Each of the last three years I have done a post about taxes where I “revealed” the tax rate I'm paying. I'm not sure why people find that so interesting (voyeuristic maybe), but I've had a bunch of requests to do something similar this year. The last four years my tax bill has increased dramatically. I only paid 8% in federal income taxes in 2011, and I thought that was a lot since I had always paid much less prior to that. Anyway, prior posts can be found here if you're interested:
- 2011 – Doctor's Don't Pay 50% of Their Income in Taxes
- 2012 – 10 Reasons Why I Pay Less Tax Than Mitt Romney
- 2013 – 2013 Tax Report and the New Obamacare Taxes
I used Turbotax again this year. They've dramatically increased their prices, so I don't blame anyone for switching to someone else. I managed to find a deal for 50% off, so it still wasn't bad. But the biggest cost for doing my taxes is my time, not a few bucks for Turbotax. I spent about 8 hours this year, so I had to ask myself, would I have been better off working another shift and paying someone else to do this than to do it myself? Probably not, since I think I would have been charged a couple thousand by an accountant to do my taxes (personal and business, nearly a dozen schedules, dozens of 1099s to enter and send out, rental property, two K-1s, investments etc.) I don't make a couple thousand, at least after-tax, for any shift. Plus, it's not like I wouldn't have had to spend some of that time anyway gathering together the papers, driving to the accountant to drop them off and then returning to sign and pick up the forms, and making sure the accountant didn't screw up the 8606. Plus, I wouldn't have learned all the little things I learned this year that I'm going to share in this post. To me, that's the most valuable aspect of doing your own taxes-you learn the best way to live your life and keep your records for next year.
The Tax Report
All right, you voyeurs don't have to read down any further than this paragraph. If I consider all of my income (without subtracting WCI and clinical business expenses like malpractice insurance), then my total tax bill is 22.6%- 14.4% federal, 4.9% payroll, and 3.2% state. However, the better way to do this is probably to subtract those expenses out first. Then my tax bill is 23.9%- 15.3% federal, 5.2% payroll, and 3.4% state. That percentage is quite a bit higher than the 15.5% I paid in 2011, and the total amount of taxes is dramatically higher, probably 3 times as much. Our marginal tax rate was 33% federals plus 3.3% payroll plus 5% state for a total of 41.3%. Not terrible considering an income 2-3 times the average physician income.
To make matters worse, I underpaid quite a bit this year (don't worry, the penalty is only $32 thanks to the safe harbor rules- I should made a little bigger estimated payment for the second quarter and could have avoided that) and so get to write some monstrous tax checks in April, the same month I pick up that new boat. I'll have to pay the federal underpayment for 2014, the federal first quarter estimated for 2015, and the entire 2014 state tax bill (Utah doesn't make you do quarterly estimated payments.) It's going to be very close whether I pay more in taxes that month or more for the boat, but when you combine the two, my net worth will drop by 10%! Ouch! I've never had so much cash sitting around in my life, but you can't really invest money you need in a couple of months.
The Big Factors
So what did we do to lower our tax bill this year? Well, the biggest factor was far and away contributions to tax-deferred retirement accounts (partnership 401(k)/PSP, partnership Cash Balance/DBP, WCI Individual 401(k)) and my HSA. That was 24% of my income. When you combine that with a small taxable investment, our backdoor Roths, and 529 contributions, we put away 29.9% of our income for retirement and college. (So yes, we're still pretty sure we can afford the boat.) Health insurance premiums, mortgage interest, property taxes, and last year's state income taxes were all deductible, of course, but the really big factor in our deductions was our charitable contributions. We kept really careful driving records this year and discovered we drove nearly 5000 miles for charity between Boy Scouts, the soccer organization, the PTA, and the church. It helped that a lot of my Boy Scout training takes place on the other side of the state. All together, our charitable donations were 7.3% of our gross income, a massive deduction that is an order of magnitude larger than our mortgage interest deduction. It also helped that since my wife had no income, she paid no payroll taxes. I still don't owe any AMT. If this year didn't get me, I probably never will pay it since most of my deductions can be used under both systems.
