Them Tax Brackets

[F0nzie]

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Wow my 2015 taxes. I have been increasing my hours and getting an average psychiatrist's salary instead of just a part-time salary. Trying to pay off loans and whatnot. So now I get to see some real taxes and diminishing returns with greater effort. Anybody else hesitant to work more because of taxes? I find significantly greater mental burden with increasing hours and I am on the fence if I should work more to make less.


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[SomeDoc]

Are you filing as a 1099 or W2? If you're an independent contractor, you can significantly decrease your tax burden by setting up a solo-business 401k which has a contribution limit of 53k. Add in maxing out your traditional IRA and you're then at $58,500. Max out those contributions first, and then work on factoring in all business related deductions.

 

[SomeDoc]

Also, I remember you mentioning CMH work; you may qualify for public service loan forgiveness if you work full time at the facility, and consolidate your loans into an eligible payment plan (IBR or PAYE). Your years of training in residency and fellowship may count towards the 10 years of qualifying payments.

 

[F0nzie]

Also, I remember you mentioning CMH work; you may qualify for public service loan forgiveness if you work full time at the facility, and consolidate your loans into an eligible payment plan (IBR or PAYE). Your years of training in residency and fellowship may count towards the 10 years of qualifying payments.

I am quitting CMHC in 5 months. The risk is high on all fronts and I am offered no protection whatsoever. I feel like I am paying more to work there than I am being paid to be there.


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[nexus73]

It'd be nice if student loans could be paid with pre-tax dollars. I agree that working more and feeling mentally taxed is not worth the money. Leave me at $200K with some tranquility.

 

[Doctor Bagel]

It'd be nice if student loans could be paid with pre-tax dollars. I agree that working more and feeling mentally taxed is not worth the money. Leave me at $200K with some tranquility.

That would be huge. Based on my very rough calculations, I think I'm at about 40% tax rate (high state income tax state although I also don't pay sales tax and we have pretty low fees for most government services -- so less regressive tax scheme). And if you're doing income based repayment of any sort, income increases increase your monthly payments. I'd be happy if I could just write off any of that interest I pay on loans. And why as an employed person am I limited to $18k to put into my 401k?

 

[notdeadyet]

You don't need to use IBR for the public service loan forgiveness plan (in fact, if you have a good income, you're no longer eligible for IBR).

You can switch to one of the other plans and still make PSLF eligible payments. I am looking at paying about $2,500/month for $200k debt with a high income (since my wife works and am filing jointly for the tax benefits).

 

[poiuytre]

Obligatory link to white coat investor:
http://whitecoatinvestor.com/10-reasons-why-i-pay-less-tax-than-mitt-romney/

Granted there are reasons that don't apply to everyone like owning a rental property or having a business but other do.

 

[SomeDoc]

And why as an employed person am I limited to $18k to put into my 401k?

You can put your post-tax dollars in a long-term individual investment account, but know that any realized capital gains for investments held for over a year will be taxed at a rate of 15% (and higher if realized under a year). This essentially equates to a double taxation situation- you use post tax dollars to purchase your investments, and are once again taxed on any realized gains.

With an individual account (which you would want to do after maxing out your 401k), you have much more flexibility in choosing the types of investments (and associated fees) than the offerings you would find in a brokered (usually high-fee) 401k. The investments would also subject to risks in market dynamics just like a 401k would.

 

[SomeDoc]

You don't need to use IBR for the public service loan forgiveness plan (in fact, if you have a good income, you're no longer eligible for IBR).

You can switch to one of the other plans and still make PSLF eligible payments. I am looking at paying about $2,500/month for $200k debt with a high income (since my wife works and am filing jointly for the tax benefits).

It's worth noting here that if one consolidates their loans while switching, any time accrued towards the 10-year mark under a previously eligible income-based plan will be lost.

 

[Shikima]

Are you filing as a 1099 or W2? If you're an independent contractor, you can significantly decrease your tax burden by setting up a solo-business 401k which has a contribution limit of 53k. Add in maxing out your traditional IRA and you're then at $58,500. Max out those contributions first, and then work on factoring in all business related deductions.

I do this.

 

[Shikima]

I am quitting CMHC in 5 months. The risk is high on all fronts and I am offered no protection whatsoever. I feel like I am paying more to work there than I am being paid to be there.


