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Dentists, Puns, and Money is a podcast focused on two things: The financial topics relevant to dentists leaving clinical practice and the stories and lessons of dentists who have already done so.
1. The stories of dentists who have transitioned from full-time clinical dentistry.
2. The financial topics that are relevant for dentists making that transition.
If you’re a dentist thinking about your exit from clinical, and you’d like to learn from the experiences of other dentists who have made that transition, be sure to subscribe to your favorite podcast app.
Host Shawn Terrell also dives deep into the many financial components of exiting dentistry, including tax reduction strategies and how to live off your assets.
And, we try to keep it light by mixing in a bad joke… or two.
Please note: Dentists, Puns, and Money was previously known as The Practice Growth Podcast until March 2022.
Keywords: taxes, dentists, contributions, deadline, traditional ira, reduce, calendar year, taxable income, tax, income, planning, roth ira, employee, filing deadline, plan, roth conversion, year, defer, deductible, required minimum distributions.
Welcome to Dentists, Puns, and Money. I'm your host Shawn Terrel. in this episode The topic is taxes because taxes are topical. This episode is being released in mid February 2023. And even though a lot of people don't even start thinking about their taxes until at least St. Patrick's Day, you wanted to get you some information well ahead of that so you have no excuse for not tax planning this year. The main thing we're gonna cover in this episode, even though it's now 2023, there are still several actions you can take related to your tax filing for 2022. And in some cases, you may be able to lower your tax bill for 2022 depending on what actions you take, or don't take in the months ahead, we will dive into the details there. As a reminder, our company that does exit planning helps dentists leaving clinical with the financial pieces of that big transition, specifically how to reduce that massive lifetime tax bill and how to optimize living off of your assets. If you are interested in financial treatment, planning on your taxes and your income as you exit clinical, schedule an initial consultation with us using our website which is dentist exit.com. Again, schedule your initial consultation at dentist exit.com And with that introduction, let us jump in. Now we have all met someone in our life that if we ask them what time it is, they would proceed to give us a step by step instructions on how to build a grandfather clock. In other words, we have all dealt with someone that makes it whatever it is way more complicated than it has to be. And this is a great analogy that I think about a lot when I think about the tax code in the United States. As I've talked about in past podcasts. It is just way more complicated than it has to be but we're here we are. Case in point with filing taxes. The vast majority of people will be required to do that on an annual calendar basis. If you had earned income from 2020 to above, or small threshold, and you have to file taxes for calendar year 2022. It gets confusing is that there can be up to three deadlines associated with any given tax year and because of that there are different rules that you need to know. You want to be as efficient as possible with your taxes and pay the least amount of taxes for your lifetime. That's the big goal. Good news is that if it makes sense to do so you may still be able to lower your taxable income for 2022 Even though it's already 2023. Let's dive into the details there. And in doing that, let's work through these deadlines sequentially as I think that will make the easiest sense the easiest way to understand it moving forward. First deadline to discuss is the calendar year deadline. So we are already past December 31 2022. And there are some tax planning strategies that are tied to the calendar year deadline and thus already past in other words, the ship has already sailed on several tax planning strategies for tax year 2022. Typically converting some or all of a traditional IRA to a Roth IRA. That must be done in the same calendar year as the tax filing year goes for both deductible traditional IRAs and non deductible traditional IRAs that are being converted to Roth IRAs. So if you are a proponent of realizing taxable income in a traditional IRA before you technically have to realize that income or to pay the least amount of tax over the long term, that's another way of explaining the most common type of a Roth IRA conversion strategy has to be executed by the end of the calendar year so you can no longer do a Roth conversion for 2020 to maybe make a mental note to have your financial advisor and your CPA analyze Roth conversions as a possibility for 2023. Same story with what's commonly referred to as backdoor Roth IRA contributions. Quickly, these are also conversions of a traditional IRA to a Roth IRA. It's just that with a backdoor Roth, that traditional IRA in question is ideally non deductible. So if done correctly, should not be much in the way of a Realized income tax. And it's all executed. Either way any backdoor Roth IRA contributions need to be executed in the same calendar year as the tax filing year. This an employee contributions to an employee or retirement plan must be made by a year in order to defer taxation on income to a future year. Now there's a different deadline for employer contributions on behalf of an employee. So hang on. We will get to that shortly. A couple other common transactions that are now off the board for 2022 taxes, Delphi charitable distributions and required minimum distributions. If you want to reduce your taxable income by donating some or all of an IRA to charity, that donation must be made in the same calendar year so you can't reduce your 2022 tax bill by doing that any longer. And it's worth mentioning that with required minimum distributions from IRAs or employer sponsored plans, those also must be done in the same calendar year. One exception if you turned 72 in 2022, and thus it was the first year that you were required to make a minimum distribution from your retirement account. You have until the end of March 2023 to take that distribution without penalty, but it's only for the first year that required to make a distribution. And while we're on that topic, there are some recent changes to the RMD requirements. So interested in that if that applies to you check out the podcasts we did from January 2023. Last month, it was about the secure act 2.0. And you may learn a few more details about that there. That covers the calendar year deadline. The second filing deadline to be aware of is the deadline that falls on or around April 15 every year and 2023 April 18 is the final day to file income taxes, calendar year 2022 That any extensions up into that regular filing deadline, you can also do a few things potentially to reduce your taxable income for 2022. The first again potentially