New Experiences
I had a few new experiences this time around. I had to prepare a 1096 and a couple of 1099s for WCI. Super simple in Turbotax. I also finally got the rest of the energy-efficient home improvement tax credit for those fancy doors and windows we put in. That's 10% of the cost of materials up to a lifetime total of $500, with a maximum of $200 for windows (good thing we did a door too.) For the first year I got phased out of our exemptions, not completely, but it was close. The kids are no longer a significant tax break. I also lost a few thousand to the itemized deduction phaseout. Given those phaseouts, my marginal tax rate is actually a little higher than it otherwise would be, at 41.8%. This is actually really easy to see with Turbotax. When you're all done, just add $1000 to income and see how much your tax bill increases. Mine increases $418. (Don't forget to go back and take that $1000 out.) The other little tip worth knowing, and this isn't the first year I've had to do this, is that if you have more than one 401(k), you may have to go into Turbotax forms mode (only available on the downloadable/CD version) and manually override form 1040 line 28. You're also on your own for calculating your maximum contribution to that second one. Just remember that it's 20% of your income from that business net of the (deductible) employer half of your payroll taxes. I didn't quite get to max out the WCI Individual 401(k), but it was darn close this year.
Well, how did you do? Did you do your own taxes? If not, how much did you pay someone else to do them? What percentage of your income did you pay in combined federal, payroll, and state taxes? What was your marginal tax rate? What did you learn about taxes this year? Comment below!
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My taxes are super simple. Active duty military with Roth TSP and Roth IRA contributions. My wife work part time and had some 401(k) and Roth IRA contributions. Nothing of note to deduct as we are renters and have no side business so we ended up with the standard deduction. I was able to use Turbotax Deluxe online for free via a link from USAA for the federal. I did my wife’s state return directly on their website for free. Received a refund from both and they are already in the bank.
How does a doctor pay 8% in federal taxes
I am retired with 200k in ret income
About 22% federal and 5% state
And have no regrets as I amassed a large retirement through index invrsting
Follow the links early in the article and you’ll see. I’m still trying to figure out how these doctors are paying 40%.
I paid my accountant $2700 to do my taxes last year. This bill was higher than in past years because I changed from OB/GYN to just GYN. It was hard to figure the estimated quarterly tax. I hope to do my own taxes as soon as I no longer file a schedule C.
X2700 for personal taxes is outrageous
That fee is outrageous and the reason is crazy. It really isn’t that difficult to calculate the quarterly payments or use schedule C off a 1099 and even if it were it shouldn’t take thousands of dollars. They charged what they could – the maximum given your ability and willingness to pay. That is fine but I suggest you learn from that mistake and switch tax advisers ASAP!
Make yourself a spreadsheet, or download some of the excellent already made ones that are more complex and you’ll never have an issue with estimated taxes.
I have both, but now use a simplified version that shows me everything in a few columns. Income, taxes (based on last years effective total rate), retirement, bills, debt paydown, and a monthly fixed float we try to spend less than. Its very easy. You put in how much you made and the rest calculates itself (you have to set it up first of course), then you just allocate it to the appropriate accounts or however you have that kind of thing set up.
Only issue is if you start to have a much better year you have to then make sure and up your calculations. Turbotax is excellent for modeling different situations and i usually have several different simplified returns so I have an idea of the possible spread.
I wish I had more opportunities for tax-deferred accounts. I only have 401k/PS, back door, HSA. We’re looking into a DB plan, but we are a C corp with about 7 employees/physician and I’m afraid the employee contribution is going to kill our plan. Does anyone know of a low cost DB plan administrator?
WCI- which Turbotax version did you use, and how did you get it for 50% off? Did you look into other software (TaxAct, H&R block, etc)?
Thanks!
I used home and business. I saw an ad that expired in one day back in early January. I guess I should have tweeted it out. Sorry!
I didn’t look into other software at all this year. Others have, and have generally found that Turbotax is most expensive but has the most bells and whistles, followed by H&R block and then TaxAct. I didn’t bother looking because the expense of the software pales in comparison to the cost of my time. I know Turbotax already and that’s worth something to me.
WCI,
Pardon for asking, but is WCI incorporated? I ask because I am curious if Home and Business is enough to do your corporate side of the taxes? I was under the impression you also need turbotax business.
WCI is an LLC, but it certainly was enough to do my taxes. May incorporate in the future, we’ll see. Need more income to justify it.
