It seems that with the annual arrival of autumn, I am approached by clients with the same question: Where can they find an end of year tax deduction? As many chiropractors know, like the inevitable changing of the season, itself, December 31s' marks the end of the tax year. Business owners, professionals and independent consultants, who have had the good fortune of a profitable year, all look to their tax planners for tax planning opportunities. In this issue we'll look at one of my favorite tax-deductible options—specialty products that provide multiple benefits. An Overview of Tax Deductible Supplemental Casualty Insurance Products with Refund of Premium Features Business owners and professionals have long searched for compliant options to garner tax deductions, tax deferral, privacy and asset protection. For many, the answer is supplemental malpractice, disability and business risk policies with a powerful refund of premium feature. Programs like these generally allow for a fully deductible contribution, with nearly the entire premium invested, tax deferred, into the protected accounts of the supplemental insurance carrier. Depending on the insurance carrier, these reserves are safe from creditors, totally private, and grow tax-free. Investments may include a range of philosophies from guaranteed US government backed securities to low cost index funds. Unlike qualified plans, such as IRA's, 401K's and Profit-Sharing Plans, business owners can do this for themselves, exclude employee participation, and avoid being subjected to the high degree of rules and regulations. After a few years, premium payers receive a refund of their unused premium and receive as much as a 94%-refund of premiums, plus tax deferred earnings. They may also elect to continue deferring until a time that better suits them. In the interim, the program assets have been unassailable by creditors, and very private. When comparing to an after-tax investment, these supplemental policies, depending on claims experience and investment under a conservative US Treasury-backed philosophy, can provide an effective rate of return of 14% or more. Continued on Page 50 ...from Page 43 Summary With the close of this tax year, thousands of chiropractors anticipate the need to evaluate their options and select the most appropriate strategy for tax deductions. Often, a prudent method is to diversify holdings in a number of different programs, such that, if one already has a pension or an IRA, they should strongly consider a Refund of Premium program. *A11 projections are hypothetical and are not guaranteed. **$94,000 net investment after policy fees, 12% gross tax deferred yield less typical 1.2% investment advisory and custodial fee for net 10.8% tax-deferred. Recovered funds must be reported as taxable income upon receipt. ***$55,000 net investment after 45% state & federal income tax, 12% gross taxable yield less typical 1.2% investment advisory and custodial fee, less assumed blended long- and short-term capital gains tax rate of 33% with a net yield of 7.23%. David Gagnon, CPA, CFS, RFC, CSA provides wealth management planning to professionals, businesses and athletes, ana\ has member offices throughout the United States. He can be reached at 302-678-4600
