TAKE HOME MORE OF WHAT YOU MAKE: BEST PRACTICES IN TAX REDUCTION FOR PHYSICIAN OWNERS OF ASCS

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1 TAKE HOME MORE OF WHAT YOU MAKE: BEST PRACTICES IN TAX REDUCTION FOR PHYSICIAN OWNERS OF ASCS PRESENTED BY: DAVID MANDELL, JD, MBA Principal, OJM Group

2 DISCLAIMER OJM Group, LLC ( OJM ) is an SEC registered investment adviser with its principal place of business in the State of Ohio. SEC registration does not constitute an endorsement of OJM by the SEC nor does it indicate that OJM has attained a particular level or skill or ability. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which such notice filing and registration is required. OJM may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. For additional information about OJM, including fees and services, send for our disclosure brochure using the contact information provided in this presentation or refer to the Investment Adviser Public Disclosure web site ( Information contained in this presentation has been obtained from sources we consider reliable, but its accuracy is not guaranteed. Any opinions expressed are based on the interpretation of data available to OJM and are subject to change at any time without notice. This presentation is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security or the rendering of investment advice. No client or prospective client should assume that any information presented or made available on or through this presentation, is a receipt of, or a substitute for personalized investment advice. Such advice may only be rendered after the following conditions are met: 1. delivery of our disclosure brochure to you, and 2. execution of an Investment Advisory and/or Financial Planning Agreement between us. This presentation contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this presentation will come to pass or that any particular investment strategy or asset class will be profitable.

3 DISCLAIMER OJM is not engaged in the practice of law and does not provide legal advice. Always consult with an attorney regarding your specific legal situation. The information contained in this presentation is general in nature and should not be acted upon in your specific circumstances without further details and/or professional advice. OJM Does not provide tax advice. Contact your personal tax advisor for specific advice related to your tax situation. These recommendations are not intended as a thorough, in-depth analysis of specific issues nor are they sufficient to avoid tax-related penalties. OJM Group, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of this information. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance of any specific investment, investment strategy or product made reference to directly or indirectly by OJM Group, LLC will be profitable or equal the corresponding indicated performance level(s). Please refer to the insurance company s statement for specific details and current values. Please refer to the insurance company s full illustration which is not a guarantee and makes multiple assumptions that are not guaranteed. This statement is meant to be an approximation based on information provided by the insurance company. OJM Group is not affiliated with any insurance company.

4 OJM MATERIALS FREE TO ATTENDEES

5 ABOUT DAVID

6 TODAY S AGENDA Overview of new tax law - corporate Using qualified and non-qualified plans to reduce tax and protect assets Discussion of tax diversification Primer on captive insurance companies Tax issues in retirement

7 CURRENT TAX LAW Implications for you and your medical practice

8 BUSINESS PROVISIONS: HIGHLIGHTS 21% corporate tax rate for corporation tax years beginning after 12/31/17 Alternative minimum tax is repealed for corporations Immediate 100% expensing for the purchase of business equipment for equipment placed in service after 9/27/17 and before 1/1/2023 Raises the depreciation cap on luxury autos Sets the limitation for Section 179 expensing at $1 million annually Limits NOL s to 80% of taxable income Repeals deduction for any activity deemed entertainment, amusement or recreation including club membership dues

9 PASS-THROUGH BUSINESS INCOME There will be a 20% deduction against qualified business income of pass-through entities (S corps, partnerships, sole proprietorships) Deduction amount will be the lesser of: 20% of the taxpayer s qualified business income; or The greater of 1) 50% of W2 wages paid with respect to the business or 2) the sum of 25% of the W2 wages paid plus 2.5% of unadjusted basis of all qualified property Specified service businesses (accountants, attorneys, doctors, etc) are excluded from the deduction unless under the $315,000 / $157,500 taxable income thresholds Look at this business-by-business (LLC taxed as partnership for real estate)

10 ESTATE TAXES Estate tax exemption and gift tax exemption are generally doubled from $5 million per individual to $10 million as indexed for inflation occurring after 2011 for decedents dying after 12/31/17 and before 1/1/2026. For 2018, the exclusion amount is $11.2 million. Be aware of state estate and inheritance taxes. Sunsets back to $5 million in 2026

11 TIME TO RE-EVALUATE Business-by-business Analyze which type of entity is best for you. You can easily convert from one tax treatment to another (so long as you haven t already changed from an S to a C within 5 years). Multiple entities may be beneficial if a non-service business is in the structure.

