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Creating an efficient, minimal tax burden first year out of residency.

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  • Creating an efficient, minimal tax burden first year out of residency.

    I will be graduating June of this year and taking a W2 partnership track job. In the first year, I will make 125k in salary for the first 6 months. It's a for profit group, so 403/457 are off the table. That is after employer payroll tax, maximum 401 contributions, health insurance contributions, short term disability, dental, vision, malpractice, life contributions. A half of a year of 2022 residency gross income is ~ 30K, and my spouse makes 45k per year.

    That gives us a 2022 income of ~200,000K joint and 45k / 155k if filing separate.

    Unfortunately, even if we filed separately for this year, only my spouse's income would be eligible for a traditional IRA. That would potentially save us another 6K.

    I can maximize my 401K contribution (as can my spouse), and we can both funnel into HSA/dependent care FSA with a child in the house. That could reduce our tax burden significantly, by up to 50K (20,500 401K x2, family HSA 7,250, dependent FSA 2,750), reducing our tax burden to somewhere near 140K. Depending on moving expenses, medical expenses etc, I cannot imagine even with itemized deductions we could drop below the 22% tax bracket. At the end of the day, the most ideal deductions probably puts our taxable income at ~ 110K.

    This particular situation is a little unique, but not entirely unheard of since most residency graduates have a half year of taxable attending income on their first return. But that's why I came to you guys. Are there any other unique loopholes that are commonly used to minimize tax burden? I know child care tax credits on the back end will also help, just looking for every way to reduce taxes and maximize our retirement savings. Thank you all!

    Edit: for clarity sake, the employer paid payroll taxes provided by the group are $12,851, so that goes towards the tax burden as well.

  • #2
    What part of your situation is unique? Max out all of your available pre-tax and tax-advantaged accounts. There's no unique loopholes. That's about all there is to it.

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    • #3
      Originally posted by CordMcNally View Post
      What part of your situation is unique? Max out all of your available pre-tax and tax-advantaged accounts. There's no unique loopholes. That's about all there is to it.
      I meant the W2 for profit and benefits scheduling were somewhat different than what I was accustomed to seeing on here. Didn't mean to imply otherwise.

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      • #4
        If you have unallocated money, this is your year to do a Roth conversion at the lowest tax bracket you’ll be at for the foreseeable future. You will pay more tax, but worth it for the tax free future growth.

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        • #5
          Welcome to the world of high marginal tax brackets. 22% will seem low in 2023. The only alternative is to make less money.

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          • #6
            Originally posted by Bmac View Post
            Welcome to the world of high marginal tax brackets. 22% will seem low in 2023. The only alternative is to make less money.
            Or to do something like contributing to a DAF, but I never recommend spending money to save on taxes unless that is already a planned goal.
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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