Hi – I very much appreciate what you do for medical students. My wife is the student and I am a pharmacist. I read almost every post you write. My wife brought up a question for us…would it make sense to file seperately instead of jointly? We are married with one child. She is a 3rd year medical student with debt accumulating. I also am working on paying my school off. I appreciate any advice.
Thank you JH
Only way to know is try it. You can do taxes individually, then combined and see which is cheaper.
I agree. Just run your taxes both ways and see. The main time docs may want to file separately is when minimizing IBR/PAYE payments in residency.
My taxes are at least as complex as WCI and maybe more due to other private investments, LLCs etc. My accountant is a super smart CPA. He increased his fee over the years but is only at $600. I won’t complain about the cost anymore after reading these posts. It is an individual decision, but it is money well spent for me.
Sounds like a great deal.
Would you mind recommending your cpa?!
Can you recommended me to your cpa?!
I’d have to go back through to see exactly how much it was. I do remember that my businesses (x3) and personal added near $800. The partnership accounting is what takes the cake though. I’m not sure what the total for that is during the year, but it’s over $10k. We are in the process of dividing up expenses to the individual partners so it’s not all combined. I’m curious to know what my portion of that will be.
WCI,
Great website. Really wish I’d found this back a few years ago.
I have both W-2 income from my employer and 1099 income as an independent contractor. I’d been thinking about how to deduct my health insurance premium from my taxes but was dismayed to see the following on the IRS website instructions for form 1040:
“But if you were also eligible to participate in any subsidized health plan maintained by your or your spouse’s employer for any month or part of a month in 2014, amounts paid for health insurance coverage for that month cannot be used to figure the deduction. Also, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2014, do not use amounts paid for coverage for that month to figure the deduction”.
Do you have subsidized health insurance coverage available at your W-2 employer? If so, are you able to deduct your premiums using form 1120S (not sure if you’re taxed as an S-corp or sole proprietor at your other job)?
It’s not called the SELF-EMPLOYED health insurance deduction for nothing. Sorry, that’s the law.
I do not have an employer. I am a member of a partnership (paid on a K-1) which provides a subsidized plan to its employees but not partners. So there is no subsidized health insurance coverage available to me. If I want the group plan, I pay full rack rate, so I would still be able to deduct it.
But my partners whose spouses have health coverage can’t buy their own and deduct it. They just use their spouse’s plan and skip the HSA though if they’re smart.
To my understanding if you are a C-corp, the corporation can provide you health insurance which is a business expense.
I still do paper filings (i.e., filling out Adobe documents and printing and mailing them). I am still uncomfortable (due to mild paranoia as opposed to any real evidence) with the ability of Intuit and others to protect everyone’s information, but I do not begrudge the convenience that others enjoy.
With that said, my tax situation is relatively simple. One employer and additional income from royalties, interest, and dividends. My employer has three retirement plans (401k, 457b, and defined benefit), and I participate in all three. I was able to defer (non-Roth) $35k last year and will defer $36k in 2015. An additional 7% of gross salary is a pretax contribution to the defined benefit plan.
I am not a doctor, but I also enjoy reading WCI.
Thanks for sharing. Is there advantage to getting TurboTax desktop vs online version? Do you have to file tax for your children if the UTMA interest/dividends or capital gain is below $1000? What if it went above $1000? Thanks.
You have to have the desktop version to have “Forms Mode” where you can override the $53K limit on the self employed retirement plan contribution line. That’s why I have desktop. I file for my kid even though income is under $1K to carry losses forward.
And no, you don’t HAVE to file if under $1000 of unearned income.
http://www.irs.gov/publications/p929/ar02.html#en_US_2014_publink1000203738
Hi,
This is a really basic question, but I’m looking at my 1040 from 2013 in order to calculate my effective tax rate for that year. My question is WHERE on this form can you find the data needed to calculate the effective tax rate? I think you use line 61 for the total tax. But where is the total gross income listed? I have an accountant do my taxes so I don’t use Turbotax, etc. I am hospital employed, no rental income, no business, etc. Does summing the total of box 5 (medicare, wages, and tips) on all my W2s (mine, wife’s, and another hospital I moonlight at) lead to gross income? Thanks. Learning a ton from your website.