12 CONCLUSION: CORPORATE STRUCTURE Do you know why you employ your existing corporate structure? Have you re-evaluated under new tax law? If you would like to save taxes in 2018 and beyond, while protecting assets, does it make sense to examine a different structure, including a multi-entity structure?

13 BENEFIT PLANNING: YOUR OPTIONS TO REDUCE TAXES AND BUILD WEALTH

14 WHAT IS A RETIREMENT PLAN? For many clients, they mean a qualified retirement plan (QRP) Many different types At OJM, we see a QRP as one bucket in a multi-bucket plan Other benefit plans, after-tax assets, securities/real estate, other asset classes Tax diversification is key

15 TAX DIVERSIFICATION 39.6 Federal State + 3.8% ACA 50% Tax Withdrawal: $100,000 Less Taxes: $50,000 Net After Tax: $50, Federal State + 3.8% ACA 30.4% Tax Withdrawal: $100,000 Less Taxes: $30,400 Net After Tax: $69,600 0% Tax Withdrawal: $100,000 Less Taxes: $0 Net After Tax: $100,000 *Once funded, the policy values grow tax-deferred and can be accessed tax-free under normal life insurance tax rules IRC Secs. 72(e)(1) and 72 (e)(5)(c)

16 QRP GROUND RULES Two different categories Asset protection is excellent Must cover all eligible employees Full deduction for contributions/income taxation on withdrawals Penalties on withdrawals before 59 1 / 2 Funds left in estate taxed up to 70%

17 QRP: DEFINED CONTRIBUTION PLANS IRS defines the contribution amount 401(k)s, 403(b), and 457 plans 18,000 employee deferral amount PS: Defined contribution maximum $55,000 Flexibility on funding No penalties for underfunding or termination Proper plan design is key

18 QRP: DEFINED BENEFIT PLANS Actuarially-determined contribution amount Clients contributing $200,000+ annually Employee costs can be high Penalties for underfunding or termination Planning design/commitment is key

19 SEP IRAs Similar rules to the defined contribution plan $25% or $55,000 whichever is less Flexibility on funding Asset protection not as strong in some states as with QRP

20 QRP GROUND RULES: REVISITED Full deduction for contributions/income taxation on withdrawals You are trading today s tax rates for tax rates in retirement QRPs are a bet that your tax rate will be lower (or at least the same) as it is today: Do you believe this? Value of tax deferral is significant Example: Charles Mandell, MD

21 Top Marginal Federal Income Tax Rate > QRPS: A GOOD BET TO TRADE TODAY S DEDUCTION FOR TOMORROW S TAX? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Year >

22 TRADING ORDINARY INCOME FOR CAPITAL GAINS TAXES Nearly all clients use after-tax investments as part of their retirement plan Securities Closely-held businesses, artwork, commodities Real estate Rents taxed as Ordinary Income Sales may trigger depreciation recapture (ordinary income) Home: special tax treatment

23 Top Federal Capital Gains Tax Rate > WHAT WILL CAPITAL GAINS RATES BE? 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% Year >

24 USING BENEFIT PLANS TO HEDGE YOUR LONG-TERM TAX BET Roth IRA Contributions after-tax; tax free growth and distributions Non-qualified plans; 162 bonus plans Contributions after-tax; tax free growth and distributions Life Insurance as a retirement plan

25 NON-QUALIFIED PLAN AS OPTION No limitations on contributions reasonable compensation In addition to 401k, profit-sharing, pension Owners can vary how much/if they participate Employee participation not required No tax deduction, tax-free growth and on withdrawal Ideal hedge against future income/cg tax increases Next 7 years: Ideal time for funding Non-Q plans

