Ep5 - Why your tax bill is high.mp3
SPEAKER02: Ever wondered why your tax bill is so high? Keep listening to find out why and what you can do about it. Hello, and welcome to the Wealth Minded MD podcast with your money best friends. I'm Dr. Lisha Taylor. I'm Dr. Brittne Halford. And of course, we are here to help you build wealth and make good money decisions so you can create the life you desire with more control over your time. But before we get started, we want to tell you about our partner. Hey, Lisha, did you know that about one in four physicians experience some disability during their career? Yeah, you know what? It's so striking to me, the numbers of how common this is. In fact, that's what happened with Dr. Stephanie Pearson. She was this super passionate OBGYN physician at the height of her career, and then ended up having a shoulder injury during a precipitous delivery that basically shattered all of her dreams, prevented her from being able to practice medicine in the way that she wanted. She then was determined to make a difference for other females. And so she became a staunch advocate for her peers and helped guide them through the disability insurance process. She even teamed up with expert Scott Ravitz. They founded Pearson and Ravitz. It's basically this company that is determined to approach insurance differently. They're physician founded and physician focused, which is what I love about the company. Make sure that you visit PearsonRavitz.com today to schedule your consultation with a Pearson Ravitz advisor. All right. As always, we are going to kick things off with a little peek into our lives. Brittne, what is going on in your life right now? We were talking before this episode started about your kiddos, and I think you had a little story you wanted to share with me. Yeah. So I live in Boston, and as you know, Boston can get a lot of snow. Which is why I don't live there. My gosh. So when I arrived back, Lisha and I were spending some time together. But when I came home, my mom's like, Oh, did you hear about the storm on Tuesday? Like, no, mom, what is this about the storm?
SPEAKER01: Okay, hold on. Pause. You have to give context, the fact that you went out of town and flew your parents in town to babysit your kids. Anyway, keep going. Yes.
SPEAKER_02: Yes. All right. So my mother keeps me abreast of all things weather and yes. So she's like, did you hear about the storm on Tuesday? I said, no, mom. I haven't heard about the storm. Even on Monday, she texted me. She's like, oh, order your groceries because there's a storm on Tuesday. So everyone was up in arms about this storm on Tuesday that on Monday, probably around 2 PM, I received this call from The Brookline superintendent, we live in Brookline, Massachusetts, so it's just like… Oh, because your kid's name is Brooke, and I was like, Brooke has her own line? Anyway, continue. Sorry, let me stop interrupting your story. So the superintendent with a message like, oh, school has been closed on Tuesday because of the snowstorm. one institution or school system starts to close schools, then all of them catch on, right? So then the daycares are closed, then people are not coming into work. And literally I was teaching the residents about quality improvement. I'm like, okay, well, I don't know when this snow storm is going to happen, but it better hurry up because it is 10 a.m. and my kids are interrupting this session, screaming and et cetera. And the snow never arrived, Leisha. My gosh. I'm like, this is the snowless snow day. And then I was like, okay, well, all of the things that I'll do on Saturday, I'll do today because I have my kids with me. Let me just go and run these errands. But everybody had their kids with them. So that means that the stores were also closed. I was so frustrated.
SPEAKER_01: Wait, hold on. So the grocery store's closed, I guess in anticipation of this snowless.
SPEAKER_02: So I'm sure that there were some grocery stores open, but heeding my mother's advice, I'd ordered our groceries on Monday, but there were the clothing from our photo shoot that I had left over that I never wore. I was thinking that I would make the return on the snowless snow day instead of Saturday because my kids, I'm going to hire a babysitter for a few hours because I still have a lot of work to do. because they were home. And when my kids are home, unless I put a TV in front of them, I get nothing done. Wait, so you happen to be working from home that day? Yes. So then help us kidless, childless folks in the conversation right now. Help me understand. So when the schools close down, you're just mom of the year. You're just taking care of your kids. You're dragging your kids to work. What's happening? I mean, I think everyone is a bit different, but for me, my husband put on the screen for a moment's time. I don't like to use the screen unless I have to. So on Monday I created, which was very fun actually, this toy scavenger hunt for my kiddos. And essentially what I did is Brooke is reading, but she doesn't always like to sit down to read a book. So I wanted to make it fun and engaging. And they got it like a little treat because it was around Valentine's Day. So a Valentine's candy afterwards. So it would be find one big doll. And we have like an Ariel that's humongous. So they're like, Oh, wait, let's go get Ariel. So I kind of create activities. And then of course, it's Valentine's Day. So we did like painting of hearts and stuff, but I have to facilitate these. So there are probably chunks of like 20 minutes that I can get a very specific task done, but otherwise there's going to be interruption. And since everyone was home, the students who I were teaching, they understand that, okay, Brittne's children are home, kid's gonna pop in in the background, et cetera, she might go off screen. People become tolerant. But I think for all of you all who don't have kids or may want kids, having a bit of pre-planning of what are the activities that I can keep my kids engaged in and to start to plan out your day of what are the tasks that I can do in like 10 to 20 minute increments, then that would be really good. I also don't do a very good job establishing boundaries with my children. So that's one thing to establish good boundaries. Brittne, honestly, as you're describing all of these activities that you're making up for your kids, I'm like, he is mom of the year. You are doing a good job.
SPEAKER_01: In case someone told you today, let me be the first. Thank you.
