Loans and debts taken for study,new clinical set up or for expansion eat into a dentist’s income on monthlybasis since we need to invest a lot in today’s time to sit at a work place(clinic) which seems comfortable both to patient and us. Secondly, if we haveloans and EMI’s running into several big thousands and we suffer from poor debtmanagement, we need to act surely and really fast. A realistic plan needs to bedevised which can transform our monthly EMI’s to monthly savings instead.
Asusual, there will be two ways to do this task, either do it ourselves byenlarging our knowledge database or seek the help of a genuine professional a.k.a.the financial consultant to get us back on track. EMI’s take away from both ourday to day income and savings and any acquired extra interest. Loans canseriously jeopardize the investment strategy and put a constraint on theretirement nest egg, thereby reducing our ability to build a fortune. Thebiggest effect will be on the tax outcome as we can’t make use of the tax-effectiveinvestments which ultimately serve a double purpose of growing our wealth andreduce our tax liability over long term.
There are various ways, means and strategieswhich can assist us in converting bad debt (non-deductible) into good (tax-deductible)debt. Working with the wrong financialadvisor All categories of dentists and doctors (beginners to experiencedones) can benefit from working with the right financial consultant andbeginners here means the ones with limited or fewer investments and assets. Oneof the biggest blunders committed by us (dentists and doctors) is retaining thesame financial consultant when our financial situation and practice outgrowsour initial start up and so do our tax planning requirements because that isthe time to change as our financial consultant’s experience also outgrows. Theroutine financial specialist may lack the knowledge and skills to deal with medical/dentalfees and how to add income from multiple sources such as share basis, leasebasis, salary and private practice, out-of-pocket gaps, all clubbed togethereven if they follow one basic method of accounting for us, along with the manycomplexities associated with running a dental/medical practice. This canpotentially lead to us stuck with a heftier tax liability. There is a bigdearth of our field or say medical/ dental financial consultants/specialistswho are knowledgeable about the nuances of allowable deductions for dentists, doctorsand medical specialists. We need those guys who know more about tax-effectivestructures for dentists and doctors like service and investment trusts. Tax regulations are changing all the time and for dentists/doctorswith their own practices and with many income-generating assets, tax returnscan be a minefield.
Due to these shortcomings, some dentists/doctors aretempted to prepare their own tax return but yes, lack of specialist knowledgeof investments can most of the times make us miss out on opportunities forlarge tax savings. We are usually awed by TV ads of mutual funds (Sahi Hai,Yaar), to put in monthly investment as SIP (Systemic Investment Plan), butwhich fund, which types, how much amount, we don’t know. That is where we peepon our friends’, neighbours’ and colleagues’ investment portfolio withoutknowing their actuality of funds and tax structure and believe me friends, thatis a very big hole to fall in.
Your tax return should ideally be completed by afinancial advisor or tax specialist with niche knowledge about our field(dental/medical). Some dentists/doctors (who make their own returns)neglect to claim small deductions which can gradually add up to large taxsavings over the course of the whole financial year. Remember, you can claim adeduction on everything from hiring a chartered accountant or financialconsultant to professional membership fees, if we are going the conventionalway and not the Section 44ADA way as explained in the last issue of i-dentistry.Smaller deductions usually include work-related car expenses, home-officeexpenses.
Often it’s just a matter of the implementing the right record-keepingprocesses to generate accurate deduction amounts for these items; work withyour accountant or financial advisor to ensure you’re getting the most out ofyour tax deductions. Dentists and Doctors also need sound financial advice just as much asanyone else, but they may be stumped about where to go to find it. We usuallyhave many patients in the form of financial salespersons banging down ourdoors, but these people may not have the best interests in mind. As I mentionedin the last issue, we the dentists or doctors tend to assume that we are ableto make sound financial decisions just because we are qualified to save teethand lives respectively, but at the cost of repetition, we know by now that thisline of logic is faulty and we the dental and the medical professionals lackacumen in this area and desperately need find a financial consultant who cansail us through in torrid times.