DK
I use line 22- “Total income.”
Ok, so I take line 61 and divide this by line 22 to get my effective tax rate. Where on the 1040 do I find out how this is broken up? In other words, what percentage is federal, payroll, state, and in my case, city (New York City)? Thanks again.
Your state and city taxes aren’t found on the 1040 at all. They’re on a state and perhaps a city specific tax form. If you’re an employee, your payroll taxes are on your W-2. They were withheld by your employer. If you’re self-employed, they’re on line 57. The rest is federal income tax.
Great website, thanks for sharing your experience. Would you have any advice
for fellows with extra money from moonlighting. As far as I’m aware we are not offered 401k, 529, HSA. We don’t get much benefits. In the same time active moonlighting can put us in quite high marginal tax bracket. Any advice how can I decrease taxes except of putting money in traditional IRA (I put in roth anyway), getting deduction for house mortgage (that I don’t have), and family members? Can I open company and use it for moonlighting? Would it be possible? Thank you.
Assuming you’re paid as a 1099 independent contractor and not a W-2 employee, use an individual 401(k).
Great idea, thanks a lot!!!
As a fellow — don’t you at least get a crummy non-matched 401k from your primary job (fellowship)? I stowed away the grand majority of my last 6+ months of residency income into a 401k, and lived off the moonlighting. It took some careful planning but we had planned ahead to avoid huge bumps (i.e. didn’t start the deferral until we had 2 months bills paid ahead in addition to the base emergency fund).
That last year of training is a great time for Roth 401(k) or a 401(k) that is converted to a Roth IRA after leaving training.
I have 1099 for my moonlighting and W2 for fellowship. I’m thinking to max SEP IRA this year (I remember your post saying SEP IRA is much easier to set up than solo 401k). One question. I missed backdoor roth IRA deadline this year. And my income is too high for normal roth IRA. If I put 20K in SEP IRA and bring my family income below 183, can I still put money to roth IRA this year? Thanks a lot,
Look at the Roth MAGI calculation. I think the SEP contribution comes out before it but don’t have time to look it up right now. SEP contributions are above the line deductions.
The backdoor is an option too as long as you do something with the SEP money by year end.
But backdoor deadline is Dec 31st, isn’t it? I completely missed it, thinking that it’s April 15th. So I guess 2015 backdoor is not the option any more. All I can do is to reduce gross income by SEP IRA contribution, roll it to 401K, and put money into normal roth-IRA account. Hopefully I’ll be able to reduce it below 183k. Also last question, can I roll SEP IRA to wife’s 403b. As a fellow I don’t have my own 401k. Thank you!
The deadline for 2015 IRA contributions is April 15, 2016. There is no deadline for the conversion step. This will work fine if you haven’t yet done your 2015 SEP-IRA contribution and eventually could work out even if you did that in 2015. It’s just a little more complicated of an 8606. No biggie. You can’t roll your SEP IRA to your wife’s 403B. Since you’re still a fellow have you thought about just converting the entire SEP-IRA to a Roth IRA?
I haven’t set up SEP-IRA yet. My understanding is, and please correct me if I’m wrong, that deadline for IRA is 4/15/2016. So I can still put money into TIRA for 2015 tax year, but if I convert it next day, the conversion of that contribution will be a 2016 conversion. So I kind of lost opportunity for contribution to roth (backdoor) for 2015. I won’t be able to make another conversion till 2017, if I do it now. That’s why I thought I could max SEP-IRA to decrease my MAGI, roll it over somewhere, and put money to roth in regular fashion, as deadline for that is 4/15. Now I see it’s more complicated, because I don’t have a way to get rid of money from SEP-IRA as I have no 401k. I could roll SEP-IRA to roth, but then it won’t decrease my MAGI and I won’t be able to contribute to roth anyway. I’m kind of stuck. I could just max my SEP-IRA this year, and forget about the rest. But what should I do with this money next year, to be able to do backdoor roth.
No, it isn’t a lost opportunity. What is fascinating is I had this same question here not 16 minutes earlier:
https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/#comment-427093
The only deadline is the one for contributions-the April 15th deadline. The rest you can work around, you just get an ugly 8606 situation. No biggie though if you just follow the instructions. You can do a conversion any time you please.
