The 2022 tax deadline is now long gone. Yet another tax year that has passed. And another year that I heard tons of physicians in the doctors’ lounge complaining about how they paid too much in taxes. Unfortunately, I don’t hear those same doctors doing much to learn about ways to lower their tax burden. But fortunately, there are ways to do this and you are reading this post where I’m going to share how (with big help from an important resource).
Before we start, if you are really upset about how taxes work in this country, I’m going to recommend that you start by reading this post: 3 Important Things to Know About Our Progressive Tax System.
I say that because an accurate understanding and representation of how our tax system works is necessary before you can working on getting to a lower tax burden.
Because taxes are a reality. Because you owe your fair legal share in taxes. That’s just the way it is. But you don’t need to leave the government a tip. So, you can either bury your head in the sand in frustration. Or learn how to use the tax code to your advantage. It’s your choice.
And I can tell you from my experience over the past 2 years, it pays off to learn!
Learning how to lower your tax burden in 2023
That’s how you are going to lower your tax burden. And later in the post, I will get into whether you should get someone to help you create and implement your tax strategy (hint: the answer is sometimes).
But regardless if you have a tax advisor or DIY, you need the same education.
In the beginning, like when you are a resident making strictly W2 income in a low tax bracket, a basic understanding like I provide here is sufficient.
However, once your income starts to increase, whether you have only W2 income, only 1099 income, or some mix of them, you will want to have a much better and comprehensive working knowledge.
The best resource
I have a tax advisor. She is Alexis Gallati and she is the founder/owner/badass of Cerebral Tax Advisors.
It just so happens that she also recently published a comprehensive book on taxes for physicians (her husband is a doctor) called Advanced Tax Strategies for Medical Professionals. It’s actually a second edition.
And I recently finished reading the book.
I can unequivocally say that it is the most comprehensive, yet readable and understandable, book on taxes that I have come across. There are some others that are fantastic for a basic knowledge like I mention above. But this is the 200 level crash course that you need.
Plus it is especially geared to doctors. While this is not always a necessary component of financial resources, it is quite helpful when it comes to taxes. Because we do have unique tax opportunities and circumstances.
And I would like to emphasize again that the book is immensely readable and understandable. Because I get it. A 258-page book on taxes is intimidating. I was intimidated before I read it. Luckily my fears were unrequited.
So, my ultimate recommendation for any doctor who wants to lower their tax burden is to read this book. I can confidently say that once you do, you will have the education necessary to save yourself a lot of money on taxes.
Why do I need education to lower my taxes? Especially if my tax advisor is doing everything?
There is a weird paradox here if we dig a bit deeper.
Doctors with a very basic tax situation doing their own taxes likely will not be able to implement many of the strategies they will learn about in the book.
At the same time, doctors with more complicated tax situations will be best served with a tax advisor. And that tax advisor will be doing the work.
So does education really matter? Since you will either not be able to use the strategies or won’t be the one actually implementing them?
It’s a real question, but it’s overly simple
I’m going to tell you from my own personal experience that the answer to the above question is an unequivocal “yes.” It matters. Because the questions above take an overly simplistic view of the subject.
Let’s start with situation #1: A doctor with a very basic tax situation doing their own taxes
This was me in 2020.
I had only W2 income as a resident for 6 months and an attending for 6 months. I did my taxes myself.
However I also read a lot about taxes. (And I unfortunately needed to read from a ton of different resources as Alexis’ book was not yet in my hands.)
And this education had a massive impact on me. I suddenly was aware of and understood all of the tax strategies that I wasn’t implementing. Mostly because they were unavailable to me. This spurred me to seek ways to gain access to and use these strategies to lower my tax burden.
That led me to seeking a tax advisor. And that decision has paid off. Of course, you could also try to DIY. Which is a perfect segue to…
Situation #2: A doctor with a more complicated tax situation
While straight W2 physicians can lower their taxes (here are 5 ways), the simple fact is that option are limited. An ironic but valid truth when it comes to tax mitigating strategies is that the more complicated your taxes, the more that are available to you to use.
Anyway, fast forward to 2021, and even more so 2022, and I was the doctor with a complicated tax situation. I now had 1099 income as well as real estate investments. These were intentional creations on my part to allow my access to more advanced strategies to lower my tax burden.
And this was arguably when my tax education became even more important. At this point, I read the first edition of Alexes’ book, Advanced Tax Strategies for Medical Professionals.
But this also coincides with when I hired a tax advisor who developed a tax strategy with me and Selenid and also filed our taxes.
So why did education matter if I wasn’t doing my taxes myself?
A few big reasons actually.
First, I wanted to make sure my tax advisor was doing everything they could to legally reduce my tax burden.
Remember, you gotta pay your fair share. But no need to leave a tip. The tax code is the government incentivizing you to live a certain way and do certain things. Follow their guidance and you save on taxes. Fair or not. Like it or not. That’s how this works.
I couldn’t be sure my advisor was doing everything possible without knowing about the possibilities myself.
But there’s more…
Second, I want my tax advisor to be doing everything possible. Legally. It’s equally important, actually maybe even more so, that they are doing it the right way. I don’t want to leave a tip. But I don’t want issues or line crossing either.
Combine these things and you can see how important education is. And how it is necessary to select the right tax advisor for you.
This is in contrast to education and the decision to work with a financial advisor – where once you learn enough to tell good advice from bad advice, you can do it yourself. In the case of a tax advisor, you also need education to tell good advice from bad and whether you are getting a fair price. But then, in my opinion, the price for execution is worth it. For effectiveness and peace of mind.
Minding your taxes and learning to lower your tax burden in line with what you legally owe is a great way to optimize your wealth building towards financial freedom.
And the key here is education for all of the reasons we discussed above.
If you are looking to gain this education in an efficient way through one resource, the second edition of Advanced Tax Strategies for Medical Professionals by Alexis Gallati, who happens to be my tax advisor, is a great place to start!
You can also check out my personal tax plan designed with Alexis here!
What do you think? What are you beliefs around taxes? Do you work to optimize your tax plan? How? Let me know in the comments below!