The majority of physicians are not in the top income tax bracket, which means they probably aren't making as much income as they should. So how can you fix this?
Your hard-earned money has been legally confiscated by our elected leaders, and you’ve signed on the dotted line for them to take it.
(Kind of reminds of you when you signed all those papers for the government and insurance companies to determine your pay as a physician doesn’t it?)
No worries: I’m sure they’ll spend your tax money wisely.
If you look at your 2013 tax return, I bet you noticed some nasty surprises like all the new direct and indirect taxes you’re expected to pay going forward.
Here’s a sample (there are more, but the US Tax Code is 70,000 pages):
• A new tax bracket
• The marriage penalty
• Higher dividend taxes
• Higher capital gains taxes
• An additional Obamacare Medicare tax
• Another Obamacare investment tax
• Phaseout of personal exemptions
• Phaseout of itemized deductions
• Lower medical expense deductions
• Higher Social Security taxes
And don’t forget to add your state income tax on top of all that. Some states bumped up their rates last year.
While the dollar amount of your tax bill for 2013 might be upsetting to you, I think doctors, like you, should be paying even more. A heck of a lot more.
In case you didn’t know, our federal income tax system is a tiered system (the government likes to call it “progressive”). This means that on the first few thousand dollars of income, you pay a lower tax rate than on the next few thousand dollars, which pays a lower rate than the next few thousand, and so on until you reach the highest tax bracket.
For 2013 the highest tax bracket (39.6%) applies to income above $400,000 (single) or $450,000 (married).
So suppose you’re married and made $500,000 in taxable income. Then the last $50,000 is taxed at 39.6%, which equates to $19,800.
But here’s the problem. How many physicians make over $400,000 in taxable income?
Not too many.
According to Medscape’s 2013 Physician Compensation Report, orthopedic surgeons had the highest average annual compensation of about $405,000. Which means everyone else had lower income than that. In other words the majority of physicians are not in the top income tax bracket, which also means they’re paying lower income taxes.
My point is that doctors should be taxed more—not because I want you to pay more taxes or because I think you’re not paying your “fair share.”
It’s because you should be making a lot more income!
You provide an incredibly valuable service to society. But you’re not paid enough for the value you provide.
If you think you are, or you think you’re making more than you should (aka the “my income is better than [another profession]” attitude), all you’re doing is devaluing yourself. That’s something many physicians outwardly do since we’re too afraid to talk about a taboo topic like money and speak what’s really on our minds.
So the question I have for you is: What steps will you take to increase your income and your taxes?
Here are your options:
Option 1: Work more shifts, take more calls, work more hours, and crank out more patients.
Option 2: Get your finances and investments in order so that you build up a big portfolio and generate more passive income.
Will you choose the first option, like the majority of physicians, or will you choose the smarter path?