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Excellent Deductions, Dr. Watson! Cracking the Tax Code


The days are getting longer, and spring is fast approaching. But before we can enjoy the warmer weather, we all must get past one of the most dreaded financial hurdles of year: tax season. Here are some concrete strategies to maximize deductions and minimize the pain. By Daniel Kinney, MD

Tax season can be stressful for young anesthesiologists and physicians in general. Very few of us have formal training in finance, and our limited experience and understanding of tax preparation and relevant tax deductions can be a major source of anxiety. Fortunately for all of us, this is an area where a little bit of knowledge can go a long way.


How much do I pay in taxes anyway?

It’s helpful to have a clear understanding of our actual federal tax rate. Let’s assume that the average anesthesiologist makes ~$415,000 per year. Based on the 2022 federal income tax laws, a person making between $215,950 and $539,900 falls into the “35% tax bracket.” At first glance that feels rather daunting. However, you don’t actually pay 35% federal tax on all of your income. You only pay 35% on the portion of your income that falls within the range of the 35% tax bracket ($215,950-$539,900), and you pay the corresponding tax rate for the portion of your income that falls within each of the lower tax brackets.

For example, for the first $10,275 you are taxed 10% ($1027.50), for the next $31,500 you are taxed 12% ($3780), for the next $47,300 you are taxed 22% ($10,406), and so on. So, an anesthesiologist with no deductions making $415,000 per year will owe $117,975.50 or ~28.4% of their income rather than the full 35% that may be assumed based on a first glance at the tax bracket. While knowing this won’t decrease the amount of taxes you owe, it may help you feel a little less penalized.


What can I deduct?

While paying taxes is part of being a responsible citizen of our country, there are a few relatively easy strategies that young physicians can use to ensure that they are not overpaying. Your eligibility for tax deductions depends on many factors, such as whether you own your own business, work as a contractor receiving a 1099 tax form or work as an employee receiving a W-2 tax form. (Disclosure: While I am passionate about personal finance, I do not have formal training as anything other than a cardiac anesthesiologist, so it is always advisable to discuss your situation with a tax professional, CPA, or financial advisor.)

One of the easiest ways to decrease your taxes is by maximizing your tax-deferred savings accounts. By saving a portion of your pre-tax salary to these accounts you decrease the amount of money that is taxable by the federal government. Here’s a breakdown of the options.


Health Savings Accounts (HSAs). Health Savings Accounts allow you to save up to $3,650 pre-tax dollars in 2022, which can be used for any qualified healthcare expenses that occur after the account has been opened. This amount is on a “per-individual” basis, so a family can contribute additional funds up to $7,300 if you have a spouse and are filing together. In addition, individuals who are over 55 can contribute an additional $1,000 “catch-up” contribution. To qualify for an HSA, you must be enrolled in a high-deductible health insurance plan. While this may be a non-starter for some, this option might be attractive to young physicians who are less concerned about signing up for a high-deductible health insurance plan.

If you can get past this requirement, there are some significant tax advantages to enrolling in an HSA. First, the contributions to an HSA are yours to keep and roll over from year to year. So, they truly are a savings account. Second, the funds that you put into an HSA can be invested like you would an IRA, 401k or 403 b (e.g., mutual funds, securities, index funds, bonds, etc.) and those investments grow tax-free. Over years this tax-free growth can greatly increase the balance in your HSA account, providing a nice sum to put towards future healthcare expenses by the time you retire. Money that is taken out of an HSA and put towards medical expenses is withdrawn tax-free (even the capital gains).

Another interesting feature is that you don’t have to take the distribution/payment for an expense in the same year that the expense occurred. Provided that you have documentation of the expense, it occurred after the HSA was opened, and it wasn’t reimbursed by another source, you can take a tax-free withdrawal for the expense. So, in theory, you could save documentation of your qualifying medical expenses for years and allow your HSA to grow tax-free and then take a withdrawal for those expenses as a lump sum at a later date. If you are interested in more information about HSA here are two interesting articles:

How to Harness Your HSA’s Superpowers - NerdWallet

Health Savings Account: What Is An HSA? – Forbes Advisor


Retirement savings accounts. Tax-deferred retirement savings accounts such as 401k and 403 b accounts allow employees to make pre-tax contributions to save for their retirement. Unlike HSAs, taxes are paid when money is withdrawn in retirement. In 2022 the employee contribution limit was $20,500 with the option to contribute an additional $6,500 if you are over 50 years old. In addition, many employers will offer “matching” and may contribute post-tax dollars to their employees’ accounts. The combined contribution limits in 2022 were $61,000, or $66,000 if over 50 years old.


457 b accounts. These tax-deferred savings accounts allow tax-free growth of money in the accounts and taxes are paid when the money is removed in retirement. 457 b accounts have the same contribution limits as 401 k and 403 b accounts. These can be good options for individuals working for certain nonprofit organizations.


Flexible Spending Accounts (FSAs). Flexible Spending Accounts are another option for setting aside pre-tax dollars for qualifying healthcare expenses. There are several key differences between an HSA and an FSA. An FSA does not require you to be enrolled in a high-deductible health insurance plan, and the contribution limit in 2022 was $2,850. The major disadvantage of an FSA is that if the funds aren’t spent, they typically don’t roll over from year to year, so the amount contributed to the account should be planned carefully.


Home ownership. Owning your own home can also provide several options for decreasing your tax burden. For example, you can deduct the interest payments paid on the first $750,000 of mortgage debt. In addition, you may be able to deduct your property taxes. However, to take this deduction you must do an itemized return, and as of 2017 there is a limit to the amount of state property tax, state income tax, and local income tax (SALT) that may be deducted. The cap is a combined total of $10,000. This limit went into effect in 2017 and is set to expire in 2025 unless it is extended.


…and all the rest. Charitable donations and some medical expenses (not reimbursed using an FSA or HSA) are also tax-deductible. Did you buy an electric car or install solar panels on your home last year? You may be eligible for a tax credit.

Because there are so many ways to optimize deductions and reduce your tax burden, it’s worth working with a tax preparation expert, CPA, or financial adviser. A good one will identify the tax deductions for which you’re eligible but, ultimately, it’s up to you to ask the right questions. A solid understanding of your options is money in the bank.

Daniel Kinney, MD, is the Associate Residency Program Director for the Yale Anesthesiology Residency Program. He received his medical degree from State University of New York Upstate Medical University in 2011. Following his Anesthesia residency at Yale New Haven Hospital, he subsequently completed a fellowship in Cardiothoracic Anesthesia and the Yale Graduate Medical Education Fellowship. Dr. Kinney officially joined the Yale University School of Medicine faculty as Assistant Professor of Anesthesiology in 2016.

The ASA Committee on Young Physicians is pleased to present this monthly article series on personal finance. These articles are not written by hedge fund managers or real estate tycoons but by practicing physicians. Some have business degrees and some do not – but every contributor is an anesthesiologist who has some guidance to offer the rising generation of attending physicians. It is not the intention of the committee to offer definitive financial advice, but rather some pearls of wisdom to consider while developing a personal fiscal plan. 


ASA Community Blog is published as a benefit for ASA members. The views expressed on this blog are those of the individual contributing writers only and do not necessarily represent the opinions of ASA.