How to minimize tax burden as a pharmacist?

[ACE_Dx]

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I am a newly graduated pharmacist currently working in a health-system. On average, pharmacists are paid salaries that put them in the 28-30% tax bracket. As most of us here knows, becoming a physician, pharmacist, dentist, etc. requires paying back hundred of thousands of dollars in student loans as well as spending the most of our prime years in school that we can never get back.

Unfortunately, the enormous costs associated with our schooling cannot be deducted. Instead, we get an amazing opportunity to repay back our loans AFTER Uncle Sam takes 28-30% of his share.


For my specific situation as a single pharmacist currently renting...
Income: ~$4,500 every 2 weeks (~ $120,000 annual salary)
Healthcare/FSA deduction: $140
401k pre-tax deduction: $225 (enough to match company's 401k match)
Income/SS/Medicare taxes: ~ $1200 (27% taxed)

Take home pay before student loan payments: ~ $3,000
Take home pay after student loan payments: ~ $2,000

Basically after taxes and student loan payments, we make no more than an average accountant who did not have to go though an 4 years of schooling post-bacc and incurring 6-figure student loans. Unfortunately, we make too much in order to deduct our interest from our student loans. I am currently on the PAYE program aiming for getting the rest of my $150,000 student loans forgiven after 10 years through the PSLF program but no idea if that will be present 10 years down the road or changes to where it is at least grandfathered in.

Long-story short / TLDR:
Are there ways to reduce the amount of taxes that pharmacists have to pay in order to invest for other things such as a house, retirement savings, etc.?

 

[Judgment Dragon]

How much debt do you have?

 

[Dr Wario]

Well if you are actually planning on making the min payments on your student loans and getting your debt forgiven, the best way to reduce your taxes would be to max your 401k.

 

[wagrxm2000]

Am I the only one with a college fund? I plan on helping my kids.

 

[farmadiazepine]

Max out your 401k. Put $18,000 a year into it pre-tax. Max out your HSA for a high deductible health plan, around$3350 a year, depends on how much your company contributes, and it's a good idea to have a high deductible plan especially if you are young and have no medical issues and are relatively healthy, I don't think you need a complete everything is covered plan. That takes $21,000 off your taxable income right there.

 

[pezdispenser]

Take home pay before student loan payments: ~ $3,000
Take home pay after student loan payments: ~ $2,000

You may have made a mistake there because your pay is biweekly, but your student loan payment is once a month. So with a $1,000/mo student loan payment, take home pay after student loan payments is $2,500 biweekly.

I am currently on the PAYE program aiming for getting the rest of my $150,000 student loans forgiven after 10 years through the PSLF program but no idea if that will be present 10 years down the road or changes to where it is at least grandfathered in.

If you're starting with a $1,000/mo payment on PAYE and it goes up by 2% each year because of raises, after 10 years you will have paid $131k. So if you don't count the compounded interest (which is a bit exorbitant anyway), then you are paying back most of your original $150k anyway.

Personally, I would rather spend 4 years or so blitzing your loans, then you have the next 6 years and beyond to focus all of your income on buying a house and saving for retirement. If you try to do them all at once, then you will be in debt up to your eyeballs, all of your income will be going out in debt payments, and you will have no money left to make extra principal payments to speed things up.

 

[Dred Pirate]

yes - like others said - if you rent the only way to lower your taxable income (or at least the easiest way)
1. max out 401l to the 18.5k
2. blow up and fill up your HSA
3. kids 529 (if applicable)
4. other than that - charitable donations - make sure you count any donations to goodwill (like when you dump your old college furniture, etc)

 

[mustang sally]

I haven't maxed out my 401k so far because I'm afraid it will reduce my take home pay too much...or do you not really notice a difference since it is taken out pre-tax?

 

[npage148]

You guys maxing out your fsa, what do you regularly spend the 3k on a year? I'm lucky if my out of pocket it's 200/year

 

[SouthernRetailRPH]

FSA is different than HSA, don't put more in a FSA than you spend as you will lose it if not spent each year, but the HSA money is yours indefinitely and can be invested as well

 

[sosoo]

maxing out 401k and HSA still won't get me down to the next tax bracket, and i'm only at 118k a year. 401k will still get tax in the future. maxing out HSA is a positive only b/c healthcare costs will rise year after year, and HSA is pre-tax dollars. thats the only real benefits.

 

[fewaopi]

no mention of traditional ira's or roth ira's yet? that's another way to reduce tax burden, traditional sounds more what you're looking for

 

[farmadiazepine]

maxing out 401k and HSA still won't get me down to the next tax bracket, and i'm only at 118k a year. 401k will still get tax in the future. maxing out HSA is a positive only b/c healthcare costs will rise year after year, and HSA is pre-tax dollars. thats the only real benefits.

