It was that time of year to do my 2021 income taxes. I put this off until I could get all of my documents together, and over 3 days and maybe 4 hours, I completed it.
The hardest part is getting the documents that have the income reports. – that’s the 1099s and dividend reports, etc. I keep all of my expense reports, so that part is easy.
As I’ve mentioned before, I prefer to do my taxes because I learn new things and keep a close eye on how my income affects my taxes.
2021 Income Tax Summary
On the Schedule C of my form 1040 for federal taxes, I reported gross earnings of $89,000.
I had a total of $47,000 for deductions.
This year, for the first time, I used Schedule E to report rental income for my apartment in Portland, Oregon.
In 2021 I had income from consulting, clinic work, telemedicine, rental income, and investment dividends.
I consulted for several companies for which I got some 1099s and straight bank transfers. I have a business account, so it’s easy to keep track of everything coming in and going out.
I deducted somewhere around $6k for meals, $3k for travel, and some home office expenses.
I also deducted $14k of expenses for rental income property. From which I only earned $7k. This, of course, left me with $8k in losses which I used against my business income.
I was able to deduct about $4k for the business use of my home. Since I worked from home and paid quite a bit of rent on Airbnb, it was a sizable deduction.
State Income Taxes
I am no longer living in Oregon but own property there. When I am in the US, which is maybe a little over half of the year, I stay in CA. Therefore, CA is my primary residency state.
Some might argue that it’s a high-income tax state. But I only owed $500 in income taxes for the entire year because my taxable income for CA was $54k. Or approximately a 1% state income tax rate.
I got $10k in deductions for CA, which got me to this $54k mark. And the total tax I owed was $500 because we use a marginal tax rate in CA.
As for Oregon, I got some money back because I didn’t make any money there but had a loss from my real estate. What a win.
Ever since I dealt with the medical board stuff in Oregon, I’ve wanted to minimize my tax exposure in that state.
Overall Tax Performance
Taxes are among the highest expenses we have as entrepreneurs in America. Like any business, we get to choose whether the money we pay is worth what we are getting in return.
When I made $400,000 in W2 income as a Kaiser employee, I paid $130k in taxes. The more I worked and harder I worked, the more taxes I would pay.
Now, as a small business owner and independent contractor, I keep most of my money. With an 11% federal tax rate and a 1% state tax rate, I can be a happy taxpayer.
Looking Ahead to 2022 Income Taxes
This year, in 2022, I am planning on ramping up my virtual practice. There are some nuances to these out but it’s heading in the right direction.
The income will remain business income as opposed to earned income as a sole proprietor.
In order to avoid paying income taxes in Spain I’ll avoid making Spain my primary country of residence. I will also avoid staying here for more than 183 days. That’s easy to do with Portugal just an hour away from me.