As far as the MAGI issue, here’s the link:
https://www.irs.gov/publications/p590a/ch02.html#en_US_2015_publink1000230985
Looks like your SEP-IRA contribution does reduce your Roth IRA MAGI.
Sounds to me like you have a few options.
#1 Make your 2015 SEP-IRA contribution, lowering your MAGI enough that you can do a direct Roth IRA contribution.
#2- Make your SEP-IRA contribution, then convert the whole thing to a Roth IRA and do a backdoor Roth IRA.
#3- Make your SEP-IRA contribution, do a backdoor Roth IRA, and figure out a way to get that SEP-IRA money into a 401(k) by Dec 31, 2016.
I don’t see how you’re stuck. Lots of options, no? Am I missing something?
Thanks so much. This is very helpful. I really appreciate your help! After further calculations, option 1 won’t get me below regular roth limit. I will probably do option 3, in the meantime I will open solo 401k and later roll SEP-IRA to my solo 401k. I think this sounds like a good plan! Thank you!
OK, I screwed up. In my haste, I assumed that TurboTax had filled out the 8606 correctly for backdoor Roth conversion; but alas, after reading your post on the matter it seems that I did not. I have already filed my taxes and received a return.
What is my best course of action? I realize this would be a better question for a CPA, but since I did my own taxes, I don’t have one!
For the record, I did fill out a 1040X on TurboTax and the error is neutral from a tax perspective (ie, I get no more refund but I owe nothing additional). But since form 8606 does not clearly show that the non-deductible traditional IRA was converted to a Roth I am concerned about its future.
I guess really I have 2 questions: (1) is there any harm in just sending in the 1040X and amending the return? Will this increase my audit risk? Is it even necessary? (2)Fundamentally, is a retirement account a “roth” or “traditional” based on what the investment firm calls it? Or is it based on how it’s reflected in my tax documents?
You only need to post your questions on one thread. I see them all.
I wouldn’t expect it to increase audit risk. The retirement account documents, both from the IRA provider and from you, should match.
I had the same problem a couple years back, but oddly enough it wasn’t because I forgot to file the 8606, but it was the accountant! I had been doing my own taxes for years and was worried that I may be missing out on deductions somewhere by doing them myself so one year I hired an accountant, not only was my tax bill higher with him (I shadow filed with turbotax, then suggested to him the turbotax way of filing to get the lower tax bill which he then ammended), but he failed to file the 8606. The next year, I received notice from the IRS saying I owed tax on my Traditional to Roth IRA conversion. I realized the accountant hadn’t sent in the 8606. So I responded with a brief letter of explanation to the IRS and included the 8606 form and voila, all taken care of. I couldn’t believe it would have been so easy with the IRS.
I am by no means an accountant/expert and others will likely have a better response, but I would just ammend with the 8606 included.
Worse year ever for taxes.
Paid total ~$220,000 tax on income of $680,000.
The government keeps taking more and more from those working.
is that JUST federal or including your payroll and state?
Just Federal and State Taxes
You should be happy you paid more in taxes, that means you made more too. If you are unhappy I can switch spots with you, I paid less in taxes.
Hi WCI, could you tell us where you ended up opening your solo 401k? Thanks.
Mine is at Vanguard, where it has been for several years. If I had to do it all over again I might have chosen differently, perhaps eTrade or Fidelity. There’ll be a post coming out in a few months about another option (basically a custom plan through Vanguard.)
I’ll be looking forward to that post. I went with Fidelity a couple of years ago since their Solo 401(k) allows IRA roll-overs (thereby preserving the Backdoor Roth) but have since contemplated switching to Vanguard for their better offering of index funds. Hurdles to that move include inertia and my reading that they don’t offer Admiral shares within the Solo 401(k).
Trying to figure out the Turbotax software as it relates to HSA’s.
My wife had an HSA through her work. My son’s and myself were on a different healthplan. Both were high dedcuctible. Even though we had different HSA’s can we still contribute the full amount of 6,550 to “stealth” IRA? My wife’s plan contributed about 1200 to her’s, and I was planning on making up the difference and putting in about 5300 into mine (which is the account we use for the “stealth” portion)…Turbotax is having fits with this though. I can’t get a good answer from them. Is what I am trying to do ok by IRS standards? If yes, then anyone else having turbotax trouble with this?
