It’s fairly late to do any more tax planning for 2017 but it’s the perfect time to do some tax planning for 2018. This post will go over a few brief topics to keep in mind for healthcare professionals who need to do some tax planning.
Lowering Your AGI
The reason I want to talk about your AGI is that it is one of the highest yield topic to focus on. Lowering your AGI is the best way to lower your tax burden and retain a higher percentage of your money.
Whether you believe this or not – and despite the popular sentiment of the opposite – you are penalized for having a higher income. Your benefits, your tax burden, and your security in this economy is far more fickle when you’re among the highest earning employees. Start your tax planning for 2018 now so that you can offset the tilt.
Your AGI (adjusted gross income) is what’s used by most financial decision makers to factor in your subsidies and your tax-burden. Remember that I can still set aside $18,000 a year in an individual 401k and show a taxable AGI of nearly $0.
You can earn $63k and pay $0 in income taxes.
I’ve never had a CPA who sat down with me to do some strategic tax planning for 2018. I’ve met quite a few and discussed the topic, but it’s often the law offices which focus on such matters.
When I have asked in the past I got some generic answer along the lines of “max out your retirement contributions”.
By lowering your AGI you can qualify to write off expenses with a high floor such as healthcare spending (10% floor) and expenses on professional fees (2% floor). By tax planning for 2018 you can either push off your expenses into the next year or spend for those items this year to reach the cut-offs.
Here is a brief list of traditional ways of lowering your taxes as a healthcare professional.
- retirement account contributions
- donations to charities
- mortgage interest
- property taxes
- student loan interest
- investment losses (tax-loss harvesting)
- expenses looking for a new job
- CME expenses
- healthcare costs
- HSA contributions
And a list of non-traditional ways of lowering your taxes which is a lot less boring than the list above:
- earn less money
- switch to a self-employment position
- start a side business
- move to a state with lower state income tax
- hiring your kids if you are self-employed
Income From Work
There is no law saying that I have to earn as much income as possible. I can work just enough to cover my living expenses and write everything else off. If done strategically, I could be left with a taxable income of around $0-$10,000.
The lower my taxable income, the more subsidies I could qualify for. I’ll set aside the moral discussion of this topic for now.
More importantly, I can either earn money as an employee and have very little to write off , a lose-lose situation, or I can choose to be an independent contractor or a become self-employed and be able to write off a lot more against my income.
Summary: My plan will be to earn just enough to set aside a little cash, pay for my overhead, and show a taxable income (AGI) or nearly $0.
Housing Tax Planning For 2018
Even with a paid-off home, the minimum overhead for housing includes:
- property taxes
My property taxes are only around $2,100/year. Though this will go up every year, it won’t be a significant percentage. And since your property taxes are tied to your home-value, it doesn’t make sense to complain about rising property taxes.
Doing work from home also means having the ability to write off utilities, repairs, and even a portion of the property taxes against the income I earn from that home-office.
Summary: I will maximize my home-office deduction which I haven’t done in previous years.
We are currently in the open enrollment period. My health insurance plan through Kaiser Permanente sneakily added a document to my online account without notifying me of it, stating that my premiums would go from $228/month → $274/month.
Has the cost of health care increased by 20%?
Have we had massive inflation to justify this 20% price jump?
Or is KP taking advantage of the mandatory nature of health insurance?
For an educated individual like myself, navigating the health insurance marketplace is still incredibly difficult. Everything from open enrollment to tax penalties for not having coverage, it’s all a mystery.
I went on healthcare.gov to check and see if I could qualify for any discounts in 2018 based on a potentially lower income. The application was confusing and in the end I wasn’t able to figure it out and gave it up.
For 2018, any taxable income below $16,643 for an individual could qualify for free health insurance through Medicaid. Remember, I can make $100,000 and still have a taxable income (an AGI) of <$16k.
For those showing an AGI of $16,643-$30,150 there would still be some decent savings on insurance premiums.
Summary: I’ll play around with TurboTax this year to see if I can manufacture just the right spending and deductions to get me into an AGI that will qualify me for healthcare subsidies.
State Income Taxes
I always try to revisit this topic. I live only a few miles away from the Oregon-Washington border. In WA there are no state income taxes while I pay nearly 10% in Oregon.
If I move across the border and buy or rent a small condo or house, I could lock in a 10% raise on my income. If I rent out my current condo in Portland then I would profit from that transaction as well.
Summary: I’ve looked on Zillow quite a bit and should the real estate market offer a good entry opportunity, I would consider purchasing a place in Vancouver, WA in order to get rid of my Oregon state income taxes.
Self-Employment, Side-Income Business
I’ve talked about this in previous posts so I won’t rehash the topic. If you start a business on the side or switch from employee status to an independent contractor or a self-employed earner, you can save quite a bit on taxes.
You don’t have to give up your employment and can choose to start a gig on the side as many of my friends have done successfully.
Summary: This will be my first year of filing taxes as an independent contractor. I’m curious to see what the tax implications will be.