In this episode, Barbara and Alexis discuss:
*Why proactive tax planning throughout the year is more beneficial than reactive approaches.
*How utilizing health savings accounts can provide tax benefits
*The advantages of shifting income to rental LLCs for minimizing taxes.

Key Takeaways:
“Leaving a legacy as well as helps save taxes on your part.” – Alexis Gallati.

Connect with Alexis Gallati:
Website: https://www.cerebraltaxadvisors.com/
LinkedIn: https://www.linkedin.com/in/alexis-gallati/
Instagram:
YouTube: https://www.youtube.com/channel/UCZ-pRbWDIlMckci5KZpsX0Q
Twitter: https://www.twitter.com/CerebralTax
Facebook: https://www.facebook.com/cerebraltax

Connect with Barbara Hales:

Twitter:   https://twitter.com/DrBarbaraHales
Facebook:   https/www.facebook.com/theMedicalStrategist
Business Website: https://www.TheMedicalStrategist.com
Email:   halesgangb@aol.com

YouTube: https://www.Youtube.com/TheMedicalStrategist
LinkedIn: https://www.linkedin.com/in/barbarahales

TRANSCRIPTION (152)

Welcome to the Marketing Tips for Doctors podcast, where you’ll discover the secrets to attracting more patients ready to schedule their first appointments and grow your practice, without spending hours away from your practice or home. Learn how to boost your online presence, and develop a strong rapport with each patient to increase compliance, while adding value and growing revenue.

Here’s your host, Dr. Barbara Hales, America’s leading medical strategist.

Dr. Barbara Hales: I’m so happy to welcome you back from hiatus. After a brief time away, we’ve diligently worked on new episodes for you. And so we start with today, and we plan on having some great episodes for you in the future and struggling with this one. So, we welcome you back today. Thank you.

Welcome to another episode of Marketing Tips for Doctors. I’m your host, Dr. Barbara Hales.

Today we have with us Alexis Gallati. She’s the founder and lead tax strategist at Cerebral Tax Advisors, Cerebral Wealth Academy, and the author of the book Advanced Tax Planning for Medical Professionals. She has over 20 years of experience in high-level strategic tax planning and multi-state tax preparation and has trained at the highest level, holding two master’s degrees. Alexis grew up in a family of physicians and is married to a private practice physician. That’s why she understands how hard medical professionals work to get where they are, and why she provides simple and accessible tax solutions tailored to busy physicians.

Welcome to the show, Alexis.

Alexis Gallati: Thank you, Barbara. I’m excited to be here.

Dr. Barbara Hales: What inspired you to focus on tax planning specifically for medical professionals?

Alexis Gallati: Yeah, well, as you mentioned in your intro, my husband is a physician, and we met the second week of college. When he went to medical school, I went to graduate school. And, of course, his schooling—between medical school and residency—is much longer than mine. So, when I saw the writing on the wall as he was finishing up his residency in Rochester, New York, as a neurosurgeon, I saw that would be hitting a really big tax bracket. And so, I wanted to know why Warren Buffett and the Bill Gates of the world were in that lower tax bracket. Like, why couldn’t it be us?

That’s when I went out after working for local and regional CPA firms for 12-13 years. So, I’ve been focused on tax planning. And, since we have the same situation as a lot of our clients—who are healthcare professionals—it was very natural for us to work with other healthcare professionals. And that’s where it came from necessity in our case, and loving to teach others how to save.

Dr. Barbara Hales: The question about lower taxes is something I’m sure we will, you know, wonder about. In what ways do you see positions being different from other types of clients?

Alexis Gallati: Yeah, so a lot of it comes down to, mainly, the pay structure. I mean, depending on whether you’re a W-2 or you’re a 1099. You know, if you’re part of a group, different groups have different ways their employees, or the doctors, are paid. And so, having that understanding of the various types of payments doctors receive is very beneficial. Because depending on the type of income you have, whether it’s ordinary income or if it’s capital gains, maybe from something like the sale of an office building, you know, there can be different tax strategies. And that’s important to grasp. Not just how their income is being taxed, but also, you know, the way they work and the long hours. So, having that, let’s say, more specific knowledge of how a practice is run, or even just how a physician is paid, is very beneficial overall to be able to provide pinpointed advice.

Dr. Barbara Hales: Not always is proactive tax planning different from what most tax professionals do.

Alexis Gallati: So, most physicians, when they go to hire a tax professional or an accountant, find that most of these accountants are very reactive. Essentially, they’re preparing the tax return and maybe offering a bit of advice after the fact. However, most effective planning needs to be proactive throughout the year, because many of the strategies you can implement have to be executed in the year you want them to count. That’s where Cerebral is markedly different.

The way I built Cerebral was to be proactive. We not only prepare the tax return in the spring; we also conduct a mid-year tax projection around May or June, and then a year-end projection around October or November. This approach allows us to continually tweak and modify our clients’ tax plans as their situations change or as tax laws change, optimizing their taxes throughout the year and helping to eliminate surprises. We do cash flow planning as well, such as mapping out upcoming quarterly estimates or retirement payments, things like that. This way, you can actually plan your cash flow, especially for those trying to save up for a new house, pay off student loans, or perhaps get into real estate and start that as an alternative investment. Being proactive comes with a multitude of benefits, not only from a financial standpoint but also in terms of preventing mental burnout.

Dr. Barbara Hales: What’s your favorite tech strategy for medical professionals who own their private practice?

