Have you been wondering- how the heck can I pay less in taxes?
If you have been grappling with these kinds of questions or if you are simply curious about them, you are going to love our next guest.
Our next guest’s expertise lies in the area of tax planning. Her goal is to make sure successful entrepreneurs across the United States are paying the least amount of income tax they can legally pay.
As a tax coach, she offers a FREE tax analysis for those interested in finding out if they are overpaying their income taxes. Her goal is to save taxes one business at a time through the use of pro-active tax planning.
As a matter of fact, I ran across her because I heard her in another podcast and thought she could add a ton of value to you.
I know we’re going to learn a ton today.
Please help me welcome Diane Gardner!
In this podcast, you will discover…
- Discover the stark differences between tax preparers and proactive tax planning
- The most common mistake that tax preparers make for physicians in independent practices
- Learn about the hidden tax deductions that you can get from your kids (yes! your kids)
- Learn about her self employed journey & why she had to re-create & re-invest her practice
- How she went about the process to write 8 different books and you can too!
- What the alternative minimum tax (AMT) is & how it can impact you
Resources Mentioned In This Podcast
Dave: My name is Dave Denniston and welcome back to the latest episode of the freedom formula for physician’s podcast. Well, have you been wondering how the heck can I pay less in taxes? Well, if you’ve been grappling with that kind of question or maybe you’re just curious about getting educated more about it you are going to love our next guest. Her expertise lies in the area of tax planning as a matter of fact proactive tax planning and her goal is to make sure successful physicians and entrepreneurs across the country are paying the least amount of tax that they can legally pay of course without getting thrown in jail and as a matter of fact she is a tax coach she offers a free tax analysis for anyone who is interested in finding out how they may over pay, and as a matter of fact I ran her across her originally because I heard her in another podcast and I thought that she would add tons of value to you. I know we’re going to learn a lot today please help me welcome Diane Gardner. Welcome Diane.
Diane: Hey Dave. It is so wonderful to have the opportunity to be on your Podcast today, so thanks for having me.
Dave: Well thank you, thank you Diane just give us a quick one or two minute overview of who are you, where are you from, what do you do?
Diane: Well I am an accountant and certified tax coach who operates out of Northern Idaho a little tiny town called Rostrum Idaho about 6000 people but the great thing is that I get to work nationwide and so I get to pick up physicians, entrepreneurs all across the country who think they’re over paying their taxes and get to take a look at them and most of the time I’m able to reassure them that yes they are but it’s ok we can fix it and then come up with a plan to help them legally pay down and plan their way to a lower tax liability which makes me a tax superhero. Instead of somebody saying oh by the way Dr so and so you owe $67,922 on your taxes or whatever and then they really don’t like you, so my clients look forward to meeting with me because were constantly working on this plan revising it, updating it making sure that they’re exactly where they’re going to be and they can be sure that they’re not overpaying their taxes.
Dave: Well I think it’s so interesting which to you are kind of bringing up here. There are a lot of CPA’s that I call Bound Beam Counters they are good at counting beams they ask people to send in a bunch of stuff so they prepare their forms and they prepare everything correctly which is great and fine and dandy but the really miss out on the tax planning portion which is very important and which is a great deal of the thing I talk about on this podcast as well as the thing that you want to be is proactive in trying to do these taxes, so can you tell us about the difference between what most PA’s do and kind of what you do.
Diane: Well Dave most accountants and tax repairs; I’m just kind of going to lump them all in one group there are really just what we call recording history they can take a look at your financial statement they can take a look at your tax return they can take a look at all your different pieces of documents and stuff that you give them and maybe create a beautiful tax return or a financial analysis or a cash flow statement or a whatever they do really good at doing that and then they say ok project has stopped because that’s the engagement that you engage them to do. Then there is a whole group of us out there who taken some advanced training and we say let us help you plan the future and so that is the difference is recording the history versus planning the future. Now, those of us who help plan the future can also help record your history because that’s a part of what we do but the fun and the magic starts when being able to plan for the future being able to sit down and maybe start with a projection of where were going to end up this year and then roll that out into a maybe a three year plan and then take a look into maybe a tax strategy and see how they could affect that three year plan and come up with if you did then this is what would happen and I f you did that then this would be the outcome and allowed you to take control of your own destiny instead of just taking what you’re handed from your accountant or your tax repair and say this is what it is and then file it and move on.
