2011 Fourth-Quarter Tax-Saving Tips

As we approach the fourth quarter of the year, most of OJM Group’s clients now have a fairly good idea on what their taxable income will be for 2011. If you are like these clients, you may be wondering “Is there anything I can do now to save taxes on April 15?” The answer is very likely “yes.”

There are a few ideas that each could save you tens of thousands of dollars on your 2011 income tax bill, depending on your facts and circumstances. For larger businesses and practices with $3 to $5 million or more of revenue, there are additional techniques which could offer significantly greater deductions.

Qualified retirement plan

Nearly 95% of the physicians and business owners who have contacted us over the years have some type of QRP in place. These include 401(k)s, profit-sharing plans, money purchase plans, defined benefit plans, 403(b)s or even SEP or SIMPLE IRAs, for these purposes.

However, most of these plans are not maximized for deductions for the business/practice owner(s). The Pension Protection Act of 2006 improved the QRP options for many business owners, including physicians. So now many owners may be using an “outdated” plan and forgoing further contributions and deductions allowed under the most recent rule changes. By maximizing your QRP under the new rules, you could increase your deductions significantly for 2011 and reduce your taxes on April 15, 2012.

Fringe benefit or “hybrid” plan

Unfortunately, the vast majority of physicians and business owners begin and end their retirement planning with QRPs. Most have not analyzed, let alone implemented, any other type of benefit plan. Have you explored fringe benefit plans, non-qualified plans or “hybrid plans” in the last two years?

The unfortunate truth for many doctors and business owners is that they are unaware of plans that enjoy favorable short-term and long-term tax treatment. If you have not yet analyzed all options, we highly encourage you to do so. A number of these plans can help you reduce your taxable income in 2011 significantly.

And they can be put into place in a few weeks, so it’s not too late for 2011.

Investments that create tax benefits

There are a number of investments that, in and of themselves, create present tax benefits. These typically are asset classes in which the government encourages investment, from oil and gas partnerships to conservation easements to certain types of racehorses. Tax deductions, tax credits and other potential benefits can be immediate and significant.

Charitable giving

There are many ways you can make tax-beneficial charitable gifts while benefiting your family as well. Charitable Remainder Trusts, Charitable Lead Trusts, Private Foundations all can be used, within the IRS rules, to benefit charitable causes, reduce taxes and retain some benefits for families.

If you have considered any of these tools in the past, implementing them in a year of high income might be a good idea.

Pre-pay 2012 expenses in 2011

As the year winds down, we typically counsel clients to pre-pay for some of the following year’s expenses in the present year. As long as the economic benefit from the pre-payment lasts 12 months or less, this can be done.

Since 2012’s highest marginal tax rates will be the same as 2011 rates, the time value of the earlier deduction does make sense this year.

David Mandell, JD, MBA, is an attorney, author of five books for doctors, and principal of the financial consulting firm OJM Group. Carole Foos is a CPA and tax consultant for OJM Group. They can be reached at (877) 656-4362. You can also call for a free (plus $5 S&H) copy of For Doctors Only: A Guide to Working Less and Building More, please call (877) 656-4362.


OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with its principal place of business in the State of Ohio. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients. OJM may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).

This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.