SPEAKER_02: I appreciate it. No worries. All right. But now this is a money podcast. We're gonna talk about money. I am curious, Brittne, do you have any money mishaps or confessions to tell us about this week? All right, so we also talked about this a bit before we started recording, but my body's mishap is not flossing. Recently, I had to go to the dentist. I was having some pain. I had this huge cavity and he's like, oh, let me show you what remains of this tooth. I have to put a crown on it, like literally no tooth remains. And so he put a temporary crown. I can't floss for two weeks. I have an appointment coming up soon. I can't really eat on that side. And then as I exit, you schedule your next appointment. You see what your bill is, $700. I'm like, are you kidding? So that's my money mishap for.
SPEAKER_01: for this week. What about you, Leisha? What's going on with you? I mean, some of us floss, so we're good. I'm just kidding. I also forget to floss sometimes.
SPEAKER_02: And honestly, hearing about your high dental bill from not flossing has made me now a lot more diligent about it. So now… I don't know what it is. I obviously remember to brush my teeth every morning, but when it comes to flossing, I try to buy these little floss pick things. I keep them on my toothbrush and we'll see. I can remember to do it once a day. Sometimes I forget to floss twice a day. But anyway, enough about my dental hygiene. In terms of my money mishap and confessions, I'm doing a ton of traveling this year. A lot of it overseas. I was trying to plan and book flights for France. I think I might've mentioned this before. One of my co-fellows is getting married in the South of France. I know, super fancy. He actually mentioned, by the way, that the wedding was drastically cheaper than the average American wedding because apparently they don't upcharge for weddings in Europe, which I think is amazing. He's getting married at this villa and all of this stuff. Anyway, it's super swanky. I was trying to buy my flights for this. Mind you, he told me about this wedding a year in advance. a year in advance and I am just now booking the flight for it. And as I go to book the flight, I was trying to book it on credit card points, which you and I needed to do a whole episode on credit card points and optimizing vacation troubles and hacks and things like that. But I was trying to book the flight on points and I had seen it months in advance and I just kept delaying. I don't really know why. And then it sold out in points. And so then not only could I not use the credit card points that I had saved for this flight, but I had to pay for it in cash. And then I was like, well, maybe a points booking will open up. So then I had to pay for a flexible ticket or a refundable ticket, which has cost more. So it was like my procrastination and my delay not only prevented me from using points, but cost me substantially more money. So I was obviously very upset about this. So that's kind of my money mishap of the week. Now, my question is, when is the wedding? So the wedding is Memorial Day. I see.
SPEAKER_00: Okay.
SPEAKER_02: So it's like a high travel time in general for everyone. The Olympics are in Europe this year. I mean, Europe is obviously very broad. The Olympics are in Paris, which technically that's not until like the end of July, but a lot of people tend to travel in Europe anyway. Obviously in the summertime, kids are out of school. It's a primetime travel time. It's right around Memorial Day. People are usually out from school. And so. there's already high demand, even higher because of this Olympic year. And then there's really no excuse. I knew about this a year and a half ago. Yeah. I do that too. You just delay, delay, delay, and then you're kicking yourself. So somehow you just have to figure out what is going to be that motivating factor, but I'm sorry that you weren't able to use your points and I hope something comes of it at least. Maybe you'll just earn more points that you can use in advance for your next flight.
SPEAKER_01: Thank you for the optimism. I definitely needed it.
SPEAKER_02: All right. So now let's move on to our financial focus. I love the topic for today, mostly because I want to learn a lot from you, Lisha, about how we can decrease our tax liability and why our taxes are so darn high every single year. So open up this segment and let us know what is the first reason why our tax bill is so high? Yeah. So we're going to probably do this over two episodes, Brittne. I think that's probably the best thing where this episode we kind of talk about, Hey, why are you opening up your tax bill or filing your taxes and realizing that you got to pay so much as you get your W-2s from your job and you're looking at your gross income and the net income, and you're seeing a big discrepancy there. And you're like, dang, I paid how much in taxes this year? I don't know if that happens to you. Probably a bit of a personal story. Definitely happens to me each year. You're speaking to me. So this episode, we're going to talk about maybe why your taxes are so high. And then in the next episode, which will probably drop in a couple of weeks, we can talk all about some different strategies about how to lower taxes. So I think that's probably the way we do it, or else you and I can be talking for forever. We'll spare our audience that. As we talk about different reasons why your taxes as a physician, as an employed physician, may be high, I think the first reason is that you make a lot of money. And this may seem obvious to a lot of people, but the tax system is progressive. for the most part. And so as you make more money, you pay a higher percentage in taxes. And along with that, when you make over a certain amount of money, you're phased out of certain tax breaks and deductions and credits that other people may be able to take advantage of. And so it's kind of like a double whammy in that you have a higher tax percentage or tax rate, and then you're not as eligible for certain tax deductions. And so the combination of both those as one of the main reasons why a lot of people pay a lot in taxes. And when I'm thinking about this too, what I often think about is a common refrain that my mom makes is like, Brittne, you shouldn't work more because you're just going to pay more in taxes. And I always like to clarify to her that mom, it doesn't work that way. I mean, it does. You pay higher percentage. Exactly. And that each bucket of your money, so there are certain tax brackets, each of those brackets, those buckets have a certain percentage of which that money is going to be taxed at. And there are definitely ways in which we'll talk about in the future that you can offset this, but making more money is never a problem. You just have to now be strategic about how to mitigate that. And one of the things that came into play when I moved in with my husband was the loss of the student loan tax deduction. I could no longer claim the student loan interest as a deduction for our taxes, which was always so burdensome for me. It's like, do I file jointly? Do