Dave: Well I’ve got to mention that there’s someone listening to this right now and say ok this sounds all nice and grand a fantastic but tell me about some ways that you could show me how you’re going to end up saving people their taxes, so Diane can you think of maybe two or three mistakes in proactive tax planning that a common CPA might make that could help our audience or the people who are listening out there right now
Diane: Well Dave probably the biggest one that I see the most are is a self-employed physician or other entrepreneur who is in the wrong entity type, and I see this most often they’re either operating as a sole proprietor or maybe in a general partnership and if they were in a different entity type they could pick up a whole bunch of money in tax saving strategies as well as adding in some liability protection, and where those tax saving strategies come in is in saving yourself self-employment tax. Because when you’re a sole proprietor or a single member LLC who is has not done anything therefore you’re taxed as a sole proprietor or a general partnership a 100% of your self-employment tax is subject to 15.3%. So if we’re able to start taking part of that profit and making part of it into something like wages and the rest into something like the net profit that’s not subject to something like the self-employment tax then that’s where the magic starts happening and to that a whole analysis needs to be done. It’s not something you just start check in the box and say ok I’m going to just jump from this entity to that entity, but you can start saving a lot of money for people but you can just say that you’ve outgrown your entity type.
Dave: So let’s break that down a little bit what we’re talking about here might be forming a sub chapter maybe a S-corporation or a LLC which can get treated as a sub chapter corporation.
Diane: Yeah right and that depends on the state that you’re in because some states are very LLC friendly and others aren’t so we have to take; there are a lot of things that go into making that decision.
Dave. So tell us a little bit more about that when is a state better for an LLC rather that an S-corp or vice versa?
Diane: Well to give you one example here in the state of Idaho we are a very friendly LLC state and what I’ve been told by local business attorneys that in the state of Idaho a LLC actually give you more legal protection than a S-corp does, and so knowing that when I’m looking at a client I’m looking at them to see are they a good set for LLC not just for tax refunding purpose but for the legality and the limitation of liability but of course I’m not an attorney so I’m just looking at in a really broad scope and then send them off to an attorney to make sure that we’re doing this right. But then now can we take that LLC and maybe look to see if we can permission from the IRS to be taxed as that s-corporation so we’ve given them the liability and we have also given them the tax savings compare that to the state of California who is not LLC friendly at all. California has a minimum corporate tax that they charge their s-corps of $800 and their LLC’s but also there is a gross revenues tax that they charge LLC’s so you don’t see very many LLC’s in the state of California. So that’s the kind of stuff that you have to get in and look at as in working across the nation of making sure of the state that you’re in is it an LLC friendly state or not before you start looking at the LLC side of things but it is one of my favourite planning tools because it is a very flexible entity type because it is a hybrid.
Dave: Well the flexibility side of it has the advantages and disadvantages of doing that a little bit because there are always some physicians out there that are listening will they have like a normal W2 wage job they’re working at a hospital or maybe they’re doing some 10.99 on the side. There might be someone else who is listening that owns their own practice so they get majority of their income from their practice maybe some of their investment ant that kind of thing. So if we think about those two situations; first someone that has a current job and they’re getting a 10.99 income should they be thinking about one of these kinds of entities is there still a tax favourite status for them that could help out or not?
