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3 More Key Tax Strategies and Hints


Doctors are being robbed by Uncle Sam every year. But there's something you can do about it.

Uncle Sam with your money

Doctors are being robbed by Uncle Sam every year. He is stealing our hard earned dollars. Our money is being cut in half with every paycheck. The average doctor is being plundered, robbed, and stepped on.

But, there’s something you can do about it.

As physicians inch closer and closer to retirement, there are three key strategies that we need to be aware of.

• The first strategy involves how physicians can get up to $500,000 tax free (Hint: you must be married or this gets cut in half)!

• The second strategy shows a critical strategy that saves physicians from getting caught unaware by a big tax bill.

The third strategy is an easily forgotten method that can consistently lead to tax savings of $8,000 to $10,000 EVERY year.

Key# 1: Unlocking Tax-Free Home Equity. The first key is a strategy that every physician should employ. As a matter of fact, they may be able to use it twice!

What a lot of doctors may not be aware of is the homestead rule. When you are married and sell a home that you’ve lived in two out of the last five years, $500,000 of equity from your purchase price is tax free (or $250,000 of equity if you are single).

Let’s say you bought your home 20 years ago for $200,000. Today, it is worth $500,000. Guess what: $300,000 of equity is completely tax free!

As a matter of fact, the house could be worth up to $700,000 and all the proceeds still be tax free if you are married. (Again, cut that in half if you are single.)

But that’s not all!

Consider that you could use this twice with a second home, like a cabin! The same rule can apply!

Let’s say you have a cabin that you don’t go to very often. The kids aren’t coming there anymore and it’s something that you and your spouse use every so often. You are getting tired of maintaining the place now. You are tired of mowing the lawn, cleaning the house, raking the yard, cleaning the gutters, dealing with light bulb changes, and changing smoke detectors at two different places!

Check this out:

Live there for six months and more out of the year. Let’s say you are there six months and a day. If you do that, change your filing address with the IRS, change your utility bills, and other regular mail to go there, you can show that it is your primary residence.

You stay there another year and let that fall under the homestead "two out of five years" rule.

That is two places that can have $500,000 ($250,000 single) of equity tax free for a total of $1 million of gains TAX FREE!

Keep in mind you can utilize this same strategy with rental homes as well!

Key# 2: Tax-Free Inheritance. Another awesome strategy that a lot of physicians miss is what happens with inheritance and a step up in basis. If a person has held onto a position for 15, 20, 25, 30 years, at their death you get a step up in basis.

Let’s say 30 years ago you bought $1,000 worth of Microsoft to now being $100,000.

Your heirs get a step-up in basis at your death from $1,000 to $100,000. They will owe NO capital gains or income taxes when they sell the position!!!! (Although, they could owe estate taxes depending on those limits)

With appreciated positions, you want to be careful of selling hugely appreciated positions--especially if you are not planning on using the money and you know it will be passed onto the kids.

For those of us that do receive these inherited positions, make sure that the records reflect a step-up in basis. Often that gets missed at death and you get hit with a big tax bill that wasn’t necessary!

Key# 3: The Forgotten Retirement Plan. Lastly, most physicians have a 401(k) in a for-profit entity or a 403(b) in a non-profit entity.

Most everyone maxes out a 401(k) or 403(b). That’s no secret.

However, there’s more. Let me explain.

A lot of hospitals have a second retirement plan--a 457 deferred compensation plan. You want to take advantage of that!

It can literally double your contributions and tax deductions TODAY!

Make sure to check out and see if you have not one retirement plan, but two! This way you can max out not just the normal, $18,000, $20,000, $24,000. You can double that for a total of $36,000, $40,000, maybe even $48,000 if you are over 50 years old!

Final Thoughts

Our money is hard-earned and hard-fought for. Let’s keep every penny (LEGALLY) possible.

Protect it, guard it.

Implement the tax-free equity home strategy and keep $500,000 of gains in your pocket without paying ANY taxes on it!

Be careful of selling hugely appreciated positions if you are passing them onto your kids.

If instead you inherit the positions, make sure you get a step up in cost basis!

Lastly, check out your benefits and make sure you are taking advantage of the SECOND forgotten retirement plan to max out your deductions.

The choice is yours. Choose wisely and ask for help if you need some guiding, poking, and prodding along the way.

Dave Denniston, Chartered Financial Analyst (CFA), is an author and authority for physicians providing a voice and an advocate for all of the financial issues that doctors deal with. He is the author of 5 Steps to Get out of Debt for Physicians, The Insurance Guide for Doctors, The Tax Reduction Prescription, and his new book, The Freedom Formula for Physicians.

You can catch his latest podcast at DoctorFreedomPodcast.com.

He’s glad to answer any questions about insurance policies or other financial matters. You can contact him at (800) 548-1820, at dave@daviddenniston.com, or visit his website at DoctorFreedomBook.com to get a copy of The Freedom Formula for Physicians.

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