I file separately? How does this impact my student loans just as a whole nother thing, but then how does it affect the deductions that we can take? Absolutely. And so for those who weren't aware, what you're referring to is the student loan interest deduction, where if you make under a certain amount of money per year, I can't remember the exact amount, it might be like $90,000 as a single person, you can actually deduct some of the interest that you're paying on your student loan bill each month. And so just to be humble, open, and transparent, I could have probably taken advantage of that deduction when I was in training this past year, because I was in training. But because of the COVID pause, I didn't pay anything on my student loan. So I didn't have any interest to deduct. And so it's not just you feeling like you're left out because you make too much money for this, but it's also even folks who have student loans may not have been able to take advantage of this deduction this year. And that's okay. I would rather not have to pay on my student loans. then have had to pay and had to take this deduction. But you make a good point in that when you make over a certain amount of money, obviously you're based out of certain deductions like this. One of the things that I always tell people as they're complaining, and myself too, I have to remind myself of this, is that you have to ask yourself which one you'd prefer. I'd rather be somebody who makes a million dollars a year, and pays a lot in taxes, but also keeps a lot, or would you rather be someone who makes the average American household income, which I believe is around $60,000 and not pay hardly anything in taxes? Right? And so you have to ask yourself which person you'd rather be. Obviously you want to be somebody who doesn't pay a lot in taxes, but if that's not an option, if you've got to choose, The person who makes a million dollars and pays a lot or the person who makes drastically less than that and doesn't pay hardly anything at all. I think most of us would still choose to be the person who makes a million dollars. And so keeping that in mind and saying, hey, the solution for this is not let's make less money. The solution is let me understand the tax code. Let me understand the incentives in the tax code and start to take advantage of those things so I can find ways to legally lower my taxes without making less money. And I think that's kind of the framework I always tell people, you might have to shift your mindset about how you think about taxes. Even though the federal tax rate has progressed, there are other taxes that are quote unquote regressive or that stop once you make a certain amount. You're capped on how much you can pay in social security taxes each year. And usually the state tax rate, if you live in certain states, may be stable, no matter how much you make. There are certain different kinds of taxes that you have to pay. And for most people, as you're focusing on federal taxes, yes, it's progressive. Yes, you're going to pay a little bit more because you make a little bit more, but that's okay. You just got to make sure that you understand how the tax code works and the incentives in the tax code. So you can start to take advantage. Lisha, I love that. So if you did not hear it, I'm just going to reiterate, this is. going to require some bit of a mindset shift. And I think that this is work that I still have to do, Leisha, honestly, because whenever we have our tax bill that comes around and we pay our taxes quarterly, and so it's always like, okay, babe, we have to put in this amount and pay this amount extra. And he's like, dang, it's already coming out of my check. But a reframe is that, oh, we're so blessed that we have this. and appreciating that, and also to strategize a bit more. What are opportunities that we did not take advantage of that we can take advantage of in this new year? So we're at the top still of 2024. So this allows for you to reframe, reshape your mindset and start to be really strategic and educate yourself about how you can reduce that tax bill. in a way that is not evading taxes, but doing it in a way that makes you feel good and is also legal. Yeah, absolutely. And I think, so the first thing is like one of the main reasons why your tax bill is high is because you make a lot of money and kind of understanding that correlation is key. The other thing is that maybe your tax bill is high because you're not doing enough tax efficient As physicians, as nurses, as women in healthcare, as women in medicine, or maybe you're in an entirely different field, most people have access to certain tax efficient investment accounts. And the main one are retirement accounts. And so taking a look and saying, okay, do I have access to certain retirement accounts? Am I maximizing the benefit that I could get from those accounts? One of the things I tell people is that, one, if you're investing in your work retirement accounts, oftentimes you get a match from your employer, so you get some extra free money to invest in that. But also, depending on whether you characterize the contributions as pre-tax or Roth, you also get a tax deduction for doing so. So it lowers your tax bill. So it's like, wow, I can do something with my money called investing that allows that money to grow over time. So it helps me build wealth. And I can save money on my taxes. Wow. Like that to me is a double benefit. And so it's like, okay, if I'm looking at my tax bill each year, one of the things that I know that I can do to potentially lower that bill is make sure that I am maximizing the tax efficient investment accounts that are available to me. I love that. And we kind of talked about this before the podcast started. So I'm just going to give you a breakdown. This is not necessarily about what you should do, but I'm going to provide you some insight in what we do as a two physician household with two children. And we typically file our taxes, merit filing jointly. So speaking to these vehicles that Leisha's talking about, one is we invest in an HSA, a health savings account, and then we also utilize a limited purpose FSA and a dependent care FSA. So the FSA stands for flexible spending account, and we're going to talk about these in more detail. But those are three of the accounts that we use to reduce some of our tax liability in addition to the retirement investment accounts. Yeah. And let me clarify, Brittne, in case the podcast listeners just heard you and thought that we were married. When you say we, you mean you and your husband, not you and I. So just in case people on the call were like, what?
SPEAKER_01: I didn't realize that they were together. We are not. We are friends. We are great friends. But Brittne has a husband and two kids. And so when she says we, that is what she is referring to.
SPEAKER_02: You're always there for the clarity. I love it. I love it.
SPEAKER_01: So thank you for that. But yes, so Brittne was giving some examples of different accounts that her and her husband take advantage of and that would be the 401k or the 403b at their job.