Diane: I’d say that they definitely should be thinking about one of these types of entities if for no other reason that the limitation of liabilities so if we can put a fence around what your doing as you’re in an industry that does have a lot of potential for liabilities out there so if we can look at LLC or an s-corp or even a probably not a C-corp because that puts you in the personal services corp but if we can look at some of these other entities have some liability protection that would be a good thing potentially just to limit that part of it as well as in looking at it from the tax standpoint. Because right now if they’re doing nothing they’re paying that wonderful self-employment tax of 15.3% on a 100% of their net profit which is probably most of their earnings and self-employment tax is the social security of Medicare part of the amount that’s withheld when you’re an employee so if your wages are high enough depending on the split between W2 and 10.99 income you may not be paying a lot of self-employment tax so that’s why you have to kind of look at the whole picture before you make definitive a yes or no answer on that question.
Dave: Well that’s usually if I remember correctly around a 120k is that break out point where you still have to pay Medicare taxes but you no longer have to pay the social security part of it
Diane: Right, right.
Dave: So one has a W2 that’s 120k from the normal hospital job the tax part of the entity may not make as much sense perhaps.
Diane: Correct. Which is why we want to do that whole analysis and look at it, because you want to make sure that before you jump into a new entity there’s potentially some cost that go along with it and the cost like having additional tax returns prepared having to keep another set of books some of those kinds of things so you want to make sure that you know what your cost are in addition to what the benefits are before you make that type of a jump.
Dave: Absolutely. So for W2wage people they don’t even have a 10.99 income do you have two or three tax sense that that would be good to pass on to them that would help to reduce their taxes?
Dianne: Well one of the things I see the most common among my clientele is making sure that they’re maxing out any 4 1 K 403B’s that are available because it allows a certain amount of your income to go into a pre-tax category so make sure that you’re doing the maximum is and that always make a difference and if there is any way that you could come up with some sort of a side lined type business where there is something small that may be you’re doing that you could maybe pull you away from the W2 job and pull yourself from the that gives you the opportunity to write off some things that you maybe you’ve been paying for out of pocket and one of those examples maybe the ability to hire your kids to work in that business or hire your spouse to work in that business which allows you to take a pre-tax deduction for things that you’ve been paying after tax like spending camps and things like that for your kids, private schooling and things like that and if there’s a way we can hire your kids to work in this business we can potentially fall on those other activities via paying your kids a payroll out of your business so were moving from an after tax to a pre-tax location.
Dave: I love that idea that’s a great one. Alright well let’s take a pause here for a second and go our commercial break. Now this is something that I’m super passionate about which is that there’s a lot of physicians that are just feeling burned out they’re just not enjoying the practice of medicine anymore with all the EMR’s and all the paperwork and stuff that they have to look sort to its so out and it might be looking to start what we call a side hustle and I know that this is something that you might be looking to do because I know that you weren’t always on podcast like being guest on shows such as this, so I would love to hear from you a little bit Diane and to help educate give a little bit of business education to our listeners. How did you start what you’re doing in terms of a side hustle what has that been like for you.
Diane: Well I’m going to say Dave it was a forced journey and I’m going to back that up and go back to 2008, 2009 when our economy was crashing down around us I was very heavily into the blue collar industry a lot of contractors and especially contractors a lot of those kinds of people were my clientele back then where we all kind of just know what happened as we remember back to that era because they were going out of business right and left because the real estate market was crashing and so that was causing my clients to drop like flies because they still needed their final book keeping done final taxes done and all of that kind of stuff so I was left with a huge amount of accounts receivables with no way to collect on it and so at that point in time I had just purchased my office building in 2007 at the height of the market and 2008 and 9 when everybody is crashing I’m like oh my God what am I going to do and so I decided I needed to learn how to market and I started crafting an image that wasn’t as susceptible to our local economy and started attracting clientele who were a little more insulated and so that started me on my journey of learning how to market because Accountants are notorious for not knowing how to market; we have all had that proverbial hang up your symbol and the they will come so
Dave: It’s almost like a dirty word.
Diane: It is, yeah.