Alexis Gallati: Yeah, well, one of my favorites — and there are so many of them because they’re so easy to implement once you know you qualify for it, and so on — is hiring your children. I think it’s an amazing way, if you have children, to shift income from your higher tax bracket to their potentially zero tax bracket. This allows you to save money because your business gets a deduction for their salary. But you’re also able to put that money into, you know, a Roth IRA for them or even save for their school as well.

Another strategy that I love is the health savings account. This can be done by someone who has a business or doesn’t have a business, as long as they have a high deductible health insurance plan. And those, I love because they’re triple tax-advantaged: the money goes in tax-free, it grows tax-free, and then it comes out tax-free, as long as it’s used for qualified medical expenses.

Dr. Barbara Hales: So, if you’re hiring your children, do they have to do something?

Alexis Gallati: Yes, yes, they do need to have a legitimate job within the business. I’m not in favor of hiring your children as models, you know. The courts have tested this with children as young as seven. That’s typically what I advise my clients: “Hey if maybe they do a one-time modeling gig for the website or something, it’s hard to justify, you know, a $7,000 salary.”

For instance, if they’re trying to maximize their Roth contribution for 2020, where the maximum is $7,000. So, it’s difficult to justify that for like one or two pictures on your website. But if you have a child that’s seven years old, they can be performing many administrative tasks, like going in, shredding paper, stuffing envelopes, and helping with filing things. And then, as they get older, they can do even more work for you. So, as long as you have clear job roles for them, you’re keeping timesheets, and you treat them as employees, then it’s a completely legitimate deduction and a wonderful way to build their wealth. So, it’s about leaving a legacy as well as helping save on taxes on your part.

Dr. Barbara Hales: Gee, I never thought of having children, you know, being paid as models for a doctor’s office. That’s interesting. So, do you also recommend that doctors, you know, buy the building where they have their offices to get additional tax benefits?

Alexis Gallati: Potentially, it depends on the area, obviously, and whether you can afford the office building you’re in. So, like in California, for instance, that’s a very expensive purchase, but there are tax benefits to it. Namely, you’re able to shift income from your business, which would normally be taxed at your higher tax rate, over to the rental income in your building’s LLC. Then, you use the expenses of that LLC, including depreciation, to help offset the income you’re bringing over. So, it’s really about shifting the income and then using the expenses in the building’s LLC to maximize those savings.

Dr. Barbara Hales: There are many different models for income that doctors can have. Some rely on insurance, while others operate on a concierge model or a concierge hybrid model. How does the tax structure work? If someone has a concierge hybrid, is it any different? It’s essentially about the money coming in, regardless of their pay model.

Alexis Gallati: Yes, if this is a private practice, whether they’re doing concierge or insurance-based services, it’s all the same type of income—it’s ordinary income. Therefore, it’s taxed in the same manner.

Dr. Barbara Hales: Um, tell us an interesting or funny story that you have regarding a doctor starting and, you know, trying to set up a tax structure for themselves and a partner they’re bringing in.

Alexis Gallati: Oh, sure. So, I can think of many instances where my clients didn’t choose the proper structure. They might not even set up a proper LLC, especially when they have someone coming in as a partner. And so, if they’re setting it up without an LLC, a PC, or, you know, a PLLC, as well as the proper structure, they might be setting themselves up for additional liability. The LLC, for example, protects against the actions of a partner. Fortunately, I haven’t had any clients where something bad happened in that regard. But we went on to discuss some of the legalities of wanting to have that structure in place. This way, from a legal standpoint, they’re covered, because there are some things you could still be liable for, even with malpractice insurance.

Dr. Barbara Hales: Okay, so the last part of our interview is where we ask our interviewee to give us two tips for our listeners that would help them—something they could implement right away that would be helpful. Do you have some tips for our listening audience?

Alexis Gallati: Definitely. So, the first tip, let’s say you’re your only W-2. And, you know, this is a very common scenario for some docs. So, if you’re only a W-2, the number of strategies is a bit fewer for you than if you have your own 1099 income. But you want to make sure that you are maximizing your retirement and taking advantage of any sort of benefits your employer provides. So, maybe you have children, and they offer a dependent care benefit, or, you know, they provide a high deductible plan. And so, you can do an HSA—going and maximizing those benefits is super beneficial.

Then, look at more investment-type strategies like real estate or oil and gas that can provide you with some diversification in your portfolio as well as a tax benefit. If you have your own business, there are, like I said, so many different strategies out there. But what you can start implementing right away is the setup of an accountable plan. So, if you have an S corp or a C corp, the accountable plan allows you to properly reimburse yourself for business expenses paid with personal funds, and without this document, the IRS can technically deny any of those reimbursed deductions. So, if you go onto your unit… So, Google “accountable plan template.” We also provide a template through our Cerebral Wealth Academy course as well. But that—those sorts of things allow you to make sure you’re keeping the IRS happy and with the documentation you need.

Dr. Barbara Hales: Well, that’s one thing we all want to do. We want to stay under the radar and keep the IRS happy. Yes, definitely. Okay, we certainly enjoyed having you here with us today. And we’re going to certainly think about the tips that you have given us and, you know, start implementing them right away to make more money and not lose it.

Alexis Gallati: Keep more of what you earn.

Dr. Barbara Hales: Absolutely. Well, thank you for being with us on the show today. This has been another episode of Marketing Tips for Doctors with your host, Dr. Barbara Hales. Until next time.

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