SPEAKER_02: In case I hadn't mentioned this before, if you work for a for-profit institution, you usually have a 401k available to you. If you work for a nonprofit institution, you usually have a 403b available to you. If you are in the military, you usually have an account called a TSP or the Thrift Savings Plan available to you. If you are a locums physician or you are a 1099 contractor, you can open up your own retirement account and that is usually called a solo 401k. There's also a SEP IRA. We won't get into the weeds. But my point is that no matter what your employment structure is, whether you own a business, whether you're an employee in a business, you usually have access to certain retirement accounts. And those are some of the tax-efficient investment accounts that you may want to consider. I also want to throw out there that if you are like Brittne and I, and you are faculty At an academic institution, you may also have a certain account called a deferred compensation account available to you. Sometimes that's abbreviated as a 457B because that's where it's talked about in the tax code. But it also allows you to put in for 2024, it's another $23,000 for people under the age of 50 into that 457B. And so it's like, wow, if you're somebody who is faculty or works at a nonprofit institution or an academic institution, you may be able to put 20 something thousand into a 401k or 403b and an additional 20 something thousand into a 457b. And so those are two main accounts that allow you to stuff some money into them. Brittne mentioned a health savings account. She mentioned different types of flexible spending accounts. One is health care. One is a limited purpose. One is a dependent care. And so depending on your job, you may have access to a couple of different types of those FSAs, but those are some accounts that are tax advantaged. And so we just wanted to give you all some examples of different accounts because maybe when you were signing up for your benefits during the open enrollment period, you didn't realize that you had access to those different accounts. And we're here today kind of telling you, hey, you may want to pay attention to some of those because taking advantage of some of those may be another way for you to lower your taxes. Definitely. And just to add, I think that it is worthwhile if you don't have access to your benefits plan and all that your employers are offering, just having a conversation or scheduling an appointment with your human resources representative to ask these questions. With a 457B, it may or may not be offered by your employer, and there may actually be income thresholds that you have to meet in order to gain access to this plan. So that's a conversation that you should have because for me, I work part time. Sometimes the amount of time that I want to work and the amount of salary that I make, they don't always match. But in my financial plan of when I want to retire, what's the savings rate and reducing the tax liability, I have to think about how much more should I work or do I need to work in order to meet this threshold and how is that going to impact us? So for this plan, it's like, I can work an additional however many shifts, and this will have a greater impact on our finances by me deferring that compensation because it's going to reduce our taxable income. and it will allow me to invest this money to grow for retirement. But you cannot create the strategy if you don't understand the utilization of these accounts. Just another word on the limited purpose FSA. This is different from the flexible, the general regular FSA. So the limited purpose FSA covers just dental and vision. So I typically don't fully fund this account for the tax benefit because I'm not going to spend the maximum amount on vision and dental. Now with my non-flossing dilemma, I should have contributed a little bit more, but I didn't. So with an FSA opposed to an HSA, that money goes away at the end of the calendar year, or you have this buffer zone, which typically it goes into March of the next year, but you have to use it and have the expenses come out by the end of the calendar year. So you don't wanna overfund the flexible spending account. It's like a use it or lose it type of thing. So just that little caution there. We encourage you to read a little bit more about these and we're going to definitely dive deeper in subsequent episodes. Yeah, absolutely. So I think understanding, hey, there's an account called an HSA. There are also accounts called FSAs. And those are different. And there are multiple different kinds of FSAs. There's a limited purpose. There's a regular health care one. There's a dependent care one. The dependent care one is for childcare expenses or nursing home expenses. And so If you are a parent and you're paying for daycare, you may want to take advantage of that. If you are an adult who is taking care of your aging parents, you may want to look into that. The regular healthcare FSA and the limited purpose FSA, they're only available to people that have certain kinds of health plans. And so again, looking into the details of who can contribute to those plans. And then Brittne, as you alluded to, looking into the rules, because some of them roll over, some of them do not. Some of them are use it or lose it, and some of them are not. And so just looking into those details. But the main thing is that one reason that you may be paying a lot in taxes is because you make a lot. Another reason is because maybe you're not utilizing some of these tax efficient vehicles that we were just talking about. Yeah. And so moving on to our next one is your family life. One reason why your tax bill may be a little bit higher than what you desire is because of your family structure. And not necessarily that there's one good or bad family structure, or that when we're having these conversations about filing separately versus filing jointly, you should run off and get married to the first person who makes you feel all warm and fuzzy inside. have a baby, right? Because those things are also very expensive. But when you have children, you can also get a child tax credit. Now a credit is different from a deduction where the credit is like that guaranteed benefit of the amount. So if the child tax credit is $300 per child or $200 per child, you're definitely going to get that value applied to your tax bill in that specific amount versus a deduction just reduces your taxable income And if it's a deduction of $200, for example, you may not see that full benefit of that $200 reflected on your taxes. So that's one of the differences. But even as a family who is a high income family, you may max out or your income may not allow you to access some of these credits. But when you're thinking about how to reduce your taxable income, taking into account your family structure and how you're actually filing your taxes, who you're claiming on your taxes, definitely will impact your tax liability. I just felt a little left out here. You're basically saying, Brittne, that because I'm not married and because I don't have kids, I can't save money on my taxes and it's making me feel a way. And what I appreciate you, I'm just kidding, but I appreciate you kind of letting our audience know that the solution is not get married or have kids or whatever, because obviously, I mean, as someone who doesn't have kids, I'm sure you can allude to this, Brittne, that the cost that is associated with kids is probably substantially more than the tax benefit that you get. And so the solution, like I said, is not to have a kid or get married, but it's just understanding, hey, there are different tax brackets, tax rates, for people that are the head of their household, meaning you take care of a dependent, or for people who are married. And that may be a reason why you and your colleague can make the same amount, but you pay different amounts in taxes. And so understanding how your tax filing status in your family life plays a role in the amount of taxes that you pay. Definitely.
