Here’s a key to success: Maximize cash flow while paying less in taxes. A shortage in cash flow can send you into survival mode, and improper understanding of tax deductions can cause you to miss out on opportunities for a break.
Here are four tips to keep in mind as you further your success:
1) Eliminate Present Burdens On Your Cash Flow (And Future Drains)
As cash flow comes in, make an outline for how these dollars will be allocated. As revenue/income grows, this outline will keep you focused and will help you avoid being frivolous.
Debt is not foreign to any medical school graduate student, but making debt reduction your priority will greatly enhance your cash flow, long-term.
Remember, compounding interest on your debt adds more zeros to the end of what may be an already-long number.
Start with your smallest debt and/or one with the highest interest rate. Accelerate payments to that encumbrance. Once that encumbrance is eliminated, add its recurring payment to the one you’ve been making on your next biggest and/or highest-interest loan.
By accelerating payments and applying recurring payments onto new debts, you will experience a snowball effect that will make dramatic improvements to your overall financial standing.
2) Put Aside Money Toward Your Future
Whether you choose a traditional IRA, a Roth IRA, 401(k), or a cash balance plan, you should begin putting aside a portion of your income toward retirement. You should choose an amount that works for you, proportionate to your cash flow. Qualified retirement savings not only accelerate savings but can lessen your overall tax burden. Do your best to maximize savings into a qualified retirement plan on an annual basis.
3) Save Money on Taxes
For example, you can write off expenses that are considered ordinary and necessary for you to perform your job. According to the Internal Revenue Service (IRS), expenditures that are common or accepted by the industry are tax-deductible.
Make sure to keep documentation for anything you might submit to the IRS as tax-deductible. This could be for expensive medical equipment; it could even be for the couches in the waiting room outside your office, or for mobile phones for you and your staff.
Whatever you plan to write off — whether scrubs, in-office computers, malpractice insurance — make sure you have documentation for it.
4) Research What is Tax Deductible
Make sure you understand the difference between what is tax-deductible and what is not. For example, you deduct the miles you put on your car that are attributable to business. In 2015, the business-purpose reimbursement rate was 57.5 cents per mile. However, commuting to and from work is not considered business use and is not tax-deductible.
Being a physician requires dedication to patients and extensive clinical knowledge. To manage your practice effectively, you need to have good financial skills. By paying off debt, accelerating savings, and writing off tax-deductible expenses, you can increase your probability of success.
Once you’ve achieved this success, you need to learn how to protect it.
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PLEASE NOTE LIMITATIONS: Please see Important Disclosure Information and the limitations of any ranking/recognitions, at www.fostergrp.com/info-disclosure/. A copy of our current written disclosure statement as set forth on Part 2A of Form ADV is available at www.adviserinfo.sec.gov.