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Monthly Archives: September 2015

Understanding Tax-Loss Harvesting Strategies

Are there investments in your portfolio that have fallen in value since you purchased them? As each tax season approaches, it’s an opportune time to examine strategies that could help lower your tax burden. Tax-loss harvesting is one such method that many investors utilize to help reduce tax obligations.

Whether you want to hold the investment for the long term or realize any losses now, tax-loss harvesting may benefit your situation. Tax-loss harvesting is selling a security at a loss now to offset gains from other investments in the current tax year or possibly carry forward to future years. This strategy can help reduce an investor’s tax bill now and in the future.

Benefits of Tax-Loss Harvesting

Tax-loss harvesting is the practice of selling investments within a taxable account at a loss, thereby generating a capital loss that can be used against current capital gains and possibly against an investor’s future income. The ultimate objective is to limit the impact of capital gains taxes. Short-term capital gains, which are defined as gains on assets held less than one year, are normally taxed at a higher federal income tax rate than long-term capital gains.

Tax Deductions for Doctors

When properly applied, a loss in the long-term capital value of Stock A could be sold to offset the reportable long-term gain in value of Stock B, thus reducing the capital gains tax liability of Stock B. Furthermore, once an investor has offset all of their long-term capital gains, they can offset the loss against other short-term capital gains. Not only can this reduce tax burden for investors, but it can also help diversify a portfolio in ways that may not have been considered. By recognizing a tax loss, investors have various options such as allocating their tax savings in a similar but different investment.

In addition to offsetting taxable gains, the IRS allows investors to take up to $3,000 of losses per year if married filing jointly ($1,500 if single) to reduce their ordinary taxable income. It’s important to note that tax-loss harvesting only applies to investment losses held within taxable accounts. Investments held within tax-advantaged accounts such as 401(k)s and Roth IRAs do not receive the same benefits. However, high-income earners that have maxed out their tax-advantaged accounts should be aware of tax-loss harvesting opportunities when managing their portfolios.

Rules and Regulations

In order to take a physician tax deduction on the loss, an investor must sell the investment and not purchase the same or substantially similar investment for at least 30 days before or after the sale date. The purchase of that asset or a substantially similar asset in that 60-day window will cause the loss to be disallowed by the IRS under the wash-sale rule, but may be able to be carried over and added to the cost basis of the new purchase. However, an investor does not need to wait to reinvest the same dollar amount in an asset that is not substantially similar.

If an investment has fallen in value but the long-term outlook is promising, there’s the option of claiming the loss and re-investing in the same security after 30 days. One possible risk is if the security appreciates in value during the 30 day period that funds are not invested. This consideration, among others, should be weighed against the perceived gains from realizing the loss.

Harvesting a loss every time there is a fluctuation in the market can be a burdensome task from a tax-preparation standpoint. Therefore, the transaction costs of buying and selling should be compared to the amount saved in taxes when harvesting a loss. The general idea is to realize the loss if the tax benefits outweigh the administrative costs and investment risk.

Tax-loss harvesting is an active portfolio management strategy that may allow investors to improve their after-tax returns in some cases. It won’t restore actual investing losses, but it can save money by helping to reduce the tax burden. Markets can be volatile and unpredictable, but tax-loss harvesting may aid investors in making a tactical exit from an under-performing security. Prior to taking action, make sure to consult with your tax professional about your specific situation to make an informed decision.

Have Questions?

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.
Tax loss harvesting is a complicated issue and cannot be fully covered within the context of this article. This article should not be construed as tax advice. Please contact a qualified tax professional with knowledge about your specific needs.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide tax advice or services. Please consult the appropriate professional regarding your tax planning needs.

Living With Volatility Again

October 28, 2014 | By Jim Parker, Vice President DFA Australia Limited

Volatility is back. Just as many people were starting to think markets only ever move in one direction, the pendulum has swung the other way. Anxiety is a completely natural response to these events. Acting on those emotions, though, can end up doing us more harm than good.

There are a number of tidy-sounding theories about why markets have become more volatile. Among the issues frequently splashed across newspaper front pages: global growth fears, policy uncertainty, geopolitical risk, and even the Ebola virus.

In many cases, these issues are not new. The US Federal Reserve gave notice last year it was contemplating its exit from quantitative easing (an unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective). Much of Europe has been struggling with sluggish growth or recession for years, and there are always geopolitical tensions somewhere.

In some ways, the increase in volatility in recent weeks could be just as much a reflection of the fact that volatility has been very low for some time. Investors in aggregate were satisfied earlier this year with a low price on risk, but now they are applying a higher discount rate to risky assets.

