For most of us, the annual ritual of preparing income tax returns is exhausting and cringe-inducing, but it does have its uses -- aside from its costs. Review and planning are the biggest benefits, with financial "Spring cleaning" to round out the trifecta. Oh, and saving money is nice, too.
My headline is a reference to the classic Peanuts cartoon where Charlie Brown tells his little sister Sally that they should start preparing for Christmas and she blurts out, "What! Again?"
For most of us, the annual ritual of preparing income tax returns is hardly presents and mistletoe, but it does have its uses -- aside from its costs. Review and planning are the biggest benefits, with financial "Spring cleaning" to round out the trifecta. Oh, and saving money is nice, too.
Before you sit down with sharpened pencil and your equivalent of a shoebox stuffed with receipts, the most important thing to do is to take a moment for an attitude check. Every year, like a mantra, I remember an event that occurred during a summer job at a country club. One of the members, a CPA somewhat in his cups, conspiratorially put his arm around me. He said, "If you ever have to pay a million dollars in taxes, get down on your knees and be thankful. It should be the worst thing that ever happens to you. Pay it and move on."
You might correctly guess that happy event is yet to occur for most doctors like me, but the idea of gratitude -- do your best and then move on -- has real merit. It sets a positive tone for a task that few of us particularly relish so that we can minimize our financial obligation and our sense of helplessness with the complexity and irrationality of our tax system. We can also maximize our sense of control of what is within our grasp to do about this annual festival of numbers, paper and expense. After all, there are few nations in the world that even try to have its citizens pay what they owe in taxes by way of what amounts to a thinly patrolled honor system. It's really rather remarkable altogether, isn't it?
Okay, after our positive attitude check, let's review our CPA situation. With the tax code being unmanageable for most civilians, a modern physician has to have the best CPA he or she can find. I wrote a few years ago about how hard it can be to identify such a gem. Dissatisfied with the fading attention of a guy who was taking my business for granted, I started asking some of the richest, smartest people that I know for recommendations, but nary a one would pass along a name. Amazing!
Finally, after a long, hard slog I found a gem. She found five-figures of refunds and future savings that my previous genius had pooh-poohed. Finding a new, anxious-to-please CPA might be the best single thing that you do for this year's tax review. It could be a game, and attitude, changer.
You can, and perhaps should, read tax-information guides, such as J.K. Lasser, to read the latest news and advice, and get a feel for the process. You also can prepare and file your own returns online for a minimal cost. But you'll be many dollars ahead with a really sharp CPA. Trust me.
For folks who are especially sensitive to how foolishly our hard-won income taxes are spent, using the time to review how you can minimize last year's obligation is of some personal comfort. If you take the next step to more wisely plan how to keep your managed care bucks out of Uncle Sam's hands, well, all the better. After all, when you try to close the gate after the horses are out, you're usually left with limited options.
One way I try to pick up my spirits each year is by planning my withholding so that I get nothing back next year. Why should the Feds get a free loan and get not so much as a thank you note? I know that some people say they use withholding as a forced savings plan, but it makes little economic sense. Instead, set up an automatic "pay me first" savings plan at a bank or brokerage. Ask your CPA if the smart, legal thing to do about withholding is to simply send last year's tax obligation plus $1, especially if you expect your income to increase this year. Hey, we can hope can't we? And Physician's Money Digest is chock full of ideas about how you can expand the practice and family exchequer.
I recently wrote about how reviewing how you actually spend your money -- as opposed to how you think you spend it -- can be edifying, if not chagrin-inducing. Tax-time review is a forced discipline that can help, so go into it with the aforementioned positive attitude and you can learn something that can make at least the future, if not the present, less daunting. If you are like me, you don't like daunting, we have enough of that as it is.
For you younger docs, the practice of medicine, especially private practice, is often intertwined closely with your personal lives, so there are many opportunities for itemizing deductions that would not be allowable to many regularly employed people. A few examples are travel, via CME, phones, being on-call, entertainment costs for practice-building, deducting your car if you go back and forth from office to hospital, etc., gifts to staff and associates, home computer and services for CME and office, patient and physician contacts, just to name a few. The key to all of this, of course, just like in our practices, is to carefully document the who, what, when for each expense that you want to deduct.
But even if you are already managing the tax process pretty well, it never hurts to reassess. The tax code is so vast and open to interpretation that almost all of us can benefit from another, hard look. Be positive and proactive. It's your money. Keep what you can.