As we settle in for the winter months, the holiday season gives way to a much less welcome time of year. Here are a few things young physicians should keep in mind as Tax Day approaches. By Christopher Malgieri, MD
Tax season used to be a much simpler time for all of us. One of the painfully few benefits of having a modest income was a simple tax return and oftentimes a refund from the IRS that dwarfed anything Santa left under the tree. As we transition to life after residency, finances become more complicated.
The most profound change to an attending’s tax bill is the size of it. With the average salary hovering around $400,000, young anesthesiologists suddenly find themselves in an unfamiliar tax bracket. Federal deductions alone will cause the disappearance of at least 35% of income above this level. After deductions for Medicare (1.4%), social security (6.2% of first $147,000 earned), and state income tax (5% in Massachusetts, for example); a physician can be left with little more than half of pre-tax earnings.
To be clear, taxes are important. Paying them is the ethical and lawful thing to do. However, it behooves a young physician to understand the basics of taxes to lower their taxable income. There are a handful of strategies that all newly minted anesthesiologists should employ to make sure they can shelter their income from more tax than is necessary. (Disclaimer: Please discuss all financial decisions with your tax professional or CPA! I’m an anesthesiologist, not a tax attorney!)
In summary, you should start to appreciate the household savings inherent to purchases with pretax dollars. Have a discussion with a CPA about which strategies you can use to lower your tax burden, especially at a time when your income is taxed so heavily. Paying taxes is your civic duty, but avoid overpaying when possible. Save your generosity for your favorite charitable organization (and then deduct it from your taxable income!).