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August 2008


by Andrew D. Schwartz, CPA

Don't look now, but August 23rd will be here before you know it.  Are you wondering what's so great about the 23rd day of the 8th month?

August 23rd represents the precise mid-point between April 15th and December 31st.  Are you in the vast majority of people who haven't even thought one iota about your taxes since April 15th?  As Homer Simpson once asked his son Bart, "If everyone were on top of the Empire State Building, and no one jumped, would you also not jump?"

Let's take a look at some of the mid-year tax planning issues that might affect you:

AMT Angst Again

Here we go again.  The year is more than half over, and we once again find ourselves with a huge Alternative Minimum Tax catastrophe hanging over our heads.  If nothing is done about the AMT for 2008, the number of taxpayers paying this tax will jump from 4 million in 2006 to more than 23 million as was previously predicted for 2007 before Congress finally passed last year's temporary fix.

Each year since 2001, Congress has provided for relief from the AMT.  Last year, Congress needed all the way until December 19th to pass a bill extending the more palatable 2006 AMT rules through 2007.  With 2008 being a presidential election year, who knows whether Congress can come through in time to prevent millions of individuals from paying this tax?

For more information about last year's AMT fix, check out these two articles:

Great Time To Buy

This Economic Stimulus Act of 2008 provided a huge tax break to people who purchase, open, or expand their practices.  Under the new rules, you can now write off the first $250,000 of machinery and equipment that you purchase in 2008.  Spend more than $250k, and you can write off 50% of the excess as "bonus depreciation".  The only catch is that used equipment doesn't qualify for bonus depreciation, and real estate doesn't qualify for either tax break.

Let's take a look at a physician who opens an office from scratch and purchases $250,000 of medical equipment.  Prior to this tax act, the doctor could only take a full write off the first year for $128,000 of equipment purchased, with the remaining $122,000 being depreciated over its useful life of five or seven years, for a total first year depreciation of $145k.   Now, thanks to this tax law change, the total purchase price of $250,000 can be fully deducted this year.

More Tax Planning Ideas

  • Take a look at your withholding and instruct your employer to withhold additional taxes if you haven’t had enough taxes withheld during the year to avoid getting hit with an underpayment penalty. 

  • Adjust your third and fourth quarter estimated tax payments if you're remitting your taxes through quarterly estimates.  Most accountants and tax programs set up your estimates based on your prior year's tax return.  Since your income or deductions probably changed somewhat from last year, consider adjusting your remaining two quarterly payments accordingly.

  • With the market down so far this year, consider selling your investments held in non-retirement accounts that have decreased in value, since your capital losses can offset other capital gains realized during the year (including from your mutual funds).  Excess losses can then be used to offset up to $3,000 of wages and other income.  Make sure to wait at least 31 days before buying back a security sold at a loss, or the IRS will disallow the loss under the "wash sale" rules.

  • Increase your 401(k) and 403(b) contributions if you're not contributing at the maximum rate so far this year.  For 2008, you can put up to $15,500 into your 401(k) or 403(b) plan.  Anyone 50 or older by December 31st can put away an additional $5,000.  Contributing to a 401(k) or 403(b) plan at work is one of the best tax shelters available to you during your working years.

  • If you’re self-employed, you have until October 1st to set up a SIMPLE IRA or until December 31st to set up a Solo 401(k).  Maxing out your contributions into a retirement plan is a great way to minimize the taxes you'll owe on your self-employment income.

  • Get ready to make your 2009 elections to pay for your health insurance, health care expenses, and daycare expenses with pre-tax dollars through a Flexible Spending Account offered through your employer's benefits package.  Generally, November is the "open enrollment period" for this tax savings opportunity.

Half-way Home

Don't let August 23rd pass you by without at least taking a quick glimpse at your 2008 tax situation.  If you work with a CPA or plan to start working with one for the first time, now's the time to touch base with your tax preparer and spend a few minutes working through a tax projection.  Otherwise, either re-enter this year's projected information into your 2007 tax program or make a copy of your 2007 tax return and pencil in this year's projected numbers in the margin of each form, and see how your taxes look for 2008.

Investing some time now as we hit the mid-point between April 15th and December 31st is the only way to minimize your 2008 tax burden and avoid any unpleasant tax surprises next winter.



Setting up a system to keep track of your professional expenses throughout the year will save you taxes.  Here are a few suggestions:

  • Use Quicken or Microsoft Money to track all of your expenditures throughout the year.  Both of these personal finance programs allow you to assign a category for each check written and credit card purchase made.  At the end of the year, simply print out a report that includes all your professional expenses to deduct on your tax return.
  • Use a Separate Credit Card For Business Related Purchases.  This allows you to easily compile all your professional expenses made during the year, since all your deductible expenditures will be reflected on your 12 credit card bills.  Or even better, use a credit card from one of the companies that sends their customers an annual summary of their activity for the year.
  • File Your Receipts In a Folder or Envelope.  At the end of the year, all you need to do is tally up your receipts to figure out the professional expenses you can deduct.
  • Download Our Excel Spreadsheet available at, which lets you easily track your professional expenses on a monthly basis.  We recently updated this Excel spreadsheet to reflect increases in the standard mileage rates.  (To download the Excel Spreadsheet, right click your mouse and hit "Save Target As", and then choose the directory on your computer where you want this file to sit.)



by Lawrence B. Keller, CLU, ChFC, CFP

As a physician, you have probably been told repeatedly that if you are going to purchase an individual disability insurance policy, it should contain a true “Own-Occupation” definition of disability for the entire benefit period (to age 65 or longer).  Meaning, if you cannot perform the “material and substantial duties” of your medical specialty, you would collect full disability benefits – even if you decided to work in another occupation or medical specialty earning the same (or more) income than you did prior to your disability.