Dave: Both in medicine and accounting and even in my world where it’s such a highly regulated industry it’s like hoo marketing everyone have to come kind of organically you know
Dave: And it becomes this big hassle
Diane: And other accountants have looked at me like why are you’re doing that you know but once I shifted my mind-set to this world of learning how to market I actually really enjoy it now its actually one of my favourite things to do and it actually sounds kind of funny hearing it from somebody who is completely content to just stay behind the scenes to just sit at my desk and work before. So over this period of time I’ve learned how to do these podcast interviews and radio show interviews and that type of stuff I became an author I have 8 books out there now I’ve learned how to put on some seminars and those types of things which stretched me so far way outside my comfort zone that I didn’t even I’d say that I don’t even know what my comfort zone is anymore but it’s all necessary to change the type of clientele that I was going after to become somebody who is desirable for people who have never ever met me just change the way I was doing things and change the way that I was approaching people.so instead of sitting back at my desk and waiting for it to come I needed to be out there be more visible.
Dave: So what is?
Dave: Tell me a bit more about that you know it sounds like a huge mind-set shift
Dave: You know where you had to take action and was this a big investment of money, time, books. I mean 8 books that’s a lot to
Diane: A lot Yeah
Dave: I can imagine someone saying 8 books a physician who is listening to this I don’t have time for that what would that look like what would be your advice for someone that maybe wants to start a side hustle to attract people that maybe they don’t even have to be in medicine anymore?
Diane: Right well I was going to, as they say open the komodo a little bit for you and say that my first two books were co-authored books and in a co-authored book you basically buy your way in and you pay a fee and then you submit your chapter and they pull the book together and they do everything and they make it a best seller which allowed me to say that I’m a best-selling author right out the gate. Then from there then I started writing my own books; I’ve had some ghost writing help on a couple of them because I just flat out just did not have the time and so you can hire ghost writers if you do not have the time you just give them an outline of what you want to talk about what you want to say they’re really good at writing there a better writer than I ever am so you can you could go that route its perfectly acceptable it’s perfectly legal and everything, so in a couple of my books there have been several sections where I’ve had somebody just get this done because I was just not getting to it fast enough. Some of the books I’ve actually written all the way, myself a couple of the books I’ve taken one of my books and made some nitch variations of it and so that created a couple extra books by just going in and changes some of the words to apply to a particular nitch an example of that is that I have a free book that I give away on my website called The Ten Most Expensive Tax Mistakes That Cost You Thousands. Well I also have one that says the Ten Most Expensive Mistakes That Cost Real Estate Professionals Thousands or That Cost Contractors Thousands and here real soon that say That Costs Physicians Thousands, so that’s one way that you can start getting some multiple books out there without having to totally completely start from scratch and write.
Dave: Well thank you for that transparency and for sharing that with the audience and for being vulnerable because I think that’s something that a lot of people could because that’s something that a lot of people could do you mentioned hiring a ghost writer you mentioned just piecing out parts of it and doing multiple versions which are things that aren’t necessarily easy to get over doing right
Dave: Because you want to do something well the first time around. Do you have any pieces of advice to someone that wants to start and get going what would you advise them?
Diane: I would say just put your mind to it just get the whole mind-set piece in place because once you have the mind-set right then you would just start it and going because I made the commitment that I was going to write for an hour every evening on my first; after I past the first two co-authored books then I started writing them myself I was going to commit to an hour very evening until I had the book written and when I broke it down into a small piece of time like that then it started happening otherwise I just sat there and looked at the blank screen and say I don’t know how to do this but when I committed to an hour every evening or a chapter a week or something like that my book stopped overpaying your taxes, I sat down with that one and started thinking back over conversations I’ve had with clients over different topics and so that book has Eleven Ways Entrepreneurs Over-paying How to Stop It Now based on real conversations I’ve had with people so that got the juices flowing there and I committed on that one I committed to a chapter a week which took me you know about an hour an evening to get my chapter written and broke it down into smaller doable pieces instead of the idea that I’m going to do a book. Then there’s virtual assistants and people like that out there who will get it edited for you they’ll help you get the covers designed they’ll help you get it out to amazon create space and do a lot of that technical part I don’t know how to do the technical part so that’s why I hire them and they’ll get it out there and get that piece of it taken care of because that part was really scary for me I didn’t know how to do that and so there’s people that specialise in it.
