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All money going to Federal and State Taxes living in CA- help

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  • All money going to Federal and State Taxes living in CA- help

    Hi, I have S-corp for own private practice and hubby has K1 as physician. Feel like the money that is saved goes to retirement accounts, taxes, some saving accounts only. We only have 2 properties after working 10 plus years. 40% of our income still goes to taxes. We already have 401k and money we are putting away into retirement regularly. To older physicians or physicians doing well, does buying real estate really help you save tax? What investments do you make in order to lower your tax bracket? I don't see the light at the end of the tunnel or the end of working so hard day to day. Please advise. thanks.
    Last edited by [email protected]; 06-15-2021, 07:47 AM.

  • #2
    Moving would help your tax situation, obviously, and there may be some low-hanging fruit you're missing, so take a look at all the common and not-so-common ways to legally lower your tax burden.

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    • #3
      There's more to wealth (perceived or not) than buying houses. It's not unusual for medical professionals outside of California to make more money and enjoy a lower cost of living. Comparing yourself to your friends may or may not be a reasonable comparison. My suggestion would be not to compare your financial well being to others and concentrate on what you can do for your specific situation.

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      • #4
        Maximizing number of houses owned seems like a really weird goal to have.

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        • #5
          No buying real estate doesn't help you save on income taxes at either federal or state level because you are not a real estate professional. You are a medical professional and the tax breaks in real estate are mostly for the real estate professional. The reason to own rental property is to give you tax advantaged income from them because of depreciation but the depreciation loss only applies to other passive income, not your medical income. To lower your taxes on your medical income you'll have to employ geographic arbitrage to a low tax state.

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          • #6
            First, I would say it is best to focus on your savings/retirement goals not compare to others. So many things can be different. I know physicians that make $200k and physicians that make $2 million (obviously outliers but still there is a large range in physician income). Depending on where you live in California, you may have much higher living expenses beyond taxes compared to your friends in other states.

            Make sure you are doing what you reasonably can to lower your tax liability but don't let taxes dominate your life. There is only so much you can (legally) do with regards to taxes. The purpose of investments is to make money (ideally in a tax efficient way) not to lower your overall tax liability.

            You feel like there is no light at the end of the tunnel. If you haven't recently I would encourage you and spouse to sit down and look over your retirement portfolio. Where are you at now? What are your goals for retirement? Then figure out what you need to do to achieve those goals.

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            • #7
              There is no question , that there advantages in the tax code for investment properties. But that being said, owning several houses for your own use or business use comes with all sorts of issues. Personally I have I one property which is the building I practice out of , for me it makes sense from a financial point of view. But every time something breaks or leaks it is my problem to fix. I would not want to multiply that times 8 or I would need some one else to take care of the problems because I am busy enough , that I do not want to unclog toilets in my free time.

              I think it has been said several times on the forum, geography of practices does make a difference in finances. I personally chose to practice in a the suburbs , in a low cost state and low cost area (relatively speaking) as a primary reason for location. We are happy with the area and we feel we live well and save enough. Making an above average income in lower cost area has its advantages but it is not for everyone.

              The only way to legally lower your tax bracket is to make less money.

              You are the one who chose what you do and where you live, so I wouldn't compare yourself to others. You are one of a select few Americans that does well and life, be happy and enjoy what you have.

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              • #8
                you don't live in CA for the low tax burden.

                CA, like so many places in the USA (e.g. all places), is a mix of positives (climate, culture, travel, diversity, outdoor activities) and negatives (VHCOLA, taxes).

                the taxes are unlikely to go down, if you are having a hard time paying them it's probably time to look at other options.

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                • #9
                  Austin tx sounds like a possible solution to your ills.

                  Can't escape the taxman.

                  Lower tax mechanisms via real estate as others mentioned cannot be accomplished effectively as your have no why to capture depreciation as a dual income household -- to qualify for professional real estate with one of the spouses.

                  Quit a job and become RE prof. That is the solution if your are measuring success by direct home ownership.


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                  • #10
                    Originally posted by MPMD View Post
                    you don't live in CA for the low tax burden.

                    CA, like so many places in the USA (e.g. all places), is a mix of positives (climate, culture, travel, diversity, outdoor activities) and negatives (VHCOLA, taxes).

                    the taxes are unlikely to go down, if you are having a hard time paying them it's probably time to look at other options.
                    But if thinking in terms of legacy, one potential tax advantage is passing on a lower property tax bill to children (saves Jeff Bridges $300k per year on a home his parents bought in Malibu).
                    “. . . And the LORD spake, saying “First shalt thou take out the Holy 401k. Then shalt thou save to 20%, no more, no less. 20% shall be the number thou shalt save, and the number of the saving shall be 20%. 25% shalt thou not save, neither save thou 15%, excepting that thou then proceed to 20%. 30% is right out . . .””

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                    • #11
                      blippi. are you referring to Trust?

                      But if thinking in terms of legacy, one potential tax advantage is passing on a lower property tax bill to children (saves Jeff Bridges $300k per year on a home his parents bought in Malibu).

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                      • #12
                        No trust. Controversial state law. Propositions 13 and 19 in particular.


                        laws intended to limit taxes and help ppl stay housed in california as they age, with plenty of unintended consequences.

                        I believe most recent change requires the child to live in the home (cut down on using it as cheap investment property for out of state kids) and some other restrictions.
                        “. . . And the LORD spake, saying “First shalt thou take out the Holy 401k. Then shalt thou save to 20%, no more, no less. 20% shall be the number thou shalt save, and the number of the saving shall be 20%. 25% shalt thou not save, neither save thou 15%, excepting that thou then proceed to 20%. 30% is right out . . .””

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                        • #13
                          While income taxes are high in CA the overall burden isnt as high as you'd think, especially for high income folks. Property taxes are low. Texas will crush you for owning something half nice, etc...

                          Moved to KY from CA and while taxes are slightly lower, its not game changing. There is a flat tax rate, a city rate and a county one, and it all adds up. You cannot just look at headline stuff, especially as high income.

                          I think the tax stuff is mostly overdone, look at NE or MN, crazy, and for what?

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                          • #14
                            Originally posted by blippi View Post
                            No trust. Controversial state law. Propositions 13 and 19 in particular.


                            laws intended to limit taxes and help ppl stay housed in california as they age, with plenty of unintended consequences.

                            I believe most recent change requires the child to live in the home (cut down on using it as cheap investment property for out of state kids) and some other restrictions.

                            The big new change is that with the prop that passed the tax base is adjusted when passed to heirs with an exception for 1 million. Meaning that mom bought a house for 500k which is now work 3.5 million. Her current tax base is 1 mil from years of 2% raises (prop 13 limit). When her heir receives the property, it is reassessed and the new tax base is market value minus 1 million (or the previous tax base, whichever is greater), so 2.5 million.

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                            • #15
                              move

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