So the increase in market volatility is an expression of uncertainty. Markets do not move in one direction. If they did, there would be no return from investing in stocks and bonds. And if volatility remained low forever, there would probably be more reason to worry.

As to what happens next, no one knows for sure. That is the nature of risk. In the meantime, investors can help manage their risk by diversifying broadly across and within asset classes. We have seen the benefit of that in recent weeks as bonds have rallied strongly.

For those still anxious, here are seven simple truths to help you live with volatility:

#1 Don’t make presumptions:Have you noticed how people become experts after the fact? But if “everyone” could see a correction coming, why wasn’t “everyone” profiting from it? You don’t need forecasts.

#2 Someone is buying: People often gravitate to the familiar and to shares they see as solid. But a company’s profile and whether or not it is a good investment are not necessarily correlated. Better to diversify.

#3 Market timing is hard: The emotions triggered by volatility are understandable, but acting on those emotions can be counterproductive. Uncertainty goes with investing. Historically, long-term discipline has been rewarded.

#4 Never forget the power of diversification: People often assume that success in investment requires a specialist’s knowledge of a sector. But that information is usually already in the price. Trust the market instead.

#5 Markets and economies are different things: Isn’t that the point? You can rationalize a stock-specific bet as much as you like, but events or external influences can conspire against you. Spread your risk instead.

#6 Nothing lasts forever: If an economy performs strongly, that will no doubt be reflected in stock prices. What moves prices is news. And news relates to the unexpected. So work with the market.

#7 Discipline is rewarded: We can put too much faith in individual stocks, and holding onto a losing bet can mean missing opportunities elsewhere. Portfolio structure affects performance.

Have Questions?

‘‘Outside the Flags’’ began as a weekly web column on Dimensional Fund Advisors’ website in 2006. The articles are designed to help fee-only advisors communicate with their clients about the principles of good investment—working with markets, understanding risk and return, broadly diversifying and focusing on elements within the investor’s control—including portfolio structure, fees, taxes, and discipline. Jim’s flags metaphor has been taken up and recognized by Australia’s corporate regulator in its own investor education program.

Diversification does not eliminate the risk of market loss. Past performance is no guarantee of future results. There is no guarantee that strategies will be successful.

The S&P 500 Index is not available for direct investment and does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

Dimensional Fund Advisors LP (“Dimensional”) is an investment advisor registered with the Securities and Exchange Commission.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This content is provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.

Copyright © 2014 by Dimensional Fund Advisors LP. All Rights Reserved

Maximizing Protection of Assets

Practicing medicine is a highly litigious profession. In fact, a study published by the New England Journal of Medicine found that a staggering 99% of physicians in high-risk specialties will be sued by the age of 65. Fortunately, you can defend many of your assets from potential lawsuits by following a risk management model that will systematically title your property in an advantageous way.

Carefully constructed asset protection strategies that are fully implemented before any hint of trouble are more likely to be effective in warding off potential lawsuits or reducing the settlement amount. That is where Larson Financial Group Lawsuit Protection comes in. Having your end goal in mind is extremely helpful when developing a solid plan of protection. The first step is to assess where you’re at today from a risk standpoint and how that falls short from your preferred state of protection.

Asset Protection for Physicians

Asset protection plays a critical role in many different aspects of your financial plan. If you’re starting a practice, you’ll need to recognize the implications your business plan will have on your estate. Or if you’re developing an estate plan, you need to assess what ramifications those strategies will have on your practice. Ideally, these methods will also be set up in a way that reduces your estate’s tax obligations after your death and allows your heirs to avoid the process of probate.

Larson Financial Lawsuit Protection

A carefully drafted risk management plan that protects your assets and business from liability claims will make you a less viable target for a lawsuit. However, assets that are legally exempt from creditors can vary widely from state-to-state on a case-by-case basis. Because every state has different laws to consider, it’s recommended that you partner with an attorney who is familiar with your state’s asset protection laws and case history.

Timing is everything when it comes to risk management. Asset protection strategies are only truly effective if done proactively. A reactive approach to risk management likely won’t be able to keep your assets safe.

Titles Matter

When purchasing the facility where you want your medical practice to be located, many of these same issues apply. You have to decide whether you want to put that property in your name, or in the form of an LLC that you co-own with others. If you have a partner, you should have an agreement in place that stipulates what would happen to the practice and its real estate in the event of a death or disability.