Dave: Interesting. Ok Well if you don’t mind I’d like to shift gears again a little bit and I’d like to get back to taxes and one of the topics that you and I were talking about before we started recording here was the AMT the alternative minimum tax so my question to you is help our audience understand what is it what is this all about how does the AMT work the alternative minimum tax.
Diane: Well David I’m going to give you the short answer because if I gave you the long one they would all say I’m done goodbye. Well the short answer is that this is congresses way of making sure that higher earning people pay at least rate of a certain minimum rate of tax. So that keeps us from being able to do a whole bunch of deductions and stuff like that and drives that amount of tax income down and potentially pay a lower rate of tax than somebody else would pay. So the AMT they call it the equalizer tax that it equalizes it and brings you back up to the rate that minimum rate that they want you to pay and it’s a tax that sometimes it just appears to just kind of appear out of nowhere. Because I’ll be working on a tax return and it’s just like wow where did that come from I wasn’t expecting that then you got to go back and stop see and say ok yeah, yeah I can see all the different pieces that caused it to happen other times I’ll be working in a tax return and you’re expecting it to happen and it doesn’t because of various bits and pieces that are on the return and it’s a humongous list of stuff that we have to go through to justify whether it should or shouldn’t be on the tax return, so I’m just going to call it an equalizer tax that makes sure you pay a certain minimum rate of tax that’s high.
David: Well it seems to me that a lot of physicians are kind of in that sweet spot you know when you’re earning $200-$250000 you are in that spot where you’re starting to lose some of your deductions and
David: From what I understand though I don’t know if it is right or wrong but when you’re in that income bracket you’re trying to put as many deduction as you can to be proactive but unfortunately you use enough of it to kick you then into AMT
Diane: Right, and there’s times that sometimes it’s better to not deduction all of your itemized deduction or something like that because it will if you are hovering right on the edge of it so it’s not a very nice tax.
David: So is that something people can do to help avoid it maybe they’re on the edge of it and they might have to play with it maybe with their tax repair that maybe they don’t need to take all their itemised deductions for example.
Diane: And that is something that you definitely want to explore if you’re right on the edge other times you’re far enough in that it doesn’t matter but occasionally if you can’t move things on the tax return from one place to another sometimes you can make it go away most of the time you can’t most of the time it’s just there
David: Well from what I understand too once you’re making a certain amount of money you pretty much don’t have to deal with AMT anyhow because you’re paying enough in taxes
Diane: Right. Then you’re paying enough yeah that’s why they have it in there to make sure that but supposedly you’re paying your fare share but you know we all know what that means
David: Well can you think of any other ways that might be helpful to someone listening that it could help them with AMT in particular.
Diane: AMT is a tough one because you start losing your itemised deductions you’re too high generally to get anything from your medical expenses as a write off; it is a tough one about the only other thing would be that if you do have a lot of interest in dividends to possibly look maybe restructuring those to some tax free type investments, because sometimes even though you earn a little less on them by the time you factor in what it does to you on the tax return you can actually come out ahead so yeah there’s not a whole lot to work with when it comes to AMT it’s just a brutal tax.
David: Well and other taxing that I’m thinking about this time of the year when this podcast is coming out we’re going to be in the fall when and this is getting towards the end of the year I think of tax loss harvesting is something good that people want to be looking at to do. Do you have any year end thoughts Diane that might be good to pass on to people that they should be considering you mentioned that maxing out their 401k’s earlier any other thing year end planning should be doing as the year wraps up here?
Diane: One other one I totally like suggest is charitable contributions, especially if you’ve got some appreciated stock that maybe you’ve being sitting on for a long time and you really don’t want to sell it because then you’d have to recognized those gains and you don’t have any losses that you can harvest against it sometimes charitable deductions where you actually gift that stock over to the charity, if you hold it up you have to use a certain age requirement then you can take the whole deduction for what the fair market value of it is versus what you actually paid for it; so that’s kind of a nice way to make that one work when it works. Actually, I’m going to back up on that one that just the regular gifting of appreciated stock and then for those who are more at the retirement age where they can actually make that whole process work through their IRA and they can take it has a requirement on distribution so that’s a little bit to help towards the end of the year those things do require some more additional information and planning before you just do them to make sure they work the work well for you.