SPEAKER_00: Yeah.
SPEAKER_02: And I think another reason why your tax bill may be high is because if you're someone like me, you can't take advantage of the biggest, one of the biggest tax deductions, and that's the mortgage interest deduction. Because along with not being married and not having kids like Brittne is, I also don't own my own home. I'm still renting right now for various reasons. And because I'm renting, I'm not allowed to take any tax breaks based on my housing situation. But Brittne, she's richer than I am. No, I'm just kidding. And she's in a different situation. And so she's able to do that. So I'm going to let her kind of tell you a little bit more about that one. Yeah. So with this one, I would also just say that there are so many costs to owning a home that you also just don't want to run out and purchase your first home. And when you're thinking about your mortgage interest, this could be a pretty sizable deduction as Lisha talks about. However, there are some limits of how much. So if say, for example, if we're in Boston and where we are currently owning property is a very expensive area and that there's like a 750K limit on how much you're able to deduct as far as your interest, not necessarily just that you'll deduct $750,000 from your taxes, but from the value of the property in which you own. And that is not necessarily just like a complete, there's a phase out. And so there's some variation in that, but it's something to give thought to, right? If you own a home, then thinking that this is going to actually impact us in a favorable direction. And if you own real estate, right, there are other ways besides the mortgage interest. And we can talk about real estate investing at a whole nother area. but there are other real estate deductions that you will take that can reduce your tax liability. So owning property, either owning it for your own personal use as your primary residence or owning it for real estate investing is a way in which you can save significant amount of taxes, not only on mortgage interest, but also other tax benefits that are afforded to real estate investors. Remember, you're not deducting a cost of your mortgage, you're deducting the interest associated with it. So when you buy a home, most people aren't paying cash for their home. They're taking out a loan from the bank in the form of a mortgage. And so the bank not only gives you the money you need to buy the home, but they also charge you a fee called interest in order to do that. And if you've listened to the headlines or looked at the headlines lately, you've seen, hey, mortgage interest rates have increased, right? It used to be really low around the pandemic, 2, 3, 4%. Now they're much higher, 5, 6, 7, maybe even 8%. And so for people who have bought a house recently, or maybe already have a house, you might want to take a look and say, oh man, this is the interest rate that I'm paying as I have this mortgage. And the tax code says you can deduct the interest. And so that's where Brittne's talking about, hey, you may be able to deduct all or a portion of the interest that you pay on your home. based on the value of your home. And so that I find is one of the biggest deductions that a lot of physicians specifically, and a lot of people in general are taking advantage of. One thing I do want to mention here quickly is that in order to take advantage of that, you have to itemize your taxes. So I don't want to get into the weeds too much, but you got to look at, okay, what kind of big deduction am I taking? Am I taking the standard deduction or am I itemizing my taxes? And for someone who's itemizing their taxes, As you're looking at all the different deductions that you may be eligible for, just knowing that this mortgage interest deduction is there because that may be the limiting factor that makes you want to itemize over a tick-in. the standard deduction when you file your taxes. But not to get into the weeds, I wanted to mention one other thing, Brittne, and this is something that I find a lot of people in general may not know about, is optimizing their giving. As physicians, I feel like we're naturally altruistic people, or maybe just the amazing physicians that I come into contact with, Brittne included, are altruistic people who like to give. Now, Some people are religious and they may give a tithe or 10% of their income each month or when they get paid. Other people wait towards the end of the year and they're picking different charities that they want to give money to. Some people kind of give periodically every quarter or every so often. And one of the things that I wanted to mention is optimizing your giving. One of the things that I've learned is that the tax code is a list of incentives, and the government wants you to do certain things and they reward you for certain behavior. And one of the behaviors that is really favored in the tax code, along with owning a home, along with being married, along with having children, is also giving. The government wants to incentivize its citizens to give to charitable causes, right? The more that citizens are giving to each other, the government has to subsidize that charity. The government favors people who give. And so one of the things you got to think about is, are you someone who's giving? And maybe that answer is yes. And if it is, then think about, man, are there ways that I can change the way that I give? so that I can take advantage and have a tax deduction. And so sometimes I'll tell people, Hey, talk with your tax accountant and see, maybe it might be beneficial for you to give every other year instead of giving every month or every paycheck. Maybe it may make sense for you to use something called a donor advised fund. Maybe it may make sense for you to give stock instead of giving cash. These are some different kind of nuanced ways that you can give. And so it still allows the charity or the church or the organization that you care about to get the value, but you may be able to give them that value in a different way. And so just rethinking ways that you can optimize your giving because doing so may be able to help you save a lot more on your taxes. I love that, LaSha. And one of the things that came up for us in previous years is making sure that we had the income to support our donation. This is not going to be a problem for a majority of us, especially if we have W-2, but how you're giving, if you're giving in the name of a business, if you have a private practice, or if you're giving as an employee from your W-2 income, that most of us are high income earners, but there are limitations on the amount that you can give, right? Because the government also wants you to give, but also doesn't want you to drive a complete loss through your giving. And so therefore, you're getting a tax refund at the end of the year. So that's one of the things that you may want to talk with your accountant about, especially if you have a private practice or your own business, of how much am I able to give and of what type of donation can I give in order to maximize the tax benefit? Because some of our tax benefit had to be deferred, unfortunately, to the subsequent year because we didn't have the income to support that donation. Another thing to think about is things that you don't want. So sometimes we often give to like the Goodwill or Salvation Army and you're going to get a receipt that you can potentially use for itemization. Other things that we've done in the past is my husband drove an old car and I still drive actively in the old car. But we donated his car and we would get at least $500 of that donation to claim as a charitable giving. But if they were to sell that car and sell it for a greater value, then they would send us a receipt for the value of that car and we would be able to deduct such a larger amount. So in thinking about how do you strategize? Do you want to sell the car? Do you want to give the car away? Do you want to donate the car? However you do that, you can incorporate that into your tax strategy. So there are so many things that we often don't do, we don't think about, could have benefit not only in the charitable, philanthropic, let's feel good type of way, but also could have some financial benefit for us as far as reducing our tax liability.