For planning purposes, you’ll want to look at your complete list of assets and classify them as:

  • Practice-operating assets
  • Practice-capital assets
  • Individual investments
  • Personal assets

Once your assets are classified, the next step is to build separation between your investment and personal assets so that everything is not on the table in the event of a liability. Incorporating your practice normally protects your personal assets from non-malpractice claims against the practice.

Oversight is Critical

When implementing an asset protection plan, the involvement of several different professionals from a variety of different disciplines is required. The services of an attorney, accountant, insurance agent and mortgage professional may all be necessary at some point, and coordinating their efforts is not always an easy task. It’s critical to work with professionals that have a fiduciary responsibility and are personally familiar with your values and objectives.

Asset protection is an area of wealth management that affluent physicians can’t afford to ignore. A risk exposure analysis will allow you to determine which personal and practice assets could be vulnerable and implement proactive strategies to protect them.

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

Tips and Strategies for an Ailing Credit Score

Provided By Jason DiLorenzo, President of Doctors Without Quarters, LLC

Many physicians rely on financing to purchase new equipment and expand their practice. The quality of your credit score can have major implications on several decisions regarding your business and personal financial plan. A good credit score not only makes it easier to secure favorable interest rates on loans, but it helps keep your insurance premiums affordable as well. It also makes renting a car or opening a checking account significantly easier. As your credit score improves, the potential opportunities to save money increase as well.

Typical day-to-day business activities that doctors face are capable of negatively impacting their credit score. For example, when you submit an application requesting credit, your score will be checked by the financial institution that would act as the lender. These hard inquiries (requested by someone other than yourself) can deduct from your credit score, some by as many as 10 or 15 points. Multiple applications in a short period of time can dramatically drop your score as well. If you’ve had an application turned down, it’s important that you raise your score and check with management about specific requirements and criteria before re-applying.

Medical School Loan Repayment

The good news is if your credit score is less than ideal, it’s possible to improve this relatively quickly. By wielding credit in a responsible manner, you can start to see improvements to your credit score within 30 to 60 days. Developing certain personal finance habits can really pay off by boosting your credit score which in turn lowers the cost of borrowing.

Getting the Complete Picture

Your credit score is a measure of your creditworthiness that lenders use to judge whether you’ll be able to pay back debts. First and foremost, you’ll want to obtain a recent copy of your credit report so you can gain a complete picture of your credit history and standing. The three major credit bureaus (Equifax, Experian and TransUnion) are required to provide you with one free copy per year, so it’s entirely possible to receive a complimentary copy every four months so that you can check up on your credit throughout the year. You can request a copy of your credit report from annualcreditreport.com

A 2013 Federal Trade Commission study found that one in four consumers had errors on their credit reports that could affect their credit score. Mistakes happen, so if you see any errors when reviewing your credit report, dispute them immediately. Check for correct information regarding your identity such as the spelling of your name and your current address. Also, make sure that your proper credit limits are listed and that there are no fraudulent accounts that you do not recognize.

If you spot a mistake like a paid-off medical school debt appearing as unpaid, contact the lender or creditor that reported the inaccurate information and ask them to update your account. The three major credit bureaus all have forms on their websites for submitting disputes as well. If neither of these options resolves the dispute, you can contact the Consumer Finance Protection Bureau (CFPB) and ask them to intervene on your behalf. A proactive approach to fixing errors on your report can give your credit score an immediate boost.

Factors to Be Aware Of

It’s nearly impossible to over-emphasize the importance of paying your bills on time. Your payment history, including the ones you pay late or skip altogether, is the single largest factor that influences your credit score. This component accounts for 35% of your FICO score. Accounts 90 days past due have a more negative impact on your credit score, so if you have multiple outstanding bills, prioritize them by paying off the most past-due accounts first and then gradually catch up on the rest. Using automated payments where possible can also help clean up your payment history.

The second most important factor to consider is your credit utilization ratio. This is the percent of available credit you’re using and accounts for 30% of your FICO score. The lower your utilization rate, the better your credit score will be. To calculate your rate, just divide your total credit balances by your total credit limits. Consumers with a credit utilization ratio of 10% or less will generally have a higher credit score than consumers with a rate over 20%. According to FICO, consumers with the best credit scores use just 7% of their revolving credit lines.

One simple way to lower your utilization rate is to request higher credit limits from your card issuers. Sometimes this happens automatically, but you can also make the request online or by phone. It never hurts to ask, right? You can even transfer a portion of one card’s spending limit to another card, provided that both cards are under the same issuer. However, this method is only effective if you don’t increase your spending habits in accordance with your credit limit.