While this is still true today, for almost a five year period (July, 2001 – May, 2006), this definition of disability – particularly for certain specialists – including Orthopedic Surgeons, Neurosurgeons, Cardiothoracic Surgeons, Emergency Medicine Physicians and Anesthesiologists was virtually impossible to find.

Today’s Marketplace

While some disability insurance companies continue to view the “medical market” with skepticism, other carriers are aggressively pursuing this type of business.  As a result, companies such as the Berkshire Life Insurance Company of America (Guardian), Union Central Life, Metropolitan Life, Standard Insurance Company and MassMutual are once again offering true “Own-Occupation” coverage to most, if not all, physicians.

Beware the agent that tells that this definition of disability is “no longer available” or that you “don’t need it”.  They may be telling you this because their company no longer offers it and/or they do not have the ability to sell it to you!

Increased Monthly Benefits and Beginning Professional Limits

For many years, the maximum benefit available to physicians who performed invasive procedures was limited to $10,000 or $15,000 per month, regardless of their earned incomes.  As a result, securing a reasonable amount of disability insurance protection had become a significant challenge for highly compensated physicians.   However, at the time of this writing, one company recently announced that they will now issue policies with monthly benefits up to $15,000 for surgeons as well as participate with other carriers’ individual coverage up to $20,000 month. 

Additionally, monthly benefits available to Residents, Fellows and new in practice physicians (two years or less) have increased substantially.  Depending upon the insurance company, these beginning professionals can purchase up to $3,500 month (Residents in the 1st or 2nd year), $3,700-$5,000 month (Residents in the 3rd year or later and Fellows) or even as much as $7,500 month as a newly practicing physician (depending upon medical specialty) - without regard to their actual earned incomes.

Multi-Life and Association Discounts

Several of the carriers mentioned above offer “multi-life” or association discounts when several employees of the same practice or hospital purchase their policies from the same insurance company.  Some regional or state medical associations also offer discounts on individual disability policies.  It is best to inquire with a disability insurance specialist to see if you have access to an existing discount program as this can produce a premium savings of 10%-50% or more, depending on your medical specialty, age, gender and state of residence. 


While the disability insurance industry had remained stagnant for an extended period of time, due to increased competition, several companies have and will continue to make changes to the policies available to physicians, including premium rate reductions and higher benefit limits.  Therefore, physicians once again have the opportunity to adequately protect their most valuable asset – their ability to earn an income.

Lawrence B. Keller, CLU, ChFC, CFP is the founder of Physician Financial Services, a New York- based firm specializing in income protection and wealth accumulation strategies for physicians.  He can be reached for questions or comments at (800) 481-6447 or by email to



To have Larry Keller prepare a complimentary analysis of your current disability insurance needs, please complete this form, and he will contact you shortly.

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Income Taxes

Saving and Investing





  • Returns on extension are no longer due 8/15th.  For 2008, you have until 10/15 to file returns put on extension
  • If you participated in the NIH LRP during 2007, you only have until 9/30/08 to submit the paperwork to get back any additional taxes owed to you by the NIH. One of the MDTAXES CPAs can help you with this paperwork
  • Consider rolling your old retirement accounts held at a previous employer into your current employer's 401(k) or 403(b) plan to consolidate your finances
  • If your income will be too high for 2008 to contribute to a Roth IRA this year, consider making a non-deductible contribution to an IRA to convert to a Roth in 2010 as addressed in our March 2007 newsletter


2007 & 2008 TAX FACTS

  • For 2007, the standard deduction for a single individual is $5,350 and for a married couple is $10,700. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2007, the personal exemption is $3,400. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $102,000 for 2008, up from $97,500 in 2007.
  • The standard mileage rate is $.585 per business mile as of July 1, 2008, up from $.505 per mile for the first six months of 2008.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $15,500 in 2008.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,000 into your 401(k) or 403(b) account that year.
  • The maximum annual contribution to your IRA is $5,000 for 2008.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2009 to make your 2008 IRA contributions. 


This Month's Topics

'Tis The Season

Track Your Professional Expenses

Disability Insurance - What's Old Is What's New Again

The FICA Refund for Medical Residents 

2007 & 2008 Tax Facts

Tax and Financial Planning Calendar for August 2008


Browse our index of previous months' newsletter topics

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Most recent information issued by the IRS

Check out the memorandum issued by the U.S. District Court in Minneapolis and you'll see that the court found that medical residents and fellows might not be subject to FICA taxes in many instances.

For more information, go to our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

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