Thanks,
Not sure why that’s a big deal. Can’t you just put “$5300” in the box where they ask how much you put into an HSA? You might try going into “forms mode” to override Turbotax. I have to do that with retirement contributions each year.
I had a similar issue last year and posted a question about it on Turbotax forum. My wife has an HSA and the kids are covered under my HSA. My mistake was calling hers an individual plan in turbotax. The advice from the forum was that to the IRS it all falls under the family limit and hers should be designated as family for all 12 months of the year. That fixed the issue and I had no problems this year. Not sure if you are having the same problem. I admit it is a bit confusing to sort out employer contributions pulled straight from W-2s, but if all else fails I like WCI’s suggestion to utilize the forms mode.
It is a very similar problem to what you are describing Matt.
Turbotax tells me I will owe a penalty if we have 1200 in my wifes “family account” and 5300 in my family account. I have tried switching around all the variables (family vs individual vs amounts etc) and the only way to avoid the “penalty” message is to put it all under my wifes account which is technically wrong.
I will try and play with the forms mode.
Thanks,
16% as a resident with about 53k gross (3k on a 1099)
Thanks for the post. I’m curious about the charitable deduction for miles for the “soccer organization.” It seems like you’d be driving your kid(s) to games whether or not you were coaching, etc so I assume you’re not deducting those miles. The Boy Scout training makes sense but at first glance the soccer thing seemed aggressive.
Last I checked, the IRS doesn’t ask or care if “you’ll be going there anyway.” If you’re going there to coach, work in the snack shack, referee, be a board member etc, it’s a charitable event and your mileage is deductible. We’d deduct more if we kept better records. Now, if I drive over there to watch the game on a separate trip, we don’t deduct the mileage. But if my wife is going to spend 6 hours at the field on Saturdays, and my kids’ games are over in 2 hours, I’m pretty sure there’s some charity going on there and I have no qualms whatsoever claiming that mileage.
Hi WCI, I really look forward to the post on solo 401k. My husband is starting a small private practice and we are in the midst of deciding where to set up one. I read on the Bogleheads about the custom Vanguard plan and that’s our top choice right now. By the way I just want to say that I came across your blog in 2012 while on maternity leave. Every afternoon while taking my newborn daughter out for a walk in a baby carrier I was reading your blog. I enjoy it tremendously and it has affected our financial life in a very positive way. So thank you.
What were the key factors that allowed you to avoid the AMT? i am a salaried academic MD, have a 401K, and a small consultant income allowing me to contribute to a SEP – no backdoor Roth IRA (would rather just contribute same to taxable acct) – get hit with AMT every year,
This article might help:
http://www.acepnow.com/article/tips-avoid-paying-alternative-minimum-tax/
In my case, all my main deductions are still good under the AMT system- retirement and HSA deductions, charitable deductions, mortgage interest etc. The only one that really isn’t is my state taxes.
Curious why you prefer to invest in taxable instead of Roth?
Re: Turbotax forms only mode
Why did you have to go into “forms only”? I have a SEP through my W2 employer, and a solo-401k through my independent contractor work. Do you think I need to do anything special through Turbotax to report this?
Thanks!
That’s where you override what Turbotax allows. For example, the program doesn’t let you put more than $53K into 401(k)s.
in terms of maximizing deductions, I’m interested in hearing what WCI and the group thinks about the following. I’m in my 2nd year out of training as an employed physician. 2014 is my first full 12 months of attending salary. The amount I paid in taxes is pretty shocking, and I’m certainly looking for ways to minimize the 2015 tax bill. Many of the physicians I work with use “online CME” companies when they go on vacations. For example, book a 5 day family ski trip. Buy a 5 day online CME package for $200-300 (where you do a daily hour long audio CME program, such as audio digest) and then the company sends you a CME certificate. Thus, they count the airfare, any lodging (ie nice hotel suite for the fam) and their individual food expenses as a work-related expense. They argue that this isn’t much different than going to a nice university sponsored ski or beach CME conference. Thus, you can effectively write off a significant portion of one’s personal travel expenses.