Other Helpful Tips

Although it can be tempting to trim down a cluttered wallet, you should refrain from closing old cards when possible. This will cause your available credit to drop, which can set off a red flag with the bureaus. Approximately 15% of your credit score is determined by the length of your credit history. Closed accounts in good standing will remain on your report for about 10 years, but once removed will lower the average age of all your accounts and your score as well. One easy way to keep a card active is to use it for a recurring charge such as a utility bill.

Keeping your medical school loan repayment on schedule can give your score a boost and demonstrate to future lenders that you can be trusted to handle money responsibly. Having a variety of different kinds of credit can be helpful as well. For example, you could buy an appliance for your break room or piece of furniture for the waiting room and pay it off with an installment plan. The important thing is to avoid any derogatory marks that could substantially hurt your score. Bankruptcy, foreclosure, accounts in collections, tax liens and other civil judgments could all have lasting consequences for your credit.

If you have a rating below 700, many of the aforementioned tips can be helpful in getting you back in good standing with creditors. You don’t need a perfect score of 850 to enjoy the best rates as a consumer. In fact, the Fair Isaac Corporation that calculates FICO scores estimates that only 0.5% of consumers achieve a score of 850. A score in the 720 range is usually sufficient for securing reasonable interest rates on loans. These strategies won’t instantly cure what ails your credit history, but if adopted by lenders they can certainly be effective in getting your report back on the right track.

Have Questions?

Not all Related Services are offered directly from Larson Financial Group or Larson Financial Securities but may be available through the Doctors Only network of companies. Also this: The information provided is for informational purposes only and should not be construed as a recommendation or advice.”

The information provided is for informational purposes only and should not be construed as a recommendation or advice.

Evaluating a Physician Employment Contract

When we work with young physicians who are getting ready to finish residency or fellowship, it’s common for us to hear:

This is my first real job I’ve ever had.

I have no idea what to look for in a contract.

After spending close to a decade in training and accumulating nearly $180,000 of debt in the process, now comes the critical time when you officially enter your chosen field. When performing a physician contract review, compensation is an obvious starting point but there are other factors that need to be considered as well. Qualitative factors such as will this be a positive work environment that will allow you to reach your career objectives and thrive can be just as important. Many line items in your contract may determine not only how you operate in your professional life, but in your personal life as well.

Physician employment contracts can be lengthy and the underlying language can vary substantially. For example, a university hospital with a research department may want to own any intellectual property that you create. A small practice focused on serving patients may not care about research you do on your own time. You don’t want to just sign a legally binding document that you understand very little of and hope for the best. You need a professional that is capable of boiling down complex legal terminology into language that is easy to understand.

By working with a financial advisor that specializes in physicians, like Larson Financial Group, you’ll:

  • Get access to the latest industry benchmark data to ensure you’re being offered a fair salary, sign-on bonus, and incentive methodology.  Other data points include:
    • CME
    • Vacation Days
    • Retirement Benefits
    • Productivity Metrics (Collections or wRVUs) for your specialty
    • All this broken down Nationally, by Region, by Employer type, and more!
  • Play Good Cop/Bad Cop: you’ve heard this term, but probably not in this context!  By working with a financial advisor who specializes in negotiation, you don’t have to be the one that is asking for a higher sign-on bonus to meet market rates, leave that to us!  This lets you walk in on your first day on the job and not feel like you were “on the other side of the table” as your new employer.
  • Have access to a knowledgeable resource when you have questions on the financial implications related to non-compete/restrictive covenants, liquidated damages, etc.
  • Receive recommendations to expert healthcare employment law attorneys, when applicable.

Compensation and Bonus

Sample Benchmark Analysis – PM&R 2019

First and foremost, it is necessary to understand how each organization measures a physician’s productivity before you can forecast compensation and determine if it’s reasonable.

FOR PRIVATE PRACTICES

Performance incentives are typically based on collections. However, the reimbursements for a procedure vary depending on how the patient will pay for the treatment:

  • Are they enrolled in Medicare or Medicaid?
  • Do they have private insurance or are they paying cash?

Knowing the practice’s current payor mix should help you determine if the incentives for the collections-based model in the contract are realistic. Knowledge of how incoming patients are allocated will also allow you to forecast collections with a greater degree of certainty.

Is there the potential for ownership in the practice in the future? If so, the contract should lay out when the partnership could be offered and how the buy in is structured.

