How a Physician Saved $105,000 in Taxes

by | Mar 27, 2024 | Case Studies

Physicians and surgeons have unique needs and goals when it comes to tax planning, and it can be hard to envision exactly how that will fall into place. Fortunately, we have a real-life example of how tax reduction planning with Ratio CPA works.

Below you’ll read our interview with Dr. Sam, who saved $105,000 in taxes through his partnership with Ratio CPA.

Tell us a little bit about yourself.

My name is Samuel K.—I go by Sam! I am an anesthesiologist working for a large physician’s group in the Bay Area, California. I am married and have two children, both teenagers. My wife takes care of our home and rental properties.

When I’m not working, I like to stay active by hiking and doing CrossFit. I have also recently taken up photography and am always on the lookout for beautiful sunsets or mountain views. We have three small dogs, who are very spoiled, but are also the only ones in the family who willingly pose for the camera.

What sources of income do you have as a physician?

I receive a W-2 and a K-1 from my hospital. This is my largest source of income.

I also own an LLC for miscellaneous locum tenens jobs, and I sometimes testify as an expert witness in court. I receive 1099s for both. My wife and I also own two small rental properties in San Jose.

Let’s talk about what led you to seek out Ratio CPA as a tax reduction planning firm. What were the circumstances prior to working with us?

My income was getting higher every year, and yet every year I felt I was taking less of it home, while giving more and more to the IRS and the State of California. I did want to keep paying my fair share of taxes, but after adding it all up, it turned out a ton of my income was going towards taxes! I am in the 37% federal tax bracket and 13% California tax bracket.

As the old saying goes—I felt there had to be a better way.

We agree. What were you looking for in a CPA firm?

I researched many CPA and tax planning firms online and interviewed about half a dozen. Because most of my income was coming from a W-2, nearly every tax firm told me to put more towards retirement or to purchase more rental real estate in order to maximize rental losses. 

Other firms told me to set up a corporation in order to claim various deductions, but it just didn’t seem right. I was already contributing the legal maximum towards retirement, including a backdoor Roth IRA, and we did not want to spend even more time focusing on rental properties, especially if the only strategy was to maximize losses. With just two small properties, my wife felt she could not put in the amount of time required by the IRS to become a real estate professional, which is 750 hours annually.

Ratio CPA was the only CPA firm that I spoke with that seemed to offer true tax reduction strategies, where I would see tax savings on a year-to-year basis, without needing to wait for retirement and without needing to generate real estate losses.

They seemed to know what they were doing when it came to their recommendations and offered a guarantee. I decided to take a chance and purchased a tax plan with them.

I am very grateful that I did!

This was back in 2020, and I have been working with them ever since. At first it was just tax strategy, but soon I also wanted them to prepare my income tax returns and take advantage of their annual consulting services. I have also referred many of my colleagues to them.

What kind of tax reduction strategies have you been using?

The main strategy I’ve been using to both reduce my taxes and generate passive income is the commercial solar strategy. I have been purchasing solar projects for the past three years and will purchase them again this year. In exchange, I receive Investment Tax Credits, federal and California state depreciation deductions, as well as dividends from the sale of electricity. Of course, with commercial projects, the tax savings amount is higher than the purchase amount.

The panels I purchased are being used by various businesses and nonprofits, so it feels good to not only be saving on taxes but also help increase green energy usage in California. I do think it is important to give back to society and to try to preserve the environment.

Other strategies include small business strategies for my LLC. The LLC does not generate a lot of income, but I have been able to claim various deductions, including hiring my children to run my website and social media, and to do some research for me. My sons are 14 and 16, and it’s great to see them working towards a goal, which of course is buying a new car. If I can help them learn responsibility, help them earn a salary that will go towards buying something they have always dreamed about, and save on taxes at the same time, I think it’s an overall win for everyone!

Also, as a very long-term goal, I have been using an additional retirement strategy. I know the savings won’t be evident for another twenty years or so, but it’s a good feeling to know that apart from my 401(k) and rental properties, I will have another source of income once I decide to retire.

What do you think are the total tax savings that you gained in the past years?

That’s a great question and the savings are quite substantial. The commercial solar strategy allows me to save approximately $70,000 in taxes annually, while the small business strategies add another $15,000 or so in tax savings.

After everything is said and done, across all strategies, including charitable donations, I believe I save approximately $105,000 in taxes annually, or at least those were my tax savings in 2023.

In 2022 and 2021, the savings were a bit lower as my salary was lower, and my 1099 was not quite as high. I think everyone felt their earnings go down due to COVID. 

How did you go about realizing your tax savings?

First, Ratio CPA created a tax plan for me. They analyzed my previous tax returns and ran various projections for me, and included a list of strategies that apply to me.

They presented the strategies to me and my wife and explained all the details as well as implementation steps. They answered all my questions about any pros and cons and addressed my concerns.

Once I knew which strategies I wanted to start implementing, they told me the best way to go about it. Some strategies I was able to implement on my own. In other cases, I was introduced to various professionals who, in collaboration with Ratio CPA, helped me set up the strategy. This included setting up a retirement strategy and the solar strategy.

In the end, I felt well taken care of and knew who to contact or rely on for everything.

Ratio CPA also prepared my income tax returns to make sure everything was realized correctly and discussed the actual tax savings with me.

Are you confident in the strategies you use?

Truthfully, I was a little bit apprehensive at first. I think everyone worries about the IRS and there are so many shady tax firms out there. My wife asked me to do my due diligence, but also told me she was fine with taking a risk.

Since 2020 I have not heard a peep from the IRS, so I’m sleeping very well at night, knowing that my taxes are being handled very well by Ratio CPA.

High-income earners, including physicians or surgeons, are already high on the list of IRS interests. I might have gotten audited with or without tax reduction planning. At least this way I am contributing tax dollars towards causes I am truly supportive of and doing what I can for the environment.

Any tips you would give to other medical professionals interested in lowering their taxes?

Yes! Find a professional you trust and rely on their judgment. We medical professionals tend to think we know everything! But perhaps not as much as we think when it comes to tax law and taxation in general, which is why CPA firms and tax planning firms exist.

Not all accountants or CPAs specialize in income tax reduction planning, and you’ll be able to tell the difference by the kind of advice they offer. If all they tell you is to contribute towards retirement or to buy an Airbnb, they probably aren’t the best specialists, because that is information anyone can find on any website.

I also think it’s important to interview with a few CPA firms and see what they are offering, how much they’ll help you along the way, and the type of liability the firm is willing to take on. If they only offer tax planning but tell you to get your income tax returns filed elsewhere, it means the firm might not have any true tax experts (CPAs) on board or doesn’t want to put their name on an income tax return. That might be a red flag.

Finally, tax reduction planning is a bit of work, particularly the first year as you are implementing a long-term strategy. You have to do your due diligence just like you would with any other purchase or investment. 

I found Ratio CPA to be knowledgeable, have a caring approach to clients, and have proven to be true experts in the field of tax planning.

Work with Ratio CPA for Tax Reduction Planning

We’d like to thank Dr. Sam for being a great client and for sharing his story with us. We look forward to continuing to work together!At Ratio CPA, we work with clients in all 50 states. If you are a high-income individual, whether or not you are a medical professional, and you’d like to find out more about tax reduction planning, feel free to schedule a no-strings consultation with us here.