Is this something that most would see as reasonable? Or at least, allowable from an IRS standpoint? And if so, where does one find reasonable limits? One partner recently booked a 4 bedroom ski house ($750/night) to do his CME in.
Well, that first tax bill is shocking, but shouldn’t be surprising if you know how the tax code works. Remember the first paycheck should also be shocking as it is probably 3-6X what you made in training.
As far as these “do anywhere CME courses” I haven’t seen anything definitive. I can certainly see losing that issue in an audit. I see the companies offering this are careful not to promise a deduction on their websites. The course, of course, is deductible, it’s the travel that is in a gray area since you could obviously do the course sitting on your couch at home. So let’s look at the IRS rules for business travel:
http://www.irs.gov/taxtopics/tc511.html
Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession or job.
You are traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.
My interpretation of the rules would be that since this travel is not “necessary” and your duties do not “require you to be away from the general area of your tax home” that those expenses are NOT deductible. That doesn’t mean you can’t try; remember most tax returns are not audited, but I would not feel right about taking that one and would have a hard time arguing it in an audit or in tax court.
And you’re an employee anyway, so this isn’t going to help you nearly as much tax-wise. However, what you may be able to do with this is use an employer-funded CME fund to pay for your travel. If that’s the case, check with your employer for their rules. But I wouldn’t think they would allow it because those expenses aren’t any more necessary for them than for you.
We used to use this method for CME. We used American seminars. How ever the whole group felt violated, when someone took an RV for camping and put walmart receipts for food and toilet papers for CME.
We stopped doing it. I hated the decision, but sleep more secure.
I’ve done this for high priced cat-skiing back when I was self-employed. My super-conservative accountant didn’t blink an eye. The certificate says “x review course” at “Y hotel” over “z dates.” High yield since the skiing cost is wrapped up in the lodging fee. The IRS doesn’t need to know that you listened to books on tape in the evening after skiing waist deep pow all day.
Just couples matched into gen surg and ob/gyn. Any advice as to whether we should file jointly/separately for ibr? I know it makes sense when one partner is going for ibr, but what about both?
Probably separately for IBR. Just run the numbers both ways. It’s very easy with tax software.
My thoughts for income/filing:
0-150% federal poverty line(FPL) should file together ($0 IBR payments up to 23,595.00 in Annual MAGI)
151+% need to do calculations
-If you will for sure do IBR/PSLF for 10 years, then file separately only if tax credits/deductions lost are less than (MAGI-150%FPL)*10%. For most fourth years with little income, I suspect filing together would be best. (Lifetime learning tax credit, student interest deduction, and earned income tax credit are all lost when filing separate. Also lose Marriage Benefit from tax brackets doubling in amount.)
-If you don’t know if you will do IBR/PSLF for 10 years (or don’t think you will), I would hedge and file together nearly always*. Lost tax breaks really add up.
*Unless your spouse makes enough to make IBR payments 50% or more of a 10 year payment. This would require specific number crunching.
My soon to be OBGYN resident spouse and I have hedged our bets this year and filed together. We would have lost nearly 3.5k in tax breaks from losing wife’s tax space, tax credits, and deductions (it could be more, math gets fuzzy without looking at tax software).
That’s exactly the comparison to do. The benefits of better cash flow and potential forgiveness vs known permanent tax benefits. This would make a great guest post. Any interest?
My wife cannot shut me up about student loans right now, so maybe a post is a good outlet for this conversation ;). Although, not sure if I will make it past guest post guideline #1.
There is an IBR loophole that I think I have found that I have not seen people talk about (not sure if I want it public knowledge). Maybe I can send that your way as well.
I have to edit some more than others. Based on your comments, you’ll do fine. You wouldn’t believe how many people apparently can’t even read those guidelines.
WCI do you add you CME compensation and 401K contributions to your gross salary to calculate effective tax rate as both are not part of the gross salary?
Ha ha, CME compensation. That’s funny. No, if I got CME compensation I probably wouldn’t add that in but would consider it a benefit. But yes, I add my 401(k) contributions in there. If I didn’t put them in the 401(k) I could spend them I suppose.
I guess to correctly find out your effective tax rate, you should add only 70% of your 401K/403b contribution since probably 30% of it belong to government.
Maybe only 15% of it if I’m lucky. An interesting idea though.