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That's how I feel with my PT work at the VA where I'm only making $89/hr and being micromanaged.

 

[scudiera]

In re: loans - would any of you have picked a residency program in a more affordable location in retrospect? I don't even have a large loan burden, around $85-90k, and I'm trying to figure out what sort of a lifestyle difference it'll make for the next 8-10 years if I'm able to pay off most of my loans in residency vs. having to forbear for the next 4 years (essentially the difference between my top two choices). I don't have a family of my own and am fortunate that college was paid for, so I don't even know how to imagine the difference.

 

[nexus73]

Pick a residency in a city you want to stay. Especially with only $90K, you'll have no problem paying on this through residency on an income based repayment plan. Then once you're an attending you will probably be able to pay balance off over a couple years.

 

[downwithDTB]

In re: loans - would any of you have picked a residency program in a more affordable location in retrospect? I don't even have a large loan burden, around $85-90k, and I'm trying to figure out what sort of a lifestyle difference it'll make for the next 8-10 years if I'm able to pay off most of my loans in residency vs. having to forbear for the next 4 years (essentially the difference between my top two choices). I don't have a family of my own and am fortunate that college was paid for, so I don't even know how to imagine the difference.

I know this is super complicated... but is it generally better in this scenario (psychiatrist, 90k debt, resident, no assets, say 30 yo) to be maxing roth ira contributions and deferring loans, maxing loan payments or a mix?

 

[notdeadyet]

It's worth noting here that if one switches, any time accrued towards the 10-year mark under a previously eligible income-based plan will be lost.

Do you have a link to that? I understand that this is the case if you switch to the standard plan, but not if you go from IBR to PAYE or one of the others.

Many psychiatrists do not qualify for IBR due to income.

 

[Doctor Bagel]

Do you have a link to that? I understand that this is the case if you switch to the standard plan, but not if you go from IBR to PAYE or one of the others.

Many psychiatrists do not qualify for IBR due to income.

I'm with you -- my understanding is that as long as you're in some sort of income-based/income-contingent type of plan, you can switch with no issues.

My debt situation is so depressing. I actually have a decent psych income and am married to someone with a decent income, and I'm still qualifying for IBR. Where I got screwed (and I'm not alone with this) is all the interest that accrued during medical school and residency. It's so depressing.

 

[Doctor Bagel]

In re: loans - would any of you have picked a residency program in a more affordable location in retrospect? I don't even have a large loan burden, around $85-90k, and I'm trying to figure out what sort of a lifestyle difference it'll make for the next 8-10 years if I'm able to pay off most of my loans in residency vs. having to forbear for the next 4 years (essentially the difference between my top two choices). I don't have a family of my own and am fortunate that college was paid for, so I don't even know how to imagine the difference.

This is so much of nothing in terms of debt that I wouldn't adjust your residency location based on this. You should be able to pay this off in a few years as an attending without making many lifestyle sacrifices.

 

[SomeDoc]

I know this is super complicated... but is it generally better in this scenario (psychiatrist, 90k debt, resident, no assets, say 30 yo) to be maxing roth ira contributions and deferring loans, maxing loan payments or a mix?

90k is a relatively low debt burden. Max out your Roth contributions while you can as a resident because once you are finished with residency making an attendings salary you will no longer qualify for it. Any offset in accrued loan principal with 90k assuming you have a reasonable interest rate can be accounted for relatively easily while practicing an attending.

 

[SomeDoc]

You can switch to one of the other plans and still make PSLF eligible payments.

I'm with you -- my understanding is that as long as you're in some sort of income-based/income-contingent type of plan, you can switch with no issues.

Thanks for pointing that out- I was not aware of that, and it's good to know; I was under the impression that the clock resets when changing plans, but this only happens if you consolidate your loans when changing plans.

 

[WalterDonnie]

That would be huge. Based on my very rough calculations, I think I'm at about 40% tax rate (high state income tax state although I also don't pay sales tax and we have pretty low fees for most government services -- so less regressive tax scheme). And if you're doing income based repayment of any sort, income increases increase your monthly payments. I'd be happy if I could just write off any of that interest I pay on loans. And why as an employed person am I limited to $18k to put into my 401k?

I was under the impression that federal student loan interest is tax deductible. But, no?

