Resource Centers:(News, information, and tools to support your practice)
As a top-earning chiropractor, do you realize you spend 40 percent to 50 percent of your working hours laboring for the IRS and your state? That is a lot of time with patients! With those sobering facts in mind, you may be interested in how to give less to the IRS and keep more in your practice’s coffers. Here are five ideas to consider: 1. Protect your assets. As a chiropractor, you do not face the malpractice liability of your physician counterparts. As a business owner and employer, however, you do. What you may not realize is a claim by a patient or employee will likely threaten all of your practice’s accounts receivable (AR), including those you earn. Typically, AR is a chiropractic practice’s most valuable asset. For this reason, many chiropractors are beginning to implement strategies for asset-protecting their receivables that medical doctors have been using for years. 2. Share income with lower-income family members. Congress changed the rules on this technique in 2006 by increasing the minimum age for children involved in the business from age 14 to age 18. Nonetheless, this strategy may still remain a viable option for you. Essentially, this is accomplished by what is called “income sharing” — spreading the income created within a family limited partnership (FLP) or limited liability company (LLC) to the limited partners or members who are in lower tax brackets. If you are in the 40 percent (state and federal) tax bracket, but your children older than age 18 are in either a 10 percent or 15 percent tax bracket, your LLC/FLP can save significantly on income earned by LLC/FLP assets, such as mutual funds, rental real estate, stocks, and bonds. Typically, this is a technique recommended by many CPAs. 3. Gain tax deferral through cash-value life insurance. Under realistic assumptions, a $500,000 mutual fund portfolio may generate an annual tax liability of $10,000 to $25,000. Similar investments within a cash-value life insurance policy generate no income taxes because the growth of policy cash balances is not taxable. Also, nearly every state protects the cash values from creditors, although the amount shielded varies considerably among each state. 4. Find a tax-minded investment manager. Investment portfolios can create large tax burdens in the long term. To avoid taxes, consider finding an investment manager who manages clients’ portfolios to reduce income and capital gains taxes. 5. Use charitable giving to reduce taxes. A number of ways exist for you to make tax-beneficial charitable gifts while benefiting your family as well. The most common tool for achieving this “win-win” opportunity is the charitable remainder trust (CRT). A CRT is an irrevocable trust that makes annual or more frequent payments to you (or to you and a family member), typically, until you die. What remains in the trust then passes to a qualified charity of your choice. A number of advantages may flow from the CRT. • Tax deductions. You obtain a current income tax deduction for the value of the charity’s interest in the trust. The deduction is permitted when the trust is created, even though the charity may have to wait until your death to receive anything. • Enhanced investment return. The CRT becomes a vehicle that can enhance your investment return. Because the CRT pays no income taxes, the CRT can generally sell an appreciated asset without recognizing any gain. This enables the trustee to reinvest the full amount of the proceeds from a sale and generate larger payments to you for your life. • Estate tax deduction. The trust becomes eligible for an estate tax deduction if it passes to one or more qualified charities at your death. This article gives you a few ideas for how to save in taxes for 2007. Some of these are quite well-known by all advisors; a few require specialized expertise. |
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5 ways to cut your tax bill
Christopher R. Jarvis, MBA, (