The Investment Scientist

Posts Tagged ‘physicians

Medicine is a profession fraught with legal risk. According to an AMA survey for the period 2007-2008, for every 100 doctors, there were 95 lawsuits.

The survey also reveals that physicians 55 years and older are eight times more likely to get sued than physicians 40 years and younger.

Not that they make eight times more medical errors, just that they are richer lawsuit bait.

That reminds me of a joke. Why won’t a shark attack a lawyer? Professional courtesy.

Back to the topic at hand, many physicians in solo or small practice simply use a SEP IRA as their retirement plan. It is very simple to set up, and the contribution limit is a generous 25% of earned income or an annual limit of $49,000. What is there not to like about it?

Click to get my white paper Wealth Management Guide for Physicians.

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pump-jack group

Oil and Gas Investment Scam

In the last month alone, I’ve gotten calls from two clients asking me if they should invest in tax advantaged oil and gas investments being pitched to them?  Both of these clients are physicians.

The pitch is that oil and gas investments are like IRA accounts, but without the contribution limit. Whatever amount you invest can be written off right away.

The pitch is quite alluring to high-income professionals like physicians who are facing higher taxation. But it sounds too good to be true, so I did a study.

It turns out what is being pitched as “tax advantaged” is in fact the riskiest part of an oil and gas investment.

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Be prepared for a tax cut sunset

(This is an article I submitted to Physicians Practice magazine, an edited version was published.)

With President Obama re-election, there is now no doubt that the Bush tax cuts will expire come January 1st, 2013.

Why is there a sunset clause in President Bush’s tax cuts?

In 2001 and 2003, Congress passed, and President Bush signed into law, significant tax reductions for nearly all taxpayers. These cuts included marginal rate reductions, the introduction of a new 10% tax bracket, an expansion of the child tax credit, and a variety of other provisions. Both bills were passed using a Senate procedure known as “reconciliation” – a tactic that lowers the threshold for cloture to a simple majority of senators (as opposed to a 60-vote supermajority).

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Financial Salesman

In an online forum, a doctor’s wife shared with me her story that should serve as a cautionary tale for all doctors.

Her husband had a solo medical practice. They had a “financial advisor” who advised them to put their saving into a $5mm cash value life insurance policy. They believed the product not only provided protection in the event of the doctor’s death but also was a great savings vehicle.

Last July, her husband was struck by an uninsured drunk driver. He suffered brain damage. Though he recovered from the coma, he was unable to practice medicine any more.

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As a small business owner, you are caught in a conundrum. On the one hand, you need to offer good health benefits to your employees to attract and keep talent; on the other hand, you can’t afford to lose an arm and a leg doing so.

There is a simple option that enables you to kill two birds with one stone—Section 125 Premium Only Plan (POP).

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Doctor's Tax Saving

Doctor's Tax Saving

[Adapted from my post for Physicians Practice] Generally speaking, physicians make good money while in practice. Many of them are in the top tax brackets. Upon retirement, however, their earned income often drops to zero. If they can defer some of their compensation to the future, they can effectively move money from the top tax brackets to lower tax brackets.

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[Adapted from my post on Physicians Practice]

“Laws are like sausages …” Otto Von Bismarck, First Chancellor of Germany

Physician Wealth

Doctor and Monday

The last Congress, the one that received a “Shellacking” in November election, was actually very good at making “sausages.” As the result, there are many tax law changes that have come into effect. I asked the tax specialist in my wealth management network to give me a list of tax law changes in 2010. As I went through the list, I identify these seven that are relevant to physicians and their practices.

Don’t take this as legal or tax advice; don’t even take this as complete information. To avoid putting you to sleep before you get to item 7, I simplify much legal minutia. Consult your own tax and legal experts before using any of these:

  1. If you have a practice of less than 25 employees, you maybe qualified for health insurance credit.  Read the rest of this entry »

Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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