 

[Psychotic]

I was under the impression that federal student loan interest is tax deductible. But, no?

I think you are limited to the first $2500 in interest, which is pretty darned low for anyone with 6 figure debt.

 

[Doctor Bagel]

I think you are limited to the first $2500 in interest, which is pretty darned low for anyone with 6 figure debt.

And you have to make less than something like $80k/year or less.

 

[notdeadyet]

And you have to make less than something like $80k/year or less.

Yup. Can't write off any of it once you graduate residency, or even during residency if you moonlight a fair bit.


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[Psychotic]

And you have to make less than something like $80k/year or less.

Right. I am on a lowly resident's salary and only knew what I was able to deduct last year.

The good news is that I only have about $60k student debt remaining.

 

[WalterDonnie]

wtf. this upsets me.

 

[FlowRate]

But you're rich and there are a lot of voters who think you should be paying more taxes. This is a great case study in the economic truism that the marginal value of your time spent working decreases as your tax rate increases and you're now less likely to work more (and therefore help ease the physician shortage). It's also a great example of why (as we all know) physician salaries are completely misleading -- much higher tax rate even though you deferred any real income for 8+ years.

Also, is it not crazy to anyone else that getting married is worse for your taxes if your partner makes the same amount of money that you do?

 

[Doctor Bagel]

wtf. this upsets me.

Yep, total BS. Increasing what you can write off for interest payments has been one of the more modest proposals for student loan relief. It's essentially a worthless benefit as it is for most people -- writing off $2500 isn't doing much to help even those people can qualify to write it off.

 

[Doctor Bagel]

But you're rich and there are a lot of voters who think you should be paying more taxes. This is a great case study in the economic truism that the marginal value of your time spent working decreases as your tax rate increases and you're now less likely to work more (and therefore help ease the physician shortage). It's also a great example of why (as we all know) physician salaries are completely misleading -- much higher tax rate even though you deferred any real income for 8+ years.

Also, is it not crazy to anyone else that getting married is worse for your taxes if your partner makes the same amount of money that you do?

Ah, the Laffer Curve. I'm a left leaning person and thought it was silly when I first learned about it in macroeconomics in college, but now I'm getting that there's some truth to it.

One thing that's been apparent in my community is that residents seem to be getting less and less interested in moonlighting. I'm wondering if huge debt levels coupled with income based repayment options are part of it. You can't work enough (and stay sane) and really pay down your debt, so why bother?

 

[scudiera]

@Doctor Bagel - Thanks, that's encouraging to hear! At my other choice (a fine program in major Southern metro that I like only slightly less) I can fully fund the Roth IRA and lop off another 10k+/year in loans so it feels like the expensive program, for someone who isn't interested in research/committed to a lifetime of academics, had been feeling more like a burden than an opportunity in spite of its great reputation. The high COL in SF terrifies me, it's only with a roommate and the UCSF housing stipend does that program/city become reasonably affordable on a single resident's salary if I'm hoping to either make some IBR/PAYE payments or hit the max Roth IRA contribution limit.

Edit: re: IBR and moonlighting, I read an interesting WCI post on it recently that aligns with your thinking. The gist of it was, your moonlighting salary may be $100/hr but when you factor in how the additional income raises your IBR payments and other things, it's a good bit less than that take-home, and suddenly the "$800 for a Saturday every two weeks? Sure!" sounds a lot less appealing.

 

[FlowRate]

Ah, the Laffer Curve. I'm a left leaning person and thought it was silly when I first learned about it in macroeconomics in college, but now I'm getting that there's some truth to it.

One thing that's been apparent in my community is that residents seem to be getting less and less interested in moonlighting. I'm wondering if huge debt levels coupled with income based repayment options are part of it. You can't work enough (and stay sane) and really pay down your debt, so why bother?

Much like scudiera, I'm looking at having to forbear my loans, if I want to live alone at my #1 or #2. One of them is also a pretty busy residency, so spending my free time on earning money might not seem like such a great option. It seems like it would be easy to sort-of "forget about" the loans once you're already in forbearance.

