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Reducing AGI
Started by attendingDO2003
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I'll get us started:
$16,500 goes into my 401k.
150k - 16.5 = $133.5k
$16,500 goes into my 401k.
150k - 16.5 = $133.5k
Depends if you're an independent contractor. With enough deductions, yes it's possible. Unlikely, but still possible.
There are some very creative accountants who do a lot of consulting work with deductions that almost equal their income. (Read about them in various business magazines.)
Of course to get these deductions you have to spend it. Either way, you're not going to have it as "free income."
There are some very creative accountants who do a lot of consulting work with deductions that almost equal their income. (Read about them in various business magazines.)
Of course to get these deductions you have to spend it. Either way, you're not going to have it as "free income."
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Still looking for suggestions. Obviously, if I'm salaried, I'm not an independent contractor.
Care to share any of those "stories" southerndoc, or is that just more of your usual bs? And obviously you don't "spend it" in order to shelter it.
BTW, in case some of you were thinking that this might be a thread where you could just spew anything SDN-style, it's not. OK? I will call you on it. I am interviewing a variety of accountants now, and will not tolerate any inaccurate info. Save it for the pre-med threads. They love that stuff.
Care to share any of those "stories" southerndoc, or is that just more of your usual bs? And obviously you don't "spend it" in order to shelter it.
BTW, in case some of you were thinking that this might be a thread where you could just spew anything SDN-style, it's not. OK? I will call you on it. I am interviewing a variety of accountants now, and will not tolerate any inaccurate info. Save it for the pre-med threads. They love that stuff.
Wow. Why the vitriol? Southern doc I have found to be quite helpful.
Good luck.
Care to expound? What here from southern waste have you found "quite helpful?"
Perhaps you should just stick with the advice of your variety of accountants.
Some people can be jealous. Thanks for the support blanche.
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I am not a gambler, but I would bet a huge amount that southern docs's investments and personal financial strategy massively outperform attendingDO2003 on a risk adjusted basis over the next ten years.
Can't you put more than $16,500 into tax-deductible/deferred instruments, other than the 401(k)? I think the annual maximum is ~$49,000 for all pre-tax retirement contributions. Does your employer have a 457, 401(a) or other retirement plan(s)?
Other reduction strategies:
traditional IRA ($5,000)
HSA contribution ($6,150 for families, $3,050 for individuals).
Maybe 529 plans for future education funding?
Other reduction strategies:
traditional IRA ($5,000)
HSA contribution ($6,150 for families, $3,050 for individuals).
Maybe 529 plans for future education funding?
I am guessing you mean you want to pay the least amount of tax legallypossible? If so, deductions you "keep" such as qualified retirementplan contributions are better than deductions which are more"phantom" in nature, such as the ever popular depreciation, oraccelerated depreciation deductions on real estate, for example, a favorite andIMO somewhat misguided investment strategy for doctors. So, here is a list of items to consider,not comprehensive, but it starts with two basic rules: you normally have to payincome tax on lifestyle expenses. What you don't spend to live, you may find away to shelter from tax, either currently with a deduction, or later on thegrowth of the money, or by paying now and receiving tax-free later inretirement, or sometimes before. Second rule is in almost, note the almost, allcases, the IRS eventually wants its money. Not easy to "never pay."Can defer payment and make extra money on the extra money you currently keep,usual strategy. This has been challenged, however, because current experienceis that highest marginal rates are at a historical low and so concern is thatyou may pay lower rate now than you will pay in retirement, not a desiredoutcome. So, best strategy is part "roth" (pay now, don't pay later)and part traditional (deduct now and pay tax later) since you can't predict therates when you retire, especially if you are young. Holy grail is don't pay,ever, or reduce rates substantially. When you are making bigger money this maybe possible 831(b) captive insurance company owned by doctor(s).
Look at Section 125 plans (called cafeteria or flex plan?)and tweak this tomax your advantage. Sign up, call in and get help with estimating out of pocketexpenses for deductibles, child care, medical supplies, contacts, dental care,etc. This is a great option because you are paying for items you already buywith pre-tax dollars. Other methods of deducting health care are possible, including employer paid health reimbursement arrangements, etc.