SPEAKER_01: Wait, I blacked out when you said that you gave away a car. I'm sorry, what? So we, again, for our audience listening, live different lives. Apparently, Brittne's given away cars. So I'm sorry, you gave away a car?
SPEAKER_02: We gave away a car. We gave away a car to charity. And we could have tried to sell it, but honestly, the car was not in very good shape. And thankfully, we have pretty trusted mechanics who told us, okay, well, you can try to sell this car, but you're likely going to get only $750 for this car or something like that. You might be able to give it, sell it for scrap metal, et cetera, to get a little bit of cash. But what is the work that you have to do in order to facilitate that and how many people are actually going to come through and give you that cash? it would likely be more of a headache than the value of the car. So in that case, we're like, let's just give it away. We gave it to NPR, my husband, National Public Radio. Hold on, what? They accept cars? Wow, I'm learning so much. Yes, they accept cars, right? So National Public Radio gave- What are they doing with cars? Aren't they a radio show? Yes, but it's part of their, I don't know, donation. Have you ever heard that? I don't know. What is the name of it? It's like a car show that was on NPR. There's like two brothers or two guys. I'm going to have to Google it now, but I love the car show.
SPEAKER_01: I don't listen to NPR. I feel like I'm, I don't know. I mean, maybe my dad does. Sorry, Brittne. I don't listen to NPR when I'm driving in the morning. So pardon me for being out of the loop.
SPEAKER_02: I didn't even know they accepted cars. Slash, I didn't even know you were giving away cars. Slash, can I be your charity? I have so many questions here. Lisha, it was a very old car. It was a Toyota Avalon.
SPEAKER_00: Sounds fun to me.
SPEAKER_02: 2005. It had about 300,000 miles on it. It had a lot of girls. Stop.
SPEAKER_01: So funny. Anyway, I'm going to stop giving you a hard time about this car, but kudos to you. I did not know that you could donate a car.
SPEAKER_02: It seems like when you donate it, you can get around $500 at the minimum. And then if they sell it, you get even more. So that's something that I learned today because I didn't know that because I'm not giving away cars. But anyway, another thing that I always tell a physician in terms of another reason why your taxes may be high is because maybe you have side income that you didn't account for. that you also have to pay taxes on. And I will tell you, this should have been my money mishap. This happens to me each year in that I'm blessed in that I have other sources of income outside of my job, but then I always forget, oh man, I have to pay taxes on that side income. At the end of the year, around this time of when I'm getting 1099s from different companies and businesses that said, Hey, we paid you. Now I've got to file that on my taxes. And one of the things that I think was eye-opening to me a few years ago was you not only have to pay federal taxes on that side money, but you also have to pay state tax if you live in a state that has state taxes, along with FICA taxes, which encompasses Social Security and Medicare. And so there's like an additional 30 something percent that you have to pay on that side money. And so that's one of the reasons why I think over the past two years I've had to owe. when I've had to pay my taxes and why my tax bill has been highest. And it hasn't necessarily been because my job didn't withhold enough. It's more about me having other sources of revenue that I didn't necessarily account for. And so maybe that's the case for you listening that maybe you also, like me, had side income, other sources of revenue, and you did try to increase the withholding at your job, but you didn't increase it by enough. And so you might have to owe at the end of the year. And a good thing Something about, just to reiterate, the utilization of these pre-taxable accounts, like your FSA, your HSA, your 401k, is that you're avoiding FICA tax. You're avoiding your federal income tax. And when I think about investing, and yes, the money's going to be invested, but if I think about, okay, this money's going to be paid out to me and I put this in a brokerage account that I'm managing. maybe I earn 7% to 12%, let's say, on average, right? That's not the same as my effective tax rate of 31%, right? So by maximizing my pre-tax contributions, I'm basically saving 31%. And sometimes we have to reframe and shift how we think about investing. Investing by saving money is an investment because therefore you have more money that you can actively use. It's not just all about the growth. So I just wanted to reframe that. Yeah, the side income is also very important and just thinking about how you can utilize this to maximize. that counts. So, Leisha mentioned Acelo 401k, perhaps that's something that you can use. Another pre-tax account but can be used for side income or W-2 income is a cash balance plan. So, if you have a private practice, you're in a group of individuals and you don't have a cash balance plan, that might be something that you can consider because you can put more money away in some cash balance plans. So, there's all these opportunities in which you can just be very strategic about how you're getting your money and how you're utilizing your money to reduce your tax liability. The side income is also very important for you to keep track of because sometimes you forget. You spoke at a conference or you spoke somewhere in January of that year, and then you're expected to take account of that the next January to gather your documents for the subsequent year. And you just forgot that you received $5,000, or maybe you missed a piece of mail, like I've talked about in past episodes about my money mistake. So if you can have a running document of how much and where you're speaking and how much they're paying you, that will help you to estimate taxes on the front end. Because if you're too late in your taxes and you've underpaid, you can also be charged penalties, right? So you want to try to be on top of things as much as possible. Yeah, absolutely. Absolutely. And you know what? We're going to go into this next segment, which is kind of my question for Brittne, which is our Wealthy Wonders section. And I kind of have a question for you, Brittne. What do you think most women in medicine should do? Should they pay for a tax professional to help them sort out this stuff? Or do you think that the majority of people can do their taxes themselves using software like TurboTax or H&R Block? Yeah. So I can say that I have a biased opinion because I am now married. That's Lisha to my husband. I mean, I'm a great person. Don't, don't get it wrong, please. I mean, Brittne's kind of. You are a great person, Lisha. And I think we would thrive together complimenting each other's strengths, but we're thriving in partnerships and business and not in marriage.