 

[scudiera]

I thought this would be helpful but it's just rather meh finger-wagging about choosing a "low income field" other than the "Go someplace you can afford" bit. http://whitecoatinvestor.com/financial-advice-for-low-income-doctors/

WCI link dump:
http://whitecoatinvestor.com/financial-survival-as-a-resident/
http://whitecoatinvestor.com/moonlighting-vs-ibr-paye-and-pslf-a-student-loan-showdown/

 

[Doctor Bagel]

On taxes and financial planning, my big mistake of my first year out of fellowship was not putting enough money into retirement accounts to meet the $18k max that first year even though I only had the attending salary for part of the year. Working 3 jobs while not figuring out what I wanted to do was also not the best move, but it worked out. Mistake I avoided was underpaying on my taxes due to having all these jobs, which makes withholding really complicated. Had I not dramatically upped withholding, I could have been looking at a $20k tax bill come April. On moonlighting being complicated, I got stuck with a $2k tax bill last year due to not withholding enough for my moonlighting job where I made maybe $12k/year.

 

[keifernny2]

I just remind myself that all of these taxes pay my salary (through medicare / medicaid / VA) , which makes it more palatable.

 

[cookymonster]

90k is a relatively low debt burden. Max out your Roth contributions while you can as a resident because once you are finished with residency making an attendings salary you will no longer qualify for it. Any offset in accrued loan principal with 90k assuming you have a reasonable interest rate can be accounted for relatively easily while practicing an attending.

There's something called a Backdoor Roth for that. Take advantage of it before Congress shuts it down.

I'm looking at paying about $85,000 in federal and state taxes this year. I even got hit with the alternative minimum tax this time. 2016 is going to be a year to work smarter and not harder.

 

[Not_a_psychic]

(since my wife works and am filing jointly for the tax benefits).

Only an MS4, but I was looking into this the other day. I'm soon-to-be-engaged to another Ms4 (internal med). If you file jointly, aren't your IBR or PAYE payments based off your combined income? Which tax benefits make it "worth it" to file jointly?

 

[Doctor Bagel]

Only an MS4, but I was looking into this the other day. I'm soon-to-be-engaged to another Ms4 (internal med). If you file jointly, aren't your IBR or PAYE payments based off your combined income? Which tax benefits make it "worth it" to file jointly?

Yes, filing jointly changes it to your repayment amount is based on both incomes. With REPAYE, it's based on both incomes regardless of how you file. Filing separately might make you wind up paying more taxes, though, so it's not always a benefit.

 

[FlowRate]

Only an MS4, but I was looking into this the other day. I'm soon-to-be-engaged to another Ms4 (internal med). If you file jointly, aren't your IBR or PAYE payments based off your combined income? Which tax benefits make it "worth it" to file jointly?

As far as I can tell, there's no benefit in terms of taxes or loans in getting married, unless one of you is planning on pretty much not working.

Just take a look at the tax brackets: 28% above 189k if single vs. 28% above 230k combined or 115k separate.

So my advice is to not get married 😀

 

[Information Underload]

I think the thing that most people don't get is that not only do you move up in the tax brackets, but you pretty much lose all of your deductions and credits with the exception of the home-interest deduction (which they are talking about taking away) and charitable contributions--all of which really slams you with taxes. The tax brackets are much more "progressive" than what is commonly implied or presumed.

You pay very little in taxes if you're in the 25% tax bracket, particularly if you're married with kids, and part of the way through the 28% tax bracket. You really start getting hammered once you move part of the way through the 28% tax bracket and beyond.

I have a kid who is about to start college, which will be interesting given that I am still paying on my student loans. Nothing like multi-generational student loan payments. Oh yeah, no American Opportunity Credit, either. That, like everything else, phases out.

 

[PikminOC]

Wow my 2015 taxes. I have been increasing my hours and getting an average psychiatrist's salary instead of just a part-time salary. Trying to pay off loans and whatnot. So now I get to see some real taxes and diminishing returns with greater effort. Anybody else hesitant to work more because of taxes? I find significantly greater mental burden with increasing hours and I am on the fence if I should work more to make less.


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http://taxfoundation.org/article/2016-tax-brackets

 

[notdeadyet]

Only an MS4, but I was looking into this the other day. I'm soon-to-be-engaged to another Ms4 (internal med). If you file jointly, aren't your IBR or PAYE payments based off your combined income? Which tax benefits make it "worth it" to file jointly?