is that you may be able to make a contribution to a traditional IRA 2022 all the way up until April 18 to 2023. Now there was a catch here as to whether or not this contribution to a traditional IRA would be deductible. Mainly, you or your spouse are actively participating in an employer sponsored plan and you're making over a certain amount of money each year. Those contributions might not be deductible, so check with your advisors first before going down that path. Another way to reduce 2022 income before April 18 of 2023 is to max out your contribution to your health savings account. If you are covered by a high deductible health insurance plan, you have an HSA if you are and it's a family plan that you have the HSA that allows you to defer up to $7,300 to that HSA for 2022. And while it won't reduce your taxable income, April 18 is also the last day to make a regular contribution to a Roth IRA for tax year 2022. Assuming you are under the income threshold to make a normal contribution. If you're over that income threshold to a Roth IRA is the only option and as we talked about earlier, it is now too late to make a backdoor Roth contribution for 2022. All right, the third and final deadline to reduce taxable income for 2022 actually isn't until the fall of 2023 If you're approved for an extension and in filing your 2022 taxes so if you have been approved for that, or will be approved for that you have until October 16 to 2023 to reduce your taxable income you can do that in a couple different ways potentially. So if you own your dental practice, there's a good chance you are paying yourself a salary as a W two employee. You're also taking some owner profit distributions on some kind of schedule with that w two income that you pay yourself, maybe deferring some of that to max out the annual employee contribution limit to an employer sponsored plan and that maximum was $20,500 in 2022 Didn't max out your employee limit. You mentioned earlier on the employee limit. There's nothing you can do about that now. You're also likely indirectly contributing to your retirement plan by having your practice make employer contributions on your behalf. And the annual maximum for employer contributions varies depending on how your plan is set. Up. And there's probably too many examples. There's a list. In my experience. I've worked a lot of dentists that have profit sharing plans which allow their practice to make retirement contributions on their behalf. This is where you might be able to still reduce your 2022 income by 10s of 1000s of dollars and might be able to do that all the way up until October 16 of 2023 depends on what type of plan you have. And there could also be some compliance testing rules that come into play here with your practice 401k. They also have to give some money to your employees in order to defer more money to yourself. So you really can't do this blindly. Just know that if you're looking for ways to reduce 2020 to income up until the extension filing deadline next October, might very well be worth some analysis by you and all the professionals on your team that helped with that. sort of thing. Their option if you own your practice and use a SEP IRA instead of a 401 K or other qualified plan. You can also make employ your SEP IRA contributions from your practice yourself as an employee and you can make SEP IRA contributions all the way up to the extension filing deadline in October as well. And like I said before, there might be some strings attached and doing this. Just make sure that you and those people on your team that help with this sort of thing, do the proper analysis before executing on any of these Affer mentioned strategies. Right as we start to wrap up here a big reminder with all of these strategies it is critical that the forums associated with any contributions and deductions. These forms get properly attributed your tax return when your taxes are filed. accountant will not magically know that you've made an IRA contribution unless tell him or her you give them the forum. Fortunately, there's just no universal database that tracks these sorts of transactions. It would be great if there was for CPAs for financial advisors like me and for investment custodians to access it all see what the other person or the other party was doing but there's not only wait, everything gets rectified correctly on your taxes. It's for you, your financial advisor and your CPA, all via communication on the strategies and the associated forum so critical that any reduction strategy gets deployed well before the taxes are actually filed. And closing. While this episode has focused on 2022 tax planning, it is never too early to start thinking about planning in 2023. For example, the maximum amount of employee contributions to a qualified plan has increased by Grant and that's a huge jump year to year relatively speaking. You would like a copy of the various contribution limits for 2023 plethora of other tax information for 2023. The link to download that resource should be available in the show notes of this podcast. Not shoot me an email my email is Shawn at dentist exit.com and I will do my best to get you a copy of that for free. All right there you have it the big ways to reduce your 2022 taxable income in 2023. We may have crossed the line and telling you how to build the proverbial grandfather clock as it relates to tax planning. But if you've stuck around this long you like that kind of stuff, and hopefully you have found this information useful. We appreciate you being here and listening and we will talk to you again very soon. Thanks for listening and following along. Are you a dentist nearing your retirement from clinical or have you already hung up your handpiece? Would you like a treatment plan for the financial components of your exit from clinical our company that does exit planning helps dentists like you reduce taxes in retirement and optimize how to best live off your assets including the ideal time for you to start taking Social Security. If you'd like guidance on those critical pieces, or just a second opinion, schedule an initial consultation with us on our website. Our web address is dentists exit.com, and there's no obligation for your initial consultation website again, dentists exit.com. As a reminder, dentists Exit Planning and taro advisors LLC is a registered investment advisor. The information presented should not be interpreted or construed as investment, legal tax, financial planning or wealth management advice. It does not substitute for personalized investment or financial planning from dentist Exit Planning or Carroll advisors LLC. Please consult with your accountants and attorneys for tax and legal advice. This podcast conveys the views and opinions of Sean Carroll and
his guests and the information herein should not be considered a solicitation to engage in a particular investment tax planning or financial planning strategy. information presented is for educational purposes only. And past performance is not indicative of future results.