Two types of retirement plans, defined contribution, such as 403b or 401kProfit-sharing, Solo K, SEP, etc., limited to lower of 46K or 25% of income;and defined benefit, such as 457, cash balance, traditional. After PensionProtection Act of 2006 and correction acts of next couple years, these twotypes of plans can be combined. With a DB plan, there is no limit to the the %of income which can be contributed, but limitations apply based on actuarialformulas, so younger docs can contribute far less. The "benefit" isdefined and then the actuaries and investment performance are evaluatedannually to make sure that the current contributions will reasonably beexpected to meet the benefit promised in later years. Both of these plans andin combo provide current deductions, can be over $46K, up to more than 200K forolder docs. Refer to plans in place with employer. This is the OJ way, because OJ was found civilly liable for killing people and still got to keep his NFL pension, a defined benefit plan. Obviously a meaningful benefit of qual. plans for doctors is the best asset protection, under ERISA law.
Look for Section 79 Plan and max it out, if allowed, its basically a Rothfor people who make too much to qualify for a Roth (virtually all doctors). Itis funded with life insurance (by law) but is actually better than a Roth bcyou may not pay full tax on contributions, but will get tax-free withdrawals inretirement. If your institution does NOT provide this, demand it, preferablywith more docs requesting same.
A well run FM practice, contrary to some beliefs, can net $1M a year to a doctor,so some thinking outside the box is in order for you as you get going on thiscareer.
Max your Health SAvings Account, can get a personal one, invest it, don'tbank it, and don't spend it, this way you are getting an additional savings forretirement or health costs in retirement, with current deductions. You cancontribute every year and build it up. Qualify by having a high deductiblehealth ins. policy.
If your practice, is organized as a C corporation you get the benefits ofthe many corporate fringe benefits, a lot in section 132, probably best are educationexpenses, and "working condition fringe benefits." Ask hospital oremployer about these.
Most of the "tax accountants" you need work for large corporationsand are not floating around working for local doctors. There are plenty ofthose local guys working for local doctors, some have a lock on the dr. marketin their area, but this does not mean they are planners and know about the samestuff the tax lawyers and accountants do for large traditional and mid-sized Ccorporations, which is exactly how docs should be treated, as executives withall fringe benefits.
Between home interest, taxes, retirement, and a few more benefits you shouldbe able to get AGI down, but need to be able to live on the 70. Another greatway to accomplish this if your w-2 employer is inflexible is to have spousewith a business...or moonlight, consult, for 1099 income.
I'm a tax attorney/financial consultant married to neurorad, which is why Icare. No tax profressional will ever know as much about your business as youdo, so it pays for you to learn some of this. Just don't lose sight of themoney. Practice medicine. Sure, you could have done other things, like become atax lawyer specializing in doctors, but be reasonable enough to recall that youmade a different choice and don't assume this is easy or part time. Nor isinsurance or investing or private piloting or real estate development or theother things some doctors like to DIY. Arrogance is your enemy, as it willencourage other professionals in other fields to take advantage of you. Best ofluck, just some food for thought. Discuss.
That's exactly it. If you decide to be only a salaried employee like the OP, you shoot yourself in the foot financially.
hey--so sorry, this is probably an ignorant/very basic question, but what will the implications be of my 1099 income next year when i moonlight as a fellow? i will get W2 wages of course as a part of my training, and am hoping to moonlight on the side....i know that's a bit of an ambiguous question, but i figured it will just make my AGI higher unless I park it all into a 401K or something...
and thanks touchadream for all your thoughtful and helpful advice btw, it's much appreciated here.
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I plan on writing multiple posts on my website about this in the future. I don't sell anything so don't worry.
A 1099 form basically means that you are considered a "consultant" to whatever company you work for, not an employee. A consultant works for himself/herself and offers up services whenever he/she pleases. A W2 is for "employees". It implies stricter rules, benefits, etc.
Yes, the 1099 will still increase your AGI, but here is the benefit......
Being a consultant, you can argue that you have your own business. It doesn't have to be anything fancy....something like Blanche the sole proprietor. Someone who runs a business needs an office right? The best place for your office may be your own home.
A legally established "home office" has many tax perks. Say your home office is 10% of the square footage of your house for this argument. 10% of your electric bill could now be tax deductible. Need a new computer to run your business? That could be 100% tax deductible. Want new office furniture? That could be 100% tax deductible. How about a new refrigerator? Even that could be 10% tax deductible. Part of your car can even be tax deductible and the amount is based on the percentage of time you use the vehicle for consulting work. If the expense is directly related to your business, the entire thing can be tax deductible. If the expense is related to your home, the item may be deducted at up to the % square footage of your office. Sometimes more depending on how you can argue it.
