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  • Paying too much income tax

    I am paying in the high 30's % income tax. Single, no kids. I have heard other physicians paying in the 20's. What are the common and obviously legal ways to reduce my tax burden? I am employed by a hospital.

  • #2
    Earn less money.

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    • #3




      Earn less money.
      Click to expand...


      That was my knee jerk reaction followed by...

      ”The only thing worse than paying taxes is not having to pay taxes.”

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      • #4




        I am paying in the high 30’s % income tax. Single, no kids. I have heard other physicians paying in the 20’s. What are the common and obviously legal ways to reduce my tax burden? I am employed by a hospital.
        Click to expand...


        You can get married and have kids, but then you'll just be watching that money go elsewhere anyways.

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        • #5
          Your EFFECTIVE tax rate is high 30s? Move somewhere with no state income tax and work less.

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          • #6
            I'm in a zero income tax state and I pay over 30% federal myself.

            There are not a lot of options for an employed physician.  The only solution that I can think of is a side business.  There are a lot of ways you could go with that strategy.  Some are more kosher than others.

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            • #7
              Aside from maxing out retirement accounts (403b, 457, and HSA) there really isn’t much a W2 employee can do, especially if you live in a high income tax state as well. Other things people sometimes suggest, like buying a huge house to get more mortgage interest deduction or getting married and having kids, are all things that cost more money to get the small tax deduction, but may be worthwhile if you were going to do them anyway. Don’t let the tail wag the tax dog, in other words.

              You can always work less, which is something I’ve considered, but for now it seems probably better to plug away at paying off debt and socking away money—making hay while the sun shines.

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              • #8
                This is a 1% problem.

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                • #9
                  How are you calculating your "income tax percentage" figure? TurboTax uses "effective tax rate" to be tax paid as a percentage of AGI. But that's maybe not the best number, since part of the effort to reduce your tax would include reducing your AGI, and conversely, it's not great because tax is levied on taxable income so messing around with any gross figures will throw off your percentage relative to the tax tables. Maybe you want to take the "total tax" (line 63 of form 1040) divided by "taxable income" (line 43). Maybe you want to take just the regular federal tax (line 44 + 45) divided by total income (line 22.) Or maybe you want to take your total state and local tax and FICA (including employer portion if applicable) and regular tax and divide all of that by your federal AGI? Or your AMT-adjusted AGI? Or your total TOTAL income including business gross (if applicable)?

                  There are probably as many ways to calculate effective tax rates as there are people in this forum, TBH.

                  I think the dead horse about reducing taxes by decreasing income or increasing personal exemptions has been pretty well beaten. But my vote is to get a big mortgage with high interest.

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                  • #10
                    Conservation Easement is possible.  It's an aggressive tax shelter that lets you buy (usually a share) of a piece of land, place a binding easement on that land that reduces the value of it, and you can deduct the difference in appraisals, which can be a multiple of what you paid.

                     

                    Mostly though, being a high earning employee has some drawbacks, but not nearly as many as not being a high earning employee.

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                    • #11
                      To echo everyone else, there aren't many free lunches.  I think residents, who pay little income taxes, underestimate the importance of state taxes in choosing where to practice as an attending.  It matters a lot when you're trying to decide between Washington and Oregon, or New Hampshire and Vermont.

                      I'd only work the bare minimum at your hospital that your contract and benefits eligibility requires, and if you're still hungry for work, devote that energy to a side gig or locums.  Also if you have a taxable account, pay attention to the tax efficiency of what you invest there.

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                      • #12







                        I am paying in the high 30’s % income tax. Single, no kids. I have heard other physicians paying in the 20’s. What are the common and obviously legal ways to reduce my tax burden? I am employed by a hospital.
                        Click to expand…


                        You can get married and have kids, but then you’ll just be watching that money go elsewhere anyways.
                        Click to expand...


                        Not sure that helps much. My buddy is married with 4 kids and her effective tax rate is only a few percent less than mine, in the low 30's

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                        • #13




                          Your EFFECTIVE tax rate is high 30s? Move somewhere with no state income tax and work less.
                          Click to expand...


                          yes and I am not joking

                          Comment


                          • #14




                            I’m in a zero income tax state and I pay over 30% federal myself.

                            There are not a lot of options for an employed physician.  The only solution that I can think of is a side business.  There are a lot of ways you could go with that strategy.  Some are more kosher than others.
                            Click to expand...


                            Any tips or ideas on the legal methods? PM if needed please.

                            Comment


                            • #15

                              1. Work less at main job and set up side business to fund a 2nd 401k and deduct proportionate amounts of expenses that you are otherwise not able to deduct.

                              2. Fund a DAF if you are already charitably inclined. Contribute to it in the years your income is higher and make donations from the DAF in the years your income is lower.

                              3. Negotiate to substitute part of your salary with an accountable plan. You are reimbursed for employee business expenses in lieu of an extra $5k/yr of salary, for example.


                              Of course, the above suggestions are highly dependent upon your specific situation and personal goals. Your tax bill should go down this year, in most cases, if that helps any. I'm not a fan of working less solely to pay less taxes or buying a piece of property that you otherwise wouldn't buy just for the writeoff. In the numbers game, the top priority is long-term growth of wealth.
                              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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