Yes, IBR and PAYE payments are based off of your combined income if married-filing-jointly. Because of this, I did married-filing-separately for several years.

But when you do married-filing-separately, you are taxed the same as if you are filing single. Two people pay less taxes married-filing-jointly than they do married-filing-separately.

So the choice of which way to go becomes one based on looking at the amount of money you save by filing jointly and comparing it to the extra money you'd pay into loan repayment due to higher income based on filing jointly. There's no "right" answer because it is highly dependent on a few things, like:
- How much money do you make combined? Married-filing-separately has less advantages as you-the-doctor makes more money since your income-based plans start to max out.
- How confident are you PSLF will still be around and that you'll take advantage of it? Keep in mind that when looking at married-filing-jointly/separately, you aren't comparing apples and oranges with taxes vs. loan repayment. Paying more taxes is money gone vs. paying more towards loans is paying off debt.

Again, all personal choice and highly dependent on your unique situation .

 

[philosophize]

it's sad but this is a single one hour lecture in our med school during 4th year, where they talk about PAYE, IBR, and everything else.

my situation is similar to scudiera ($70-90k in debt), i was curious about refinancing with private banks? any thoughts?

 

[WisNeuro]

Try and lower your taxable income any way you can. Max out your 401k (if you have one), if you are self-employed, look at the SEP options, contribute to a FSA/HSA if it makes sense for you/r family, and start itemizing every deduction you possibly qualify for (mortgage, student loan interest, charitable contributions, unreimbursed job expenses, etc) to get over and above the standard deduction. Having a rental property has also been huge for me. Especially since it's near family, so I bookend a trip back to do some maintenance with some family time to write off a good chunk of the travel expenses.

In general, get a good accountant who knows the lay of the land, or get fairly acquainted with tax law as it applies to you.

 

[FlowRate]

it's sad but this is a single one hour lecture in our med school during 4th year, where they talk about PAYE, IBR, and everything else.

my situation is similar to scudiera ($70-90k in debt), i was curious about refinancing with private banks? any thoughts?

If you refinance, you may lose eligibility for loan forgiveness, income based repayment schemes, mandatory residency forbearance, etc.

 

[F0nzie]

Try and lower your taxable income any way you can. Max out your 401k (if you have one), if you are self-employed, look at the SEP options, contribute to a FSA/HSA if it makes sense for you/r family, and start itemizing every deduction you possibly qualify for (mortgage, student loan interest, charitable contributions, unreimbursed job expenses, etc) to get over and above the standard deduction. Having a rental property has also been huge for me. Especially since it's near family, so I bookend a trip back to do some maintenance with some family time to write off a good chunk of the travel expenses.

In general, get a good accountant who knows the lay of the land, or get fairly acquainted with tax law as it applies to you.

Do you have a company that owns your rental property to separate it from your personal assets?


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[WingedOx]

In re: loans - would any of you have picked a residency program in a more affordable location in retrospect? I don't even have a large loan burden, around $85-90k, and I'm trying to figure out what sort of a lifestyle difference it'll make for the next 8-10 years if I'm able to pay off most of my loans in residency vs. having to forbear for the next 4 years (essentially the difference between my top two choices). I don't have a family of my own and am fortunate that college was paid for, so I don't even know how to imagine the difference.

Can't always control where you end up though. There were a big mix of cheap and expensive places on my rank list.

 

[WisNeuro]

Do you have a company that owns your rental property to separate it from your personal assets?

For my property, not at the moment. I've always had grad students that have been referred from other grad students. I am taking some liability risk, but I am mitigating slightly with a higher ceiling umbrella policy. If I ever decide to pursue more property management opportunities in the future, an llc will definitely be happening.

 

[F0nzie]

For my property, not at the moment. I've always had grad students that have been referred from other grad students. I am taking some liability risk, but I am mitigating slightly with a higher ceiling umbrella policy. If I ever decide to pursue more property management opportunities in the future, an llc will definitely be happening.

Ah I was wondering if having an LLC for your rental would shield it from your personal assets in the event of a malpractice suit.


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[WalterDonnie]

Can anyone confirm that the amount forgiven by pslf is taxed as if it were income?

 

[nexus73]

Can anyone confirm that the amount forgiven by pslf is taxed as if it were income?

As of now it wouldn't be taxed income.