hospital can be a great fit for many doctors. But, for (supposedly) high-income specialists, this decision could come at an unnecessarily high financial cost.
If you’ve been following conventional advice on diversification over the past decade, you have a portion of your portfolio invested in bonds of various types. And that’s good. When the equities market tanked in mid-2008, many investors were spared the worst of it by strong returns from their fixed-income investments.
Judging from my email, it’s not difficult these days to find savers and investors who are questioning the conventional wisdom when it comes to investing their money.