Maxing out your 401k lowers your taxable income, so you get taxed less. It may not bring you down a whole tax bracket, but less money is actually removed from taxes since your taxable income is less. Think about it. It's the smart thing to do.

And if you don't think it's a good idea, don't do it.

All this worry about no making enough money is bullshi*. You're a pharmacist. You want to make money? Then work 2 jobs or pick up OT or pick up extra hours somewhere. There is no excuse.

 

[McPharmd]

I'm not sure why you are so obsessed about getting knocked to a lower tax bracket when only a certain percentage of your income will be taxed at 28%-30%.

Your income is taxed by tiers. That means any taxable income between $37,451 to $90,750 is taxed at 25% and any amount between $90,751-$189,300 is taxed at 28%. (Assuming you are single).

You are going to pay the same taxes regardless.

It is just that once you hit the next tax bracket, any marginal income you make will be worth less than the money you made in the previous bracket.

It would be nice to knockdown your income so far that you could take the deduction for the interest on your student loans though but I don't think that is an option for most of us.

 

[BMBiology]

The life of a PAYER.

This is what I don't get about some of you guys. You are making life changing decision based on the amount the government will forgive you?

I graduated with 150 k in student loans and I paid it off easily within the first 3 years. If I had waited, it would have been much more difficult. Life happens.

I didn't have to worry about what kind of job I needed in order to qualify for PSLF. If my employer didn't give me a paid raise or treated me like crap, I would leave. I didn't have to stay there for 10 years. I didn't have to worry about the government changing the program. The best part? I became a risk taker because I didn't have any debt and it has paid off handsomely.

The funny thing is the more money you make the more student loan you have to pay. So why would you take any risk? Why buy stocks? Why start a business?

 

[BMBiology]

If you are not going to take any risk while you are still young, you are not going to have the same opportunity to do it when you are 38. You are going to depend on CVS for the rest of you life. Trust me, they will rid get of you in a second when you are no longer needed or when someone can do your job for less. There is already a line of people wanting to do your job and the line will only get longer and longer.

 

[fewaopi]

Ira and roth ira are after tax dollars.

Not traditional. Traditional is "before" tax. Well what it does is it means you get a bigger tax refund than had you not done a traditional or you did roth instead.

Technically both IRA's are tax-savings accounts and OP and everyone should be maxing those out.

 

[pezdispenser]

no mention of traditional ira's or roth ira's yet? that's another way to reduce tax burden, traditional sounds more what you're looking for

The deduction for traditional IRA contributions phases out with income between $61k-$71k for singles and $98k-$118k for married filing jointly.

Roth IRA contributions do not reduce your taxes up-front, but when you make withdrawals in retirement, it will all be tax free including the investment returns.

 

[IlDestriero]

It's shocking how many people don't understand how the U.S. Tax system works, even people earning over $100k.

 

[Dred Pirate]

You guys maxing out your fsa, what do you regularly spend the 3k on a year? I'm lucky if my out of pocket it's 200/year

you can save it up to pay for your health insurance when you retire before medicare kicks in - or you pay for your supplemental insurance - This is if it is an HSA not a FSA - big difference. FSA cannot be carried over - HSA can

 

[Dred Pirate]

The deduction for traditional IRA contributions phases out with income between $61k-$71k for singles and $98k-$118k for married filing jointly.

Roth IRA contributions do not reduce your taxes up-front, but when you make withdrawals in retirement, it will all be tax free including the investment returns.

I can use a Roth IRA because I am married and make less than 183 after deductions

 

[Amicable Angora]

Not to be ignorant but what is a HSA?

 

[npage148]

FSA is different than HSA, don't put more in a FSA than you spend as you will lose it if not spent each year, but the HSA money is yours indefinitely and can be invested as well

You can contribute to a HSA? My employer dumps money into it but I can only contribute to an FSA

 

[pezdispenser]

I can use a Roth IRA because I am married and make less than 183 after deductions

Right now, anyone can do a Roth IRA even if they are over the income limit by utilizing the 'back door Roth IRA' method.

 

[Dred Pirate]

You can contribute to a HSA? My employer dumps money into it but I can only contribute to an FSA

The whole point of a HSA is for you to put tax deferred money to save for the future, I have never heard that you can't contribute to a HSA. My company puts 500 and I put another 1000 a year into it,

FYI a HSA is a healthcare savings account- google it @Amicable Angora

 

[Dred Pirate]

Right now, anyone can do a Roth IRA even if they are over the income limit by utilizing the 'back door Roth IRA' method.

probably, I have not done that bc I dont have to

 

[Muse600]

real estate rentals!