(855) 304-3748
Email Us
Schedule a Call
The Tax Man Is Coming: Do You Have A Tax Minimization Strategy In Place?
Benjamin Franklin famously noted, “In this world nothing can be said to be certain, except death and taxes.” Taxes are an inevitability of life, but with complicated and confusing laws and codes, many CRNAs don’t have the time to proactively work to legally minimize their taxes, and most don’t realize the types of exemptions or strategies for which they may be qualified.
High income earners, like CRNAs, should especially be concerned about taxes. With an average salary of $160,250,1 CRNAs can pay between 28% and 35% just in taxes (depending on their filing status and spouse’s income). Beyond income taxes, many CRNAs are bumping up against the Alternative Minimum Tax (AMT), meaning they must calculate their liability twice (once under income tax rules and the other under AMT rules) and pay the higher amount.
Don’t wait until March to start reviewing your taxes, and don’t file your taxes without speaking with a professional. Working with your financial advisor and CPA to develop a tax minimization strategy can help you legally reduce your overall tax liability. Here are just four steps you can take now to prepare for Uncle Sam:
1. Get Organized Now
Whether you’re planning for your taxes today or next month, get all of your documents together now. This will make preparing your income tax return easier for you or your accountant. The most common documents you’ll need are your Social Security number, W-2s from employers, 1099-INTs for any interest earned, receipts for business, healthcare, and education expenses, and 1098s for any mortgage interest statements. TurboTax offers a great tax preparation checklist to help you gather the paperwork you’ll need.2
2. Reevaluate Your Investments
While you want your investments to grow, some investment strategies are more tax efficient than others. Based on your risk tolerance, time horizon, and financial goals, there are a variety of investment options from which you can choose.
One option is municipal bonds, which are tax-free investments that prevent your income from being affected by tax rate increases. While these bonds may not bring in as much income as taxable bonds, they offer some protection against tax hikes. As taxes are set to increase, focus on tax-efficient returns which may increase your investments.
3. Max out Your Retirement Plan Contributions
One of the best ways you can qualify for tax breaks while simultaneously saving for your future retirement is to take advantage of a company-sponsored retirement plan. As of 2016, CRNAs with a 401(k) or 403(b) can defer up to $18,000 (or $24,000 if you’re over the age of 50) of their annual earned income on a pre-tax or after-tax basis (These amounts can change annually).3 Before January 1, make any final contributions you can.
4. Contribute to a Health Savings Account
Medical expenditures are inevitable. Even if you have competitive deductibles, routine appointments and ongoing care costs can quickly add up. Consider taking advantage of a Health Savings Account (HSA) if your employer offers one.
An HSA offers three tax benefits when you contribute: a deduction when you put money into the account, tax-free compounding, and tax-free withdrawals. This means you can put pre-tax funds aside to pay for qualified medical expenses, and you won’t have to pay taxes when you withdraw the money for those qualified expenses.
For 2016, an individual can save up to $3,350 in their HSA for individual coverage, and $6,650 for family coverage.4 There is also a catch-up contribution of $1,000 per year for those 55 and older. For 2017, the contribution limits increase to $3,400 for individual coverage, but remain at $6,650 for family coverage.
Don’t Fall Prey to Tax Myths
Many Americans pay too much in taxes because they assume tax planning takes too much time and/or money. Here’s the truth: because of taxes, you actually have to earn two dollars for every one dollar that you spend. Conversely, every dollar you save in taxes is worth two earned dollars. Tax planning can help you save thousands, tens of thousands, and in some cases millions of dollars in taxes paid. Instead of wondering if you can afford tax planning, you should be wondering how you and your family can afford not to plan.
Because tax planning can be so beneficial, it’s recommended you don’t go it alone. The IRS tax code is 72,536 pages long and filled with various opportunities and strategies for optimal tax efficiency. The key is understanding how each possible opportunity works, and how it fits into your structure and long term goals. These strategies must be implemented by professionals in accordance with the law and on a foundation of honesty. In addition to working with your CPA, it can be worthwhile to meet with a financial professional who specializes in tax optimization and understands the unique needs and circumstances of CRNAs.
(1) http://www.bls.gov/oes/current/oes291151.htm
(2) http://images.turbotax.intuit.com/iqcms/marketing/lib/TurboTax_TaxPrepChecklist.pdf