Tax-saving for residents

[EMIM2011]

Looking for advice on how to save taxes during residency. I am paying almost 30% (federal and state)...

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[dav86]

Looking for advice on how to save taxes during residency. I am paying almost 30% (federal and state)...

Contributing to pretax retirement accounts (401k, 403b, 457b, IRA) would be the easiest way and a significant way to no only save for the future but save in taxes. I also recommend contributing to the a ROTH IRA as a resident since you likely won't be able to as a staff. Other ways are paying 2500 dollars a year on your student loan interest because you are able to deduct that from your taxes.

 

[TexasPhysician]

Flex account for healthcare expenses, IRA, start a business and take business deductions.

 

[sazerac]

Contributing to pretax retirement accounts (401k, 403b, 457b, IRA) would be the easiest way and a significant way to no only save for the future but save in taxes. I also recommend contributing to the a ROTH IRA as a resident since you likely won't be able to as a staff. Other ways are paying 2500 dollars a year on your student loan interest because you are able to deduct that from your taxes.

If the goal is to reduce taxes during residency, then make tax-deductible contributions to a Traditional IRA not a ROTH IRA. I'm not saying this is a good idea in the long run, but the question was how to reduce taxes now in residency.

Also, for all intents and purposes there are no income limits to Roth IRAs anymore, because a high income individual can contribute to a traditional IRA and then convert it to a Roth. While there are income limits to direct Roth contributions, there are no income limits on contributions to Traditional IRAs nor conversions from Traditional to Roth. The conversion could be done the very next day.

 

[sazerac]

Also, have children. Lots of children. You will save a fortune in income taxes. The government might even start paying you!

 

[DrMidlife]

You can't just take deductions on deductible expenses. You have be itemizing a list of deductions greater than your standard deduction that everybody gets. I haven't looked at the standard deduction in a long time but I remember it being around $2500. Where I'm from there's usually no point in itemizing until you have a mortgage (because of the interest deduction).

Also don't go nuts over nickels & dimes. If you save $300 in taxes but you have to pay a CPA $300, so what.

And don't become an angry old fart prematurely. You're not paying 30% on your $50k salary, it's less because of the standard deduction and other things. Save your rage about taxes until you're actually making some money. You drive on roads, yes? Time to pay for the privilege.

 

[TexasPhysician]

You can't just take deductions on deductible expenses. You have be itemizing a list of deductions greater than your standard deduction that everybody gets. I haven't looked at the standard deduction in a long time but I remember it being around $2500. Where I'm from there's usually no point in itemizing until you have a mortgage (because of the interest

And don't become an angry old fart prematurely. You're not paying 30% on your $50k salary, it's less because of the standard deduction and other things. Save your rage about taxes until you're actually making some money. You drive on roads, yes? Time to pay for the privilege.

The key is to have a business. All business expenses are deductible. Itemizing is different - that minimum is around 11k now I think.

 

[DrMidlife]

The key is to have a business. All business expenses are deductible. Itemizing is different - that minimum is around 11k now I think.

Kindly clarify this - I believe you are saying that a resident physician should have a business of his/her own, unrelated to their employment as a resident physician, where the business presumably has little or no business income, against which expenses for office space, computers, transportation etc. can be deducted. Yes?

 

[TexasPhysician]

Kindly clarify this - I believe you are saying that a resident physician should have a business of his/her own, unrelated to their employment as a resident physician, where the business presumably has little or no business income, against which expenses for office space, computers, transportation etc. can be deducted. Yes?

Moonlighting could count as a business with 1099 income, and a lot of residents moonlight. If that isn't an option, start an unrelated business. A lot of physicians have other skills to offer. The White Coat Investor blog makes probably as much money as residents do. I know residents involved in real estate, moving services, etc.

 

[EMIM2011]

And don't become an angry old fart prematurely. You're not paying 30% on your $50k salary, it's less because of the standard deduction and other things. Save your rage about taxes until you're actually making some money. You drive on roads, yes? Time to pay for the privilege.

I am not sure where you are reading "rage" into this, there sure isn't. Thanks to everyone else for your helpful comments.

 

[ThoracicGuy]

Contributing to pretax retirement accounts (401k, 403b, 457b, IRA) would be the easiest way and a significant way to no only save for the future but save in taxes. I also recommend contributing to the a ROTH IRA as a resident since you likely won't be able to as a staff. Other ways are paying 2500 dollars a year on your student loan interest because you are able to deduct that from your taxes.

You can potentially do a backdoor Roth IRA as an attending.

 

[Apramana]

Here are two excellent resources for maximizing our savings. Spending time reading them and implementing as many of the recommendations, especially the basic ones, as I can has helped me significantly, and I hope you find the information at least as worthwhile as I have:

http://www.bogleheads.org/wiki/Getting_started

http://whitecoatinvestor.com/ (A physician Boglehead's blog, with recommendations geared toward doctors throughout their medical training) [Edit: TexasPhysician mentioned this earlier. ]

The Bogleheads forums are also very active, heavily moderated, and extremely beneficial if you have any specific questions.

Good luck in your efforts. Please have an amazing day.

[Edit2: And to maximize saving in general, these resources seemed worthwhile, too:

Savings Lists Wiki: http://savingslist.wikispaces.com/

finding ways to save money (http://www.bogleheads.org/forum/viewtopic.php?f=2&t=134151) (Bogleheads discussion) ]

 

[QofQuimica]

Looking for advice on how to save taxes during residency. I am paying almost 30% (federal and state)...

As others have said, the best thing to do is to maximize your pre-tax retirement contributions to a 401(k) or a 403(b). If you are a state employee, you may also have access to a 457(b), which would allow you to defer even more income.

Not sure how far along you are in your training, but state tax rates are something to consider as you start your job search if all else is basically equal. My taxes as an attending are significantly lower here in FL than they would be if I was an attending in a state with income tax. If you are in CA....the best suggestion I have is to move to another state after residency.

Also, have children. Lots of children. You will save a fortune in income taxes. The government might even start paying you!

While having children does indeed decrease your taxes, kids are pretty expensive in other ways, so you probably wouldn't come out ahead overall.

 

[lazylarry]

Also for the first year or if you switch, you can deduct moving expenses if you meet the test.