Demystifying Tax Brackets for Physicians

Welcome to the Doctor’s Eyes Only podcast, and today Vestia Partner and CEO Lauren Oschman talks about ways to potentially demystify tax brackets for physicians. Lauren explains the difference between flat tax rates and graduated tax rates, while using examples to illustrate how graduated tax rates work, with only the income above a certain threshold being taxed at a higher rate. An example of a flat tax, could be some state taxes which are a fixed percentage of your income. A graduated tax however would be one that stair steps up as you make more money. 

After delivering some general information about the different ways your income could be taxed and clearing up some misconceptions, Lauren then explains how things can get complicated for physician clients when there are two incomes in the household. When considering graduated taxes, doctors typically have high incomes which already has them in a higher tax bracket. And even though certain percentages taxed  only cover certain portions of that income, a spouses full income could be taxed at the higher rate when filing jointly. This becomes an issue if your spouse doesn’t have enough taxes withheld at their employer. 

As Lauren explains, there are many tax strategies that can be implemented to help ease some of the burden, and especially to prevent a huge tax bill. It may be a good idea to run a projection in September or October so there is no potential surprise on April 15th. 

“I think it's a smart idea, around September or October of the year to pull a year -to -date pay stub for each one of you (when filing jointly). And this is even if you're a single physician household, this is something that can make sense if your income tends to vary. If you get productivity pay, maybe you got an extra bonus, you cashed out some investments, things that would hit your tax return during the year that maybe you didn't plan for in the beginning of the year. Get all of that on the table so to speak with your accountant, with your financial advisor, and have a projection run to show, based on what you expect to happen in the last few months of the year, and based on everything that's already happened in the first two thirds of the year. You have the opportunity then to either adjust some withholdings for the last few months of the year,  for the option of paying in some money each quarter if you discover that you might be underpaid, or just to have your eyes wide open as to what that April 15th number is going to look like.”

Thank you for tuning in to the Doctor’s Eyes Only Podcast. Be sure to follow and subscribe where ever you find your favorite podcasts. As always, the information in this podcast is a general over head view, and we suggest meeting with your financial advisor and your accountant before making investment or tax decisions based on your specific situation. If you do not have an advisor or would like a second opinion, you can reach out to us at myteam@vestia.com, and an advisor will be in touch soon! 

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