26 ASSUMPTIONS FOR CASE STUDY Example taken from Actual OJM Group Client: 45-Year-Old Male Ohio Resident $100,000 Annual Contribution for 10 Years Growing at 6.5% annual gross rate of return Investment management fee of 1% Assuming taxed at 20% Short Term Rates/ 80% Long Term Rates 39.6% Federal & 6.0% State 20% Long Term Capital Gains & 3.8% ACA Tax Distributions at age 65 for 20 years

27 NON-QUALIFIED PLAN AFTER-TAX RETIREMENT DISTRIBUTION $4,000, $1,542,329 $3,500, $3,000, $2,500, $2,204,251 $2,000, $1,500, $3,746,580 $1,000, $500, $0.00 After Tax Investment Non-Qualified Plan

28 NON-QUALIFIED PLAN TAXES AND FEES VS. POLICY EXPENSES $1,400, $1,200, $844,300 $1,000, $800, $600, $1,193,099 $400, $348,799 $200, $0.00 After Tax Investment Non-Qualified Plan

29 CONCLUSION: BENEFIT PLANS Realize the tax bet of QRPs. Make sure your QRP is maximized, if you have one. Understand personally-held assets like securities and real estate are subject to capital gains taxes. Consider other benefit plans/buckets which are hedged against ordinary income and capital gains tax rate increases.

30 SMALL CAPTIVE INSURANCE COMPANIES: POWERFUL BUSINESS STRUCTURES IN A MURKY TIME

31 SMALL CAPTIVE INSURANCE COMPANIES Asset protection Risk Management Presently uninsured risks Excess, deductibles, litigation expense, etc. Taxation $2.2 million non taxed premium income 831b (increased in 2017) Certain CICs formed in Puerto Rico have other benefits, so may not need to qualify for 831b Time of increased scrutiny, tax court cases Working with conservative, experienced advisors more important than ever

32 CAPTIVE INSURANCE COMPANY OWNERS Provides insurance coverage for various risks OWNERS CIC PRACTICE $$ for Insurance Premiums CIC

33 KEY ROLES Law Firm / Insurance Manager / Actuarial Firm Handle the formation of the CIC, its tax treatment, all tax and legal issues related to the transaction on an ongoing basis Make sure that the CIC is compliant with all state insurance department rules and procedures on an ongoing basis Draft all insurance policies by the CIC to practice and related entities and value the proper pricing of each policy Represent the client in any audits by the state insurance department or the IRS OJM Group Manage the CIC reserves from an investment perspective Propose, explain and implement any benefit plans for the CIC s owners and executives

34 CONCLUSION: SMALL CAPTIVES Does your practice have litigation, economic, regulatory and other risks not covered by insurance or present policy exclusions? Would you be interested in a tool that provides tremendous risk management, asset protection, and possible tax benefits? Many taking a wait and see approach with tax court cases and audits in process.

35 TAX ISSUES IN RETIREMENT

36 DISTRIBUTION PLANNING Where to take income from each year? Tied to tax diversification: flexibility is crucial 3 bucket strategy

37 RESIDENCY PLANNING What qualifies as residency for SALT purposes Match.com case: the dog controls

38 BEST RETIREMENT LOCATIONS: TAXES Most Tax-Friendly Tax-Friendly Mixed Not Tax-Friendly Least Tax-Friendly SOURCE: kiplinger-tax-map/index.php

39 KIPLINGER S METHODOLOGY

40 BEST RETIREMENT LOCATIONS: TAXES ON BEER SOURCE:

41 WINNER: WYOMING!

42 HOW OJM WORKS WITH PHYSICIANS

43 ABOUT OJM GROUP Unique, fee-based wealth management firm 1,000 physician clients in 48 states Multidisciplinary; three divisions Corporate and personal planning

44 OJM Group on VuMedi.com Go to VuMedi.com to sign up for your free account. Visit the OJM Group channel to view additional content 44

45 NEXT STEPS GET A FREE COPY OF: Wealth Management Made Simple Wealth Protection Planning for Orthopaedic Surgeons and Sports Medicine Specialists Risk Management for the Practicing Physician Or one of our other books referenced earlier in this presentation FREE CONSULTATION CONTACT DAVID MANDELL, JD, MBA mandell@ojmgroup.com To receive your free book or ebook for Kindle or ipad: Visit and use promotional code ASC2018 at checkout.