From Burnout to Balance - Part 2

STOP TIPPING UNCLE SAM!!!

As a high-income physician, chances are you are well acquainted with Uncle Sam’s hefty demands. You likely find yourself in the top tax rates, applicable not only to your income but also to your investments. While taxes are an inevitable part of life, their impact on your wealth isn’t entirely out of your control.

We often consider taxes as a matter of fact and investments a matter of hope. However, with proper tax planning, you can help transform your tax situation from merely writing checks to reducing your tax bill.

For individuals in your tax bracket, tax management becomes a critical strategy. Concepts such as tax-loss harvesting, direct indexing, and asset location should be part of your financial vocabulary. These strategies can play a significant role in reducing your tax bill, enabling you to retain more of your wealth. And, sometimes, these strategies are more cost effective than buying mutual funds and ETFs.

Presently, you might be benefiting from relatively low tax rates. However, tax environments are subject to change and the old, higher rates are currently on track to return in 2026. With the sunset of current tax rules looming, tax planning will become even more crucial. Navigating these complex strategies might seem daunting, but with the right guidance and resources, it’s a challenge you can confidently face.

The goal is to understand your obligations, know your options, and use the laws to your advantage. By doing so, you may turn one of your biggest expenses into a strategic tool for wealth preservation and growth.

There is a great graphic out there and unfortunately, I cannot embed it in this document. The summary is it shows what could happen to a $100,000 investment into a taxable account that is not managed for taxes. The portfolio itself was a boring 60/40 one (60% in stocks and 40% in bonds). The short version is this portfolio, which was invested for 40ish years would have grown to over $6 million in before-tax dollars. Unfortunately, there was no tax management and the actual after-tax balance was just over $2 million.

Remember – It’s not what you make; it’s what you keep!