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W2 employee blues

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  • Phoenixdown99 Phoenixdown99 
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    Status: Physician
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    I just received my tax estimates for 2018 from my accountant. I am paying a huge amount of tax compared to last year, when I did locums for half the year. Even with the $18500 401K contribution, $3000 in TLH, and $4000 contribution to a 529 plan to offset state tax (I don’t have any other tax-reducing options, unfortunately, as far as I can tell).

    Apparently, this year I don’t have enough business income (less than $100) and this makes deducting things like a home office risky from his perspective.

    My employer won’t allow medical side gigs. I have started a non-medical side gig, but I was not able to have a substantial amount of income this year from this side gig due to an injury. If I can justify the losses, why can’t I deduct things like a home office and training courses for the side gig?

    It also makes me wonder if working as a W2 is really worth it.

     

    #205150 Reply
    Liked by Craigy
    Avatar Tim 
    Participant
    Status: Accountant
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    Joined: 09/18/2018
    It also makes me wonder if working as a W2 is really worth it.

    Click to expand…

    Actually, your gross income and effective tax rate are about all that you can complain about.

    Doesn’t matter w-2, 1099 or the source. Make sense?

    #205152 Reply
    CordMcNally CordMcNally 
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    Status: Physician
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    Joined: 01/03/2017

    Each have their downsides and upsides but make sure you are comparing apples to apples when deciding why you hate one over the other.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #205153 Reply
    jfoxcpacfp jfoxcpacfp 
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    Earnest refinancing bonus

    Do you have health and malpractice insurance through your employer? Group LTDI? For many employees, insurance alone (and don’t forget 1/2 of FICA) is enough to justify the difference. However, if the differential in earning power is significant, it can make sense to go out on your own and fill up a solo-k. You’ll have to do the math with your accountant.

    Regarding the side gig loss, that is between you and your accountant. Talk it through with him and get answers to your questions.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #205154 Reply
    Avatar Peds 
    Participant
    Status: Physician
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    Joined: 01/08/2016

    You could work less then complain less about taxes.

    #205160 Reply
    Liked by SLC OB, Lordosis
    Phoenixdown99 Phoenixdown99 
    Participant
    Status: Physician
    Posts: 151
    Joined: 03/20/2017

    Yes I get health insurance but I only paid about 2K for the year for Obamacare when I was doing locums (would have been 4K for the entire year). I am single, young and healthy so don’t need fancy insurance. My LTD was about $2500 a year. The locums folks covered malpractice AND housing!

    Compared to all the possible deductions, plus the ability to contribute 56K vs 18500K to a 401K pre tax…hmm….

    Tim, I am not sure what you mean — as someone self-employed, I could deduct much more, and also contribute much more to an independent 401K

    #205161 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4287
    Joined: 05/13/2011

    I just received my tax estimates for 2018 from my accountant. I am paying a huge amount of tax compared to last year, when I did locums for half the year. Even with the $18500 401K contribution, $3000 in TLH, and $4000 contribution to a 529 plan to offset state tax (I don’t have any other tax-reducing options, unfortunately, as far as I can tell).

    Apparently, this year I don’t have enough business income (less than $100) and this makes deducting things like a home office risky from his perspective.

    My employer won’t allow medical side gigs. I have started a non-medical side gig, but I was not able to have a substantial amount of income this year from this side gig due to an injury. If I can justify the losses, why can’t I deduct things like a home office and training courses for the side gig?

    It also makes me wonder if working as a W2 is really worth it.

     

    Click to expand…

    A business can take a loss. Do it for too long and the IRS will reclassify your side gig as a hobby though. Does it increase the risk of audit? Maybe. But if you’re not breaking any rules, what’s the big deal about an audit?

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #205163 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
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    Joined: 02/11/2019

     I am single, young and healthy so don’t need fancy insurance.

    Click to expand…

    You can also come back to life 99 times!

     

    As to your main point do you have access to a 457?  Otherwise there is little that us W2 folk can do.  You can get married and have kids but I do not think that would help you financially 😛

    “Never let your sense of morals prevent you from doing what is right.”