The rules on tax deductible home offices are strict and complicated. I'd advise that you read up on this thoroughly. There are many books out there that can help.
Establishing a home office is probably one of the best tax breaks in the USA. A 1099 can be a big help to making your home office legit.
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Thank you! Its taken a few years and a few thousands of pages of reading, starting with almost all of the tax code years ago and updates since then, which I can't keep up with...but I try.
Thank you! More women needed on this forum! As noted by Texas Physician, the 1099 is the physician's friend, but so is the C corporation. Unfortunately the inability of physicians and surgeons to function in a business-like manner (due to variable knowledge and variable tolerance for real or perceived risk) causes them to seriously overpay taxes year after year, in spite of serious IRS incentives not to do that. The 1099 only requries one physician to make a decision. You can earn up to the 401K deferral amount of 16K and deduct the whole amount, putting it all into a solo or self employed plan. Then you can set up your own Health Savings Account and add another 3K deduction. Then you can add other "savings" type deductions or deductions for things you will need anyway, such as life insurance premiums, or disability premiums. The type of entity you use will become important, and you will have some expenses from moonlighting which will be similar to employee expenses you must incur to keep a job, except when moonlighting, you may need books, subscriptions, a blackberry or cell phone, lap top, transportation, things that are ordinary and necessary for you to do your job. Get a Schedule C from IRS.gov and sketch out on there what you think you can deduct==this will help you estimate the 1099 expenses you can deduct.lts smart for you to ask simple questions, they are often not simple at all. While you were learning and are learning medicine, others are professionally studying other issues, including tax, finance, investment analysis, brand management, risk management, etc. You cannot expect to learn those things while training in med or surg. You can expect to learn enough to choose good advisors and know when you are seeing those who are giving self-serving advice. BUT, I have an issue with the "I don't make money from this" because I do. Doctors make money from the worst misfortunes of others, including those who die under the "care" of physicians, so you have no room to talk about others making a living, expecially if they are adding value to the lives of others or providing wanted and needed services. I had a great discussion going on here with an anesthesiologist who "accused" me of making all my money on insurance commissions, and never telling clients what I was going to make, when I pointed out its history and usefulness. When I responded that I have had a lot of anesthesia and no anesthesiologist has EVER told me how much I was going to pay him the discussion, which had been lively and informative, if slightly combative, ended. There is definitely a culture in medicine that makes the discussion of money somehow distasteful but I think of it as simply a tool. For good or for greed, depending on how it is earned and used. So I am proud to be in the financial services industry and I don't care that most of my colleagues are greedy, or ignorant. I'm neither. Geez, I love teaching this stuff to an intelligent audience eager to learn. I teach CME and donate my fees, and love to teach residents and fellows, except for the ones who are sure they know it all already. I don't think I'd like to have those doctors treat me. Humble collaboration leads to the truth, IMO! Doctors and lawyers and financial advisors and CPAs need more of this, not less. Doctors need to make good financial decisions because they are very late earners of very high income, the worst tax position to be in under our system. BTW, the home office deduction is an audit target, so try to get the moonlighting income into retirement or another shelter first, if you can. Its great and CAN be justified, but audits are pretty miserable ways to spend your time...speaking from experience. Natually, as a tax attorney myself, I have been targeted for audit more than once. I have also defended federal tax fraud cases, NOT PRETTY.
Thank you! I have always heard the rationale for employment, by a hospital for example, has traditionally been that you don't need to do any management, and that your med mal is covered by them, not your earnings. Is that your experience? The security of a salary is also important to some, but as you correctly note, the physician usually suffers an unnecessarily high tax burden which dwarfs the other financial issues, if not the personal ones. Not every personality can handle the business of medicine, although going solo or in a like minded group can definitely get you there sooner, financially. And I would agree that you do sort of "shoot yourself in the foot" by getting too many layers of administration eating away at the earners in medical care. It has always astonished me that even doctors, as smart as they can be, can let a CEO over their practice who can make multiple millions per year and never provide one single hour of medical care to anyone. What is that about?
Is it possible to reduce AGI (esp for IBR purposes) by filing married filing separately even though you live in a community property state?
It seems that in a community property state, 1/2 of your spouse's income will fall into your 1040 despite married filing separately negating the primary driver to file separately for the purposes of reducing AGI.
It seems that in a community property state, 1/2 of your spouse's income will fall into your 1040 despite married filing separately negating the primary driver to file separately for the purposes of reducing AGI.
