Being a doctor comes with a lot of stressors, but planning for taxes should not be one of them. As a doctor, you have been through years of hard work and may be looking for ways to help limit your tax liability and preserve as much of your hard-earned income as possible. Below are some tax strategies that doctors may find useful to help minimize their tax liability.
Contribute More to Your Retirement Account Contributions
A great way to limit your tax liability while also giving your retirement savings a boost is by contributing the maximum annual amount to any pre-tax retirement accounts. Whether it is a profit-sharing plan or a 401(k), you will be able to deduct the taxes on the contributions made during the calendar year. It also provides the added benefit of putting more in your retirement savings where it may grow at a high rate tax-deferred until you are ready to start making your withdrawals. The maximum amount you are allowed to contribute each year will be dictated by the IRS and may increase occasionally based on adjustments to the cost of living. The 2023 tax year will allow for contributions of up to $22,500 into 401(k) plans and a general total limit on employee contributions of $66,000. If you are over 50 you are also allowed to make an additional catch-up payment of $7,500.
Look for Tax-Efficient Investments
Another tax strategy to consider is looking at the after-tax return rates on your investments to see how tax-efficient they are. For example, municipal bonds can potentially minimize taxes in most cases. Always be aware of which investments will provide you with a greater after-tax return and work to incorporate these into your financial portfolio.
Keep Up With Tax Laws
Tax laws are constantly changing and staying on top of these changes may allow you to better take advantage of the opportunities that they may present. For example, with the recent change in itemized deductions, it may be prudent to take the standard deduction or possibly take advantage of bunching deductions. One way to bunch deduction would be through charitable giving. Instead of giving small amounts to charity each year, provide one large contribution which may put you over the threshold making itemization the more effective option during that tax year.
Consider the three tax strategies above to help you limit your tax liability and allow you to keep more of your hard-earned income. Interested to learn more about other tax strategies? Contact Walker Covey Wealth Advisors today to schedule a consultation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. Investing involves risks including possible loss of principal.
The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.
Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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