SPEAKER_01: Yes. In case that wasn't clear. Anyway.
SPEAKER_02: So I say the first step is to really just understand a couple of things, who you are and how you operate. If you're someone where numbers is your jam, you don't mind looking through the fine details and doing all of the different projections or calculations of what if I do this, what if I claim this, if I file, just using the standard deduction or do I have enough to itemize and you can keep track of all of your papers and you can do it in a timely fashion in which you're not missing any deadlines, then maybe doing your taxes is going to be the right path for you. I would say that once your life gets complicated, you likely need to involve a tax professional. So I'm married. I have a husband. I have two children. So all of that adds complexity. We have all of these investment accounts. We have cash balance plans that require an actuarian. We have a home, we're about to purchase another home. And my daughter has a Roth IRA, we have 529 accounts. It's just, it's too much for us to manage on our own. So having not only a CPA, but somebody who has a team of people who can keep us on track, send us those gentle nudges to say, yeah, I know you're on service and your patients might be really sick with heart failure, exacerbations, but you gotta pay these taxes. and this is your quarterly payment. So I really appreciate the value that our tax accountant, and not only her, but her team provides. By engaging our tax professional also, it's not that we're waiting until the end of the year to start to implement some of these strategies, because when you're dealing with taxes, there's the tax filing deadline in which things need to be due, as well as the calendar year deadline in which things need to be due. So that's where it allows for me to be very proactive in our tax strategy. Because if you ask me on December 1st to invest $23,000 in a 457B, it ain't happening. Like the money's just not there, right? And I would not be able to implement the strategies if I did not have this level of expertise and if I did not have a tax professional who was helping me to stay on track. So, Lisha, I know you do your own taxes. Tell us a little bit about why someone would choose to do their own taxes. First of all, let me say, I think that having a tax professional or an accountant or just somebody on your team, I think that's beneficial. And I don't want to argue against that. I think for me though, when your tax situation is simple, I don't necessarily know that, I don't necessarily think that everyone needs to hire that out. And I actually do think that there is value in doing your taxes on your own at least once. I think that when you do your taxes on your own, you understand, you start to understand different tax deductions and how the tax code works in ways that helps you maximize certain benefits and loopholes and deductions and things in the tax code. It's one thing to kind of know peripherally, oh, there's a tax deduction for this or that, but it's not until you do it yourself that you can actually see the numbers and how they move. And you're being asked about these different things that you start to think about, ooh, you know what, I don't have that for this year. I didn't max out that account this year, but maybe I can do it next year. So I do think there's some value in doing it on your own. I also think that For people who maybe you don't have a bunch of different sources of income, you and maybe your spouse have W-2 income because you're employees and that's totally fine. And you don't have a bunch of different kinds of investment vehicles. You don't have cash balance plans. You haven't employed your kids and given them a Roth IRA. If you've got a very quote unquote, simple situation, then maybe you don't need a tax professional, or maybe you could do it yourself. I think that what you were saying though, Brittne, is that having somebody on your team could help you with tax planning and help you kind of take advantage of certain things in the tax code. And so I think that that's a different thing. If you're somebody who you're like, Hey, I'm kind of into this. I kind of want to read about this myself. I feel like I can do a lot of this myself. I know how to max out my work retirement accounts. I know. which HSA accounts I can take advantage of. I'm opening a solo 401k side income. If you're someone who can handle that on your own, you feel confident in that, I don't think that you necessarily need a tax professional. But if you're someone who you don't really want to deal with that, your tax situation is very complicated, or you've got multiple different sources of revenue and you're trying to take advantage of maybe some advanced tax strategies, then I think a tax professional could be helpful. So I don't pay a tax professional right now. I might consider it next year because my tax situation is going to be more complicated and it takes so much longer for me to do it myself. But I think there's value in doing it yourself at least once. I also think there's value, obviously, in hiring it out. Yeah. Awesome. And one of the things that I didn't mention here is for us personally in our decision was that time of year in which our taxes were due. It was such a large amount that it just didn't feel good internally, like viscerally for us or my husband. It didn't feel good for me to communicate. I'm like, hey, are you in a good place where you could sit down so I can just tell you what the CPA or what the tax professionals said? And so the reason why I bring this up is because we know that finances are a point of conflict for relationships. And sometimes it is beneficial to have that third party to kind of soften the blow. This is not coming from me. It's not anything that I did wrong or that I calculated. Like this is just what it is and this is what the CPA said that we have to pay. So that's another benefit. A reason why is that like it helps to keep our relationship happy and healthy because I can just blame somebody else. No, I love it. I love it. And that's definitely something to keep in mind. And now we're going on to our prime money segment. Brittne, I am curious, what is something fun that you're spending money on around this time of the year? So I'll say what I spent money on recently. So we're recording this episode in February and Valentine's Day was recently when I think about Valentine's Day, I typically don't spend a lot on my husband. We typically exchange gifts for Christmas, but we mostly do experiences for each other for these commercial holidays, etc. So instead this year, we did a fancy dinner at home and we lit candles, we lit the fireplace and we invited our children. So Brooke is five years old and she gets really excited about these things and she had never done fondue. So we ordered some food from a fancy restaurant. We set up the table with fancy plates and all of that. And then we had the fondue with the marshmallows and the strawberries and the kids absolutely loved it. But it was a great way for us to share that experience with them. So to teach Brooke that like, this is what you should expect as you get older and you start dating. She's not there yet, only five, but you know, kind of establish this as a norm. And this is how we should share love and experiences with each other.