    #205164 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 477
    Joined: 06/18/2018

    Tim means compare your total comp between the two different settings and your effective tax rates between the two.

    If the W2 comp sucks so bad, why did you take the job?

    Doesn’t you current employer provide some sort of 401k match to get you closer (or all the way to) the 56k limit?

    W2 and 1099 have their respective pros and cons. If you took a job that has worse compensation than your prior gig, that’s not an inherent W2 problem.

    Are your employer provided benefits better or worse than those you previously had?

    You’re a single guy, how much did the home office deduction really save you above and beyond marginal expenses? Doesn’t your current employer have some sort of CME/professional expense reimbursement?

    #205168 Reply
    wonka31 wonka31 
    Participant
    Status: Physician
    Posts: 603
    Joined: 03/24/2018

    I don’t really understand how an employer can prohibit a side gig and/or why anyone would sign a contract stating that. I’m not an expert, but this doesn’t sound like something that would hold up in court.

    With regards to the tax issue, I would be more concerned with my take home pay and how many hours/how hard I worked as compared to my previous path.

    #205177 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2303
    Joined: 09/18/2018
    Tim, I am not sure what you mean — as someone self-employed, I could deduct much more, and also contribute much more to an independent 401K

    Click to expand…

    Yes W-2 and 1099 have different compensation structures and tax rules.

    Forget about it!  Total taxes/Gross pay. factor in the tax free benefits. The effective tax rate counts. Not W-2 or 1099. The results. Deductions change, rates change, but what was the net result.

    #205187 Reply
    Liked by Zaphod
    Avatar JBME 
    Participant
    Status: Spouse
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    Joined: 03/26/2018

    HSA?

    #205198 Reply
    Phoenixdown99 Phoenixdown99 
    Participant
    Status: Physician
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    Joined: 03/20/2017
    medical school scholarship sponsor

    No HSA option with our health plan unfortunately. The CME is nice, but honestly we only have 4 weeks off and that includes CME days, and I would rather use the time off to travel and relax and obtain CMEs locally, which won’t cost thousands of dollars. Our CME has to be used within the US. Before, I could go to any conference, anywhere and deduct it.

    #205203 Reply
    Liked by E5797
    Phoenixdown99 Phoenixdown99 
    Participant
    Status: Physician
    Posts: 151
    Joined: 03/20/2017

    Employer contributes $14,000 to the 401K, but only fully vested after 5 years. 20% after 2 years, 50 percent 3 years, 70 percent after 4 years. We also get about 1000$ due to salary being over the IRS limit for the match per year as a paycheck.

    #205221 Reply
    Craigy Craigy 
    Participant
    Status: Spouse
    Posts: 1906
    Joined: 09/16/2016

    If all your deductions are legitimate, those costs are mostly coming out of your pocket, and are reducing your net, regardless of how much you pay in tax.

    In other words, as a 1099, you get to write off all sorts of “business expenses,” but if they’re truly business expenses with no personal benefit, it’s hardly better than paying tax.

    As for the side-gig expenses, if your side-gig isn’t bringing in any money, then these are unwise expenses at best.

    If you’re W2, you should be spending as little as possible (near zero) on work-related expenses, keeping all your after-tax dollars in your pocket.  It is surprising to me whenever I see W2 folks reaching deep into their own pockets on work clothes, continuing education, office supplies, equipment, etc., when there are no plans to leave the employer.  Ideally your employer provides nearly everything you need, and anything they don’t you try to find free, buy cheap and make last a long time.

    Also, I know this is obvious, but keep in mind all those 401k dollars are not actually tax-free.  They’re merely tax-deferred.  Someone plugging in $56,000 a year into a 401k over a career is going to be in a stiff bracket in retirement.  That $2,000,000 IRA balance isn’t actually $2M, it’s more like $1.5M or substantially less, whether pulled out in RMDs or paid to heirs.

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    #205235 Reply

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