David : Absolutely, all good, good suggestions and for those who are familiar I had briefly mentioned Tax Loss Harvesting, Diane you want to walk through what that is and why that might be important?
Diane: Tax Loss Harvesting is where you sold some stocks or property, or whatever it might be in the past and you had the large lost and you had not being able to recognized on your tax return because we’re limited to a measly $3,000 a year as an actual deduction so if we know we’ve have a piece of property, maybe a rental property or just a regular piece of property, or we’ve got some stocks or something in our portfolio that have a large gain on them often times we take a look at that gain and we look at these losses and it might be good time to go ahead and pull the trigger and sell that property because we can offset that gain with that losses and in essence it mean you are able to sell it without paying any taxes has a really broad brush stroke type answer on that one but it’s a great way to use some of these losses that can just sit there and roll forward at $3,000 a year practically forever.
David: Absolutely, and alternately if you’re not using anything there right now, it’s a great time to – if you have some positions to which losses-which this year’s been fairly valuable if you have some positions sitting around with losses for the last couple of years this might be a good time to sell some of that and get that $3,000 bucks
Diane: Yeah, you bet, yep, start taking advantage of it
David : Well Diane they’re so much we could be talking about with physician and taxes and we just don’t have time to cover all that; do you have any closing thoughts that you’d like to pass on to our audience here?
Diane: I would say probably the most important thing is to take action on something that you’ve heard today, and I know we all get busy and it’s really easy to say that’s great information and then we’re off to the next thing but take action on it, find someone who can help you, pop on to my website and order a free copy of one of my books, do something to start the ball rolling, sign up for a free tax analysis what it might be to start that ball rolling so that this time next year you’re not sitting in the same place that you are this year
David: Absolutely, great suggestion. Well, that you so much for been with us Dian, if people have more questions where can they find you and how do they get in contact with you?
Diane: The best way to find me is to go on to www.taxcoach4you and under there, there are free information that you can download, you love to give away books and see if we can help somebody or offer a free tax analysis where we take a look at your last two years personal and or business tax returns and then looking for mistakes or missed opportunities, we hop on the phone or skype and set up an appointment to actually talk about your tax return and see what I found and see if we come up with some tax saving ideas for you
David : Wonderful, well if you are listening my friend your physician, you want to tell your story you’re grappling with tough issues like this one, I’d love to hear from you, I’d love to hear questions and love to share it on the next Freedom Formula Podcast, you if you have specific tax question you want to pass on to Diane I’ll be happy to address them here, maybe she’ll be kind enough to join us again so make sure to contact me email@example.com or my website www.doctorfreedompodcast.com for the Freedom Formula for Podcast this is Dave Denniston, thank you so much for joining us make sure to subscribe on iTunes and check-in again soon, also, I have a big favor to ask you, if you got some value from this podcast, I would like to ask you a favor, can you take just a quick minute and do our view on iTunes, it really helps the show and it would really mean a lot to me. And so remember my friend to cut your debt, cut your taxes so that you too can live a liberate lifestyle.
Hey this is Dave Denniston and I hope you like today’s episode, if you do and you want some more ideas on achieving financial freedom I am personally committed to increasing your financial knowledge and we talked today about a bunch a jargons you may hear toss around and so this month my friends I have a very special offer for you, you can pick up my book “The Freedom Formula for Physicians” for only $1, that’s right the whole copy, the whole physical copy you can hold in your hands for only a dollar. You can visit the podcast website now at www.doctorfreedompodcast.com/dollar to pick up your copy and my friends I simple ask you to help to pick up the cost for shipping for sending it to you, so don’t let this podcast be like other ones where you hear great information, you get new ideas but you never actually complete anything, to snag your copy now visit www.doctorfreedompodcast.com/dollar