HOSPITAL SYSTEMS

Hospital Systems usually base their performance-incentive model on a measurement of productivity calculated by the Center for Medicare and Medicaid known as RVUs (relative value units). This is different than the collection model run by smaller practices. Your contract should include a conversion formula to specify the dollar amount of each RVU. The Medical Group Management Association (MGMA) has comprehensive data on how many RVUs a physician typically generates in relation to their specialty. Your potential employer should also be able to provide you with an estimate of how many RVUs you can anticipate so you can then determine whether the thresholds for performance incentives in the contract are feasible.

Under the university hospital arrangement, the RVU model is typically preferable to collections if there are performance incentives in the contract because the payor mix in an academic setting is often less than ideal. If you decide to pursue a career in academics, you’ll want to make sure the contract stipulates how your time will be allocated. This will let you set expectations for what percentage of your time will be devoted to research, teaching, treating patients, etc. While the compensation may not be as high for university hospital positions as they would be at a private group, there could be some intangible rewards. If you’re passionate about research and working with students, this route could align more closely with your career objectives.

THE NEGOTIATION

At the crux of financial negotiation of physician employment contracts is ensuring that you are compensated fairly and commensurately for the work you’re providing to your employer.  If you’re able to align your expected productivity with your associated compensated, then we consider this a fair offer.  For example, if you’re looking at the sample benchmark report, we would expect that after being in a job for more than 2 years and, a PM&R physician generating 4,733 wRVUs (Median Work RVUs for this specialty in 2019), would earn an estimated $292,110 (Median Total Compensation) for this specialty.  What we don’t want to see is the expectation that you’re generating 6,017 wRVUs (the 75th percentile) but only getting paid $242,754 (the 25th percentile).

Having access to the data keeps your negotiation and unemotional, a key to improving your offer to match market rates.  Meet with an advisor today to evaluate your contract.

Work Atmsophere

Physicians are in a period of transition when fielding job offers, and as many as 70% of physicians across all specialties change jobs within their first two years. Therefore, it’s important to select a location with a setting that will allow you to flourish professionally. When negotiating the terms of your employment, you’ll want to inquire about the facilities and resources that are at your disposal. There is usually a clause or series of clauses that discuss staff and other items necessary to fulfill the duties of a physician. This will help you determine if you have the space and staffing to meet the group’s productivity expectations. The current technology standards and provided equipment should also be discussed at this juncture.

An employment contract should lay out in black and white where you will be working and what type of schedule you will have to maintain. If you are expected to have evening or weekend clinic hours, this should all be expressed in the language of the contract. If working for a large system with multiple locations, the contract should also specify the exact location and include a clause that guarantees that any changes to your schedule or location will be mutually agreed upon.

What are your priorities?

There are generally three reasons why people choose a job:

    1. Location
    2. Work environment
    3. Compensation.

The perfect job is the one that is strong in all three, but that’s a very rare scenario. Generally, if a job can hit 2 of 3, then it’s worthwhile to take the offer seriously.  There’s no ‘right’ way to view it, it’s just being honest with yourself about what’s important and if this particular job checks those boxes.

Geographic Trends

As with most professions, compensation varies by region. The amount of the signing bonus and when it is given can usually be negotiated. The same can be true for relocation bonuses as well.

Another important benefit is medical malpractice insurance and what happens regarding coverage when employment ends. Many states require physicians to have certain levels of professional liability coverage during the period of time that falls under the state’s statute of limitation in which a suit can be brought. Your contract should specify the type of tail coverage offered.

Even if the contract is non-negotiable, it’s still important to have an understanding of what is being offered and what occurs when the contract is terminated. Depending on the contract termination language, you may be geographically restricted as far as where you can practice. You should know the non-compete rules like the back of your hand, and the non-compete provisions of your spouse if he or she is a physician as well. They can and usually do factor into personal decisions, such as if and when to buy a home.

Physician Contract Review

There are several reasons why you should have your physician employment contract reviewed by an attorney and a financial advisor, and by scheduling time to talk to us, we can help you determine what you need most.

Your attorney can analyze the legality of the document, while your advisor can help to verify that the benefits are reasonable and that the expectations for performance incentives are realistic. Your advisor can also help make you aware of retention bonuses and when they are awarded, so that if you decide to transition to another practice you’ll, be able to time the move so that you won’t lose out on a bonus (or worse, owe money to your former employer).

The value of a written agreement is that it dispels ambiguity and backtracking that cause confusion and perception problems. The best employment contracts establish principles that encourage shared responsibility and collaboration while creating opportunities for innovation, continuous improvement and shared benefits. You have invested far too many resources in your medical training to sign a contract without having it reviewed by a professional.