A Therapist’s Journey to Strategic Savings

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Embark on the tax optimization journey of a therapist and their social worker spouse as they partner with Tavola Group to navigate the intricate… Scroll down to keep reading.
Strategic Savings

Embark on the tax optimization journey of a therapist and their social worker spouse as they partner with Tavola Group to navigate the intricate landscape of tax planning. With two children in tow and a thriving practice, the couple’s financial dynamics evolve from a Schedule C setup to the strategic transition to an S-Corp structure. Against this backdrop, Tavola Group unveils a tailored arsenal of tax-saving strategies, from optimizing retirement plans to exploring income-shifting tactics and conducting cost segregation analyses on rental properties. Join us as we delve into how these meticulously crafted strategies promise immediate tax relief and substantial long-term savings, epitomizing the power of proactive tax planning in securing financial prosperity.

Background Information

One of Tavola Group’s clients is a therapist who operates their own practice and files taxes jointly with their spouse, who is a licensed social worker. The couple has two children, aged 11 and 13. In 2020, the client’s business was structured as a Schedule C, but in 2021, They transitioned it to an S-Corp. The client reported a total taxable income of $430k, with a salary of $232k.

Proposed Strategies

Strategy #1

  • Tavola Group highlighted the significance of the client’s decision to convert the client’s business to an S-Corp. While this change may not yield substantial savings initially, it promises considerable tax benefits in the future due to the reduced salary the client will receive. By adjusting the client’s salary, the client could potentially save $58k in taxes.

Strategy #2

  • Tavola Group explored retirement plan options for the client. They contribute approximately $51k annually to a Simplified Employee Pension (SEP) plan. Considering the reduced salary, Tavola Group suggested initiating a Defined Benefits Plan (DBP), allowing the client to invest around $100k. Instead of replacing the SEP with the DBP, Tavola Group recommended maintaining both for the first year. The client would transition to a 401k setup with the DBP, providing additional tax advantages.

Strategy #3

  • The client recently purchased a beach house in another state for short-term rentals. Proposed conducting a cost segregation analysis on the rental property.

Strategy #4

  • The discussion also centred on income-shifting strategies. First, they considered paying the client’s children, which could save approximately $8k in federal taxes. Second, they explored the option of maximizing the client’s spouse’s IRA contributions. They earned $23k on a Schedule C, making it a feasible choice.

Key Insights

Through these strategies, Tavola Group can assist their client in saving $43k in the first year and an estimated $111k annually thereafter. Over a decade, these savings could exceed $1M, demonstrating the value of proactive tax planning.

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