Specific year-end tax strategies: What to watch out for

As we prepare for the Thanksgiving holiday the clock is ticking on variety of tax planning sales that target doctors. Before you make a move under time and sales pressure, considering the following warnings.

Our last discussion provided a high-level look at some of the tax biggest tax issues the I.R.S. itself has identified, the so-called 2019 “Dirty Dozen”. That list includes both tax strategies to avoid that may amount to tax fraud by you and various scams that target you as a taxpayer.

Today, we take a look at some specific strategies that are being heavily marketed to physicians, often with significant time pressure as we near year end. Please keep these basic rules in mind and get personal, professional guidance beyond social media or the input of your colleagues.

1. Using legal means to pay the minimum amount of taxes legally allowed is good business and a business necessity in the current provider compensation environment. Further, contributions to certain “qualified” tax-deductible retirement plans or those that use cash value life insurance policies may have creditor protection by law, always to important to me as an asset protection attorney and to high-liability professionals like you.

2. Even plans that are based on sound legal principles and current tax lax law carry significant risk if they are abused and lack compliance in the way they are actually sold and implemented. Commonly abused legitimate strategies include self-directed IRAs which are often not compliant, and captive insurance companies that often fail to insure real risk and that pay outsize premiums. Along similar lines are tax advantaged real estate investment strategies, like conservation easements and opportunity zones, all of which I have provided previous detail on.

The danger here takes serval forms, the obvious one is the aforementioned compliance risk. There’s also more traditional investment risk; a non-productive property that’s been dead stock for reasons ranging from an undesirable neighborhood to pre-existing restrictions and liabilities may be sold to investors by promoting the tax benefits on future profits that are unlikely to ever actually be realized. Be sure that you’re well educated or advised enough to actually see the tax lipstick that’s been slapped on a pig.

3. Beware of affinity fraud. In some cases, this means a well-meaning individual in a common social circle, (like a shared professional, religious, or cultural group, as just a few common examples), innocently shares a bad strategy or advisor that they believe will help.  In other cases, a bad actor intentionally capitalizes on these affinities and current heightened political fears to peddle overtly frivolous claims including the following:

• Contributions are tax-deductible, grow tax free, and come out tax free (you rarely get all three, legally).
• The U.S. government has no legal authority to tax you. 
• You can “opt-out” of the tax system by transferring assets to their tax-free trust and will no longer have to pay taxes.
• You will be a trust employee and also no longer have to pay personal income taxes.
• Rich politicians, billionaires, and CEOs all have this kind of planning.

Anyone suggesting any of the above should be immediately removed from your advisory team, regardless of who did the same planning or who made the introduction.

4. Due diligence on your plan and your advisor is a vital first line of defense. Making a mistake on a plan or choosing the wrong planner can cost you a multiple of just paying the tax itself after you pay taxes, penalties, interest and legal fees. You as the taxpayer, not your advisors are civilly and criminally liable for the accuracy of your tax return and all reported deductions and income. Relying on the fact that you were advised by third parties, including those to who you have paid significant amounts of money is rarely a legal defense.

Where possible, work with licensed professionals. While this doesn’t guarantee that their advice is risk free, it is often better than your odds with unlicensed advisors and promoters who typically haven’t had background checks, have no professional liability, can’t offer attorney-client privilege, don’t have professional standards or accountability and perhaps most importantly, no malpractice insurance that you may need to rely on.

There are many other possible exposures and opportunities in the area of tax planning for physicians. Keep these basics in mind as you consider them and avoid being pressured into making expensive, uneducated choices.

Ike Devji, JD, has practiced law exclusively in the areas of asset protection, risk management and wealth preservation for the last 16 years. He helps protect a national client base with more than $5 billion in personal assets, including several thousand physicians. He is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter. Learn more at www.ProAssetProtection.com.