1. Open a Health Savings Account (HSA). In 2009, you can set aside up to $5,950 for your family’s medical expenses and never pay a dime of tax on that money. That’s right. You make contributions to the HSA on a pre-tax basis, meaning you don't pay federal income tax, FICA tax or state income tax. Earnings on the HSA grow tax-deferred. Withdrawals from the HSA – as long as you use them for healthcare expenses – are tax-free. To have a Health Savings Account, you must be covered by a "high deductible health plan" (HDHP) and you must not be covered by any other traditional health insurance or Medicare. Still, it's one of the best, legitimate tax savings tactics available to physicians. (Note: Doctors and spouses 55 or older can make additional tax-deductible "make up" contributions of $1,000 each in 2009.) Tax savings: ~$3,000

2. Buy a clean, green driving machine. Want to save money, taxes, and the environment, too? Physicians who buy a hybrid car this year become eligible for a tax credit ranging from $1,700 to $3,000 (a dollar-for-dollar reduction of your tax bill). Whether it’s a Ford Escape hybrid, Honda Insight, or Honda Civic hybrid (Toyota Prius is not eligible), the combination gas-electric motor will make you feel better about your daily commute to the clinic and save you money. Tax savings: ~$2,500

3. Put your kids and your capital to work for the long haul. If your child is at least 6 years old, you can put them to work in your practice. The first $5,700 in earnings for 2009 is federally tax-free, so you might contribute up to $5,000 of their earnings to a Roth IRA where it can grow tax-deferred and be withdrawn tax-free by your children when they retire. Imagine, contributions of $5,000 per year from age 6 to age 18 with the chance to grow tax-free for 45 more years and never be taxed! That’s a huge leg up on retirement for your kids. Be sure to document their labor and pay an appropriate wage for services rendered. Tax savings: at least $2,500

4. Teaching class? Learn about SEPs. We see plenty of physicians who work locum tenens or teach classes sponsored by pharmaceutical companies. Some of these docs are not covered by a 401(k) or they’re self-employed and don’t want the trouble of setting one up. If this sounds like you, you can still set up a SEP-IRA before December 31 to qualify for a 2009 tax deduction. Depending on how much you earn, you might easily contribute up to $46,000 for 2009. (Sole proprietors can contribute to a 2008 SEP-IRA up until the time they file their tax return in 2009.) Tax savings: ~$20,000

5. Add a non-earning spouse to your practice payroll. If you’re self-employed or if your group practice will allow it, paying your spouse a meaningful wage for services rendered to the practice will open up an opportunity to save taxes by allowing him/her to contribute to a SIMPLE-IRA (up to $11,500 in 2009, or $14,000 if age 50+) or 401k ($16,500 in 2009, $22,000 if age 50+). These retirement plans also add asset protection features that may prove helpful to families with physicians practicing in high risk specialties. Make sure to document duties and services performed, and pay an appropriate wage. Tax savings: ~$7,000

6. Give your gains grief to charity for good. If you ordinarily donate cash to charities, and you own real estate, stocks, bonds, or mutual funds that have appreciated in value, first consider yourself fortunate, and then consider an in-kind gift to charity instead of cash. For example, if you own 100 shares of the XYZ Fund that you bought at $50/share, and now it’s worth $75/share, you’ll owe tax on the gain of $2,500 if you sell. But if you gift the XYZ shares to charity, you’ll not only sidestep the capital gains tax; you’ll also get a tax deduction for your gift. And don’t worry, qualified charities won’t owe taxes on your gift since they’re non-profit organizations. Tax savings: varies depending on size of gift

7. Turn your losing investment into a winning tax move. Have you made an investment you wish you hadn’t? If you’ve lost $3,000 or more on an asset like a stock or mutual fund, you can sell before year end to “recognize” the loss, and offset up to $3,000 worth of ordinary income this year. If you lost more than $3,000, you can “carry forward” your losses into 2009 to offset gains or offset $3,000 more of income. Tax savings: ~$1,000

8. Take interest in your debts. If you have auto loans, credit card debt, or other consumer debt, or if you have student loans and you earn too much money to take the student loan interest deduction, consider refinancing these debts using either a second mortgage or a home equity line of credit (HELOC). For most physicians, interest on the first $100,000 of “non acquisition home equity indebtedness” (loans against your house that you didn’t use to buy the house) can be taken as itemized deductions, and could save you several thousand dollars in taxes. Also, HELOCs and second mortgages tend to bear lower rates than consumer debt. Be certain to stay current on payments to avoid foreclosure. Tax savings: ~$500/year

9. Contribute to your IRA . . . again. Remember the good old days in residency when you worked your tail off and made so little that you could actually deduct your IRA contributions from your tax returns? Well, those days are gone forever but you can still make non-deductible contributions to a traditional Individual Retirement Account. Physicians under age 50 can contribute $5,000 to an IRA for themselves and an additional $5,000 for a non-earning spouse (make that $6,000 if you’re 50+). The earnings can grow tax-deferred, and you can convert the accounts to tax-free Roth IRAs beginning in 2010. (You can make a 2008 contribution up until the time you file your taxes in 2009.)

Ben Utley CFP® is the Physician Family Financial Advisor. As an independent, fee-only financial planner, he works with physician families who want to build, maintain and enjoy financial security that can last a lifetime. Contact Ben by phone at 888-465-0899 or visit his website: www.physicianfamily.com.