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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.
Shawn Terrell (00:01)
There is a movie series from the 1980s about time travel and it stars a teenager named Marty McFly and a 50-something scientist named Doc Brown. And across the three movies in the series as the characters time travel between the past and the present and the future, Doc has to keep reminding Marty that he is not thinking of things fourth dimensionally.
And what doc means by that is that if you go back in time and you happen to change the past, it can alter the present as you know it. And it can also change the future as it otherwise would have been. Hi, I'm Shawn Terrell. I'm your host for Dentists, Puns and Money. This podcast is brought to you by Dentist Exit Planning.
At Dentist Exit Planning, we work with dentists that are leaving clinical in the next few years to help build their financial treatment plan for their life after dentistry so they can keep living the lifestyle that they love.
So when Doc is talking about thinking fourth dimensionally in the Back to the Future series, he's pointing out that events are often interconnected. And as a result, events that are seemingly unrelated are actually related.
And that's a good analogy when thinking about tax planning because in my experience, it usually does not exist in a vacuum. It exists fourth dimensionally. So you can try to execute tax planning moves in an effort to legally pay less in taxes over the long term. But sometimes that can inadvertently lead to higher taxes over the long term because people don't understand that everything they could do might affect everything else.
So it's really easy to create unintended consequences. And that's especially true with tax harvesting, whether it's tax loss harvesting or tax gain harvesting. The goal there with either is to pay the least amount of taxes over the long term by realizing either a gain or a loss in the right terms or at the most ideal time to pay less in tax over the long haul.
So as we wrap up our focus on tax harvesting with this episode, it's good to know what to be on the lookout for, how to think fourth dimensionally, so to speak, so as not to create any unintended consequences.
The big thing to remember with capital gains tax is that the rate that someone pays on capital gains has everything to do with all the other pieces on someone's tax return. It has everything to do with other sources of income and deductions on the tax return. So it's kind of like time travel in that it is all interconnected.
And so let's dive into the big considerations to remember or be aware of when tax harvesting. First and foremost, the big thing to address right away is what the account in question is intended for. If this account that you may or may not harvest from is going to be left to charity or other heirs, then that's a really important distinction. And so too is when you plan to give that account away.
who or what you give it to if you're gonna do that. And then when you do that has a lot of implications on any tax that would otherwise be due. So just in an effort to keep it high level for this episode, I'm not gonna get into the weeds on that specific topic, but just know that's a really important consideration.
Secondly, what is the other income on your tax return? I alluded to this a little bit ago. If you're already withdrawing money out of your 401k, if you have required minimum distributions, if you're already receiving social security, all those other sources of income are gonna factor into the rate of tax that you pay on any capital gains.
Speaking of capital gains rates, many people assume there are just two capital gains rates and that they are either 15 or 20 percent. But in effect, I think of them as if there are a lot more potential tax brackets for capital gains because for gains that are realized after more than a year where someone's other income is below a certain threshold, the capital gains rate can actually be zero. But capital gains can also be taxed at
as we mentioned, 15 or 20%, and then don't forget the net investment income tax surcharge may also apply to both long-term and short-term gains. And speaking of short-term gains, they are taxed at whatever your ordinary income rate is, your ordinary income tax rate. So when you factor in that anyone in the 20 % long-term capital gains rate will also probably hit the net investment income tax threshold as well.
there are effectively up to six different tax rates that can be applied to capital gains.
And finally, our discussion on tax harvesting here in the last few episodes has been almost entirely focused on what the federal taxes are or how they might apply. But just remember that state taxes are probably also going to apply. In general, states are not as helpful at creating loopholes or workarounds to lower or outright eliminate capital gains tax. So just make sure you're factoring into that.
into your decision or your analysis on whether to harvest or not harvest because where you live now or where you might live in the future is going to have a big impact on what you might pay in state taxes as well.
To wrap it up, we deliberately kept it high level with this discussion, which means that I left out a number of things that you need to think about when tax harvesting or not tax harvesting. So just be sure to consult with your tax and your financial planning professionals if you decide to go down this road. If you decide to go down the tax harvesting road by yourself, just be sure to do your homework.
Remember the goal with tax planning is to pay the least amount of tax in total over your lifetime, even if that means paying a little bit higher taxes in the short term. ⁓ So you got to be careful to not create any unintended consequences and think forth dimensionally because no one has a DeLorean to go back in time and rewrite history. So it does take some analysis and some planning to get it right the first time. You only get one shot.
Speaking of taxes, if you would like a reference of the many rules and the current numbers in effect, we have a free tax cheat sheet that we can email you. So whether you are watching this episode on YouTube or you're listening to it on a podcast app, if you go into the show notes for this episode, look for episode resource, click there, we will email you our free tax cheat sheet.
Also, if you are a dentist and you're leaving clinical or would like to leave clinical in the next few years and you would like a little help with some of these decisions, you can schedule a personalized consultation, no obligation, it's free with me, with Dentist Exit Planning, to schedule a time to talk. You just go to our homepage, which is DentistExit.com, and then click on free consultation on the main homepage and that will allow you to pick a date and a time that works best for you.
Just a final reminder before I go and that's that dentist exit planning is an independent registered investment advisor. The information that has been presented here should not be interpreted as investment, legal, tax, financial planning or wealth management advice. It's for educational purposes only and past performance is not indicative of future results. Thanks for watching and thanks for listening. I'm Shawn Terrell and I am going to make like a tree and get out of here.