SPEAKER_01: Aww, that's so cute. That is so cute. I love it.
SPEAKER_02: Maybe not as fun as your fun money. Well, it's interesting. I was thinking about this too. And I was like, you know what? It's actually not even something that I spent my money on, but something that someone bought for me. And that is, I don't know if this is still going to be in style by the time this podcast releases, but my brother bought me a Stanley cup and my other brother bought me an espresso machine because I love coffee. And so They knew that, hey, Lisha loves coffee, hence the espresso machine. And Lisha has told us that she's trying to drink more water. And so I don't know if you've heard about the whole Stanley Cup thing, but apparently they're this cup that costs way too much. But a lot of people love like keeps your drink the same temperature or whatever. And it's apparently very durable. but there's all these fancy colors and it's really popular on social media and TikTok. And my sister-in-law saw it, told my brother to buy it for me. And so that's how that worked. But he bought me a Stanley cup. And I have to say, when he first bought it for me, I was like, you bought me a cup?
SPEAKER_01: But he's like, and my sister-in-law was telling me, she's like, this is a Stanley cup.
SPEAKER_02: Are you kidding me? You don't understand. And I'm like, okay, I'll try. I mean, okay, I'll put my water in it. It's fine. And it's funny, I started using it and as I went to work, I don't know, it's like when you have something, you notice other people with it as well. I would go to my office and I would see like the office managers had Stanley cups and other people had Stanley cups and I was like, what?
SPEAKER_01: And actually this weekend when we were together, Brittne, your cousin, your niece had a Stanley cup. Yes, with her name on it. She was like so proud. She like didn't want to leave it in our car.
SPEAKER_02: And so yeah, so that's something fun that I'm doing with money because I actually, I do like the cup and I drink substantially more water. And this podcast is not sponsored by Staley, but. know, they want to sponsor. We will definitely take a listen. Anyway, the Stanley cup and the espresso machine. So I have had a Keurig for a long time. And when I was visiting, I think it was a couple of months ago, I was telling you, I was in Miami visiting one of my friends from med school. When I was at her house, she knew I loved coffee. And she was like, Leisha, do you want coffee? And I was like, yeah. And she was like, this is my espresso machine. And I was like, okay, this is so fancy. I don't know how to use it. And she was like, you're using a Keurig. you got to definitely up your game. And so it's interesting that she said that. And then my other brother actually bought me an espresso machine. Now I have a fancy espresso machine. So something fun I'm doing with money. The funnest money is the money that you don't spend that someone else is spending on you. So you got it. You got it. Oh, I need to learn from you. And I have a funny expresso story that I'll share at a later date.
SPEAKER_01: Oh, well, why are you leaving us hanging? Hold on. I kind of want to hear this story now. You just like, you put the hook in there and now…
SPEAKER_02: All right, so what I want to say is just to be cautious with your espresso machines. We have one that is in our hospitalist's office. Apparently, one of my colleagues really loves coffee, and so he has all these fancy machines, and this is the older version of one of the many that he has at home. So he brings it in and one of my colleagues gets super creative, starts making shapes and different things with the foam on the espresso and et cetera. Then he drinks all of them and he ends up in the emergency department with atrial fibrillation and rapid ventricular rate from drinking so many espressos. Wait, what? So the doctor in the hospital brought an espresso machine, drank apparently multiple cups of espresso with high caffeine content and ended up with heart problems? Like, what? Is he okay? It wasn't the same colleague that brought in the machine who also ended up in the emergency department. Those were two different colleagues, but yes, he's okay. He's back on service. He's back seeing patients and definitely he's taking his beta blocker.
SPEAKER_01: Oh my God. Wow. Hey, so doctor's doing the darndest things. Anyway, we won't keep you guys too long. Hopefully you enjoyed this episode of Wealth Minded MD and we can't wait to see you next week.
SPEAKER_02: Bye-bye. Hello, everyone. Thank you so much for checking out our podcast. And because of that, we've got something special for you. We have created this wealthy mind starter kit. It's everything that you wish you had in your training and in school to get started with your finances with confidence. In this guide, we're going to give you the steps that you need to get started and take what we call wealthy minded action. And guess what? The best part, because you know, we're all about the deals, is that it is at absolutely free. All you have to do is head over to our website, wealthmindedmd.com. Click that yellow button that you see right there. Give us your email list and become an official part of the Wealthy Minds community and we'll send it right to you. That's right. Go ahead and check out the website. We can't wait for you to get started today.
SPEAKER_00: Hello, everybody. It's me, Brooke. I'm recording a little disclaimer for my mommy, Dr. Brittne Halford, and her friend, Dr. Lisha Taylor. Just so you know, they're not financial advisors, tax professionals, lawyers, or financial planners. Everything you hear is for education and entertainment. It's not strict financial advice, you know. So use your best judgment. Chat with a checked professional and all those other people that you need to talk to. Thanks for tuning in today. Keep cruising on your journey to wealth and wellness. Bye-bye.
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