TaxAssurances Blog

Executive Summary

Doctors do great work. But it often involves long hours. But in many cases the pay is good. With that also comes the need to pay the correct amount in taxes. This case study reviews the details of a 2022 TaxAssurances tax client that worked in multiple locations as a doctor.

Background

• The client Is a medical doctor.
• They are single and have no children or other dependents.
• They rent their home and do not own it.
• They live in Westchester County, NY which is a suburb of NYC.
• They had an S Corporation and were the only shareholder with just over $23k of revenue for 2022 and just over $11k of business-related expenses in 2022.
• They had W2 income from 3 medical facilities and made just over $320k in 2022.
• They had a savings account at a credit union where they received a small amount in interest income.
• They had no other income like dividend income, pension income, social security, unemployment, real estate, partnerships, gaming winnings or investment gains or losses.

Results

• They owed just over $3.7k to the IRS because their marginal federal tax rate was 35% and their effective federal tax rate was 27.2%. In total, their employers only withheld 24.2% of their federal taxes on their combined W2s.
• They received a NYS refund of just over $1k and had it directly deposited into their bank account.
• The standard deduction was more beneficial than the itemized deduction because they do not own the home and did not give to charitable organizations for the year.
• Because they made over $200k, they had an additional Medicare Tax on Medicare wages of just over $1k. We attached Form 8959 to the tax return.
• Because they had interest income and made over $200k they had a small net investment income tax. We attached form 8960 to the tax return.
• Because they didn’t coordinate with their employer, they overpaid their social security taxes by almost $5k and were given as a credit in the final tax calculation.

Challenges & Solutions

Having high incomes from multiple sources can be tricky in managing the appropriate tax withholdings. That’s what happened for this doctor in 2022. They various employers didn’t know how much the doctor was making in total. Hence, the underpayment in taxes during the year and the tax bill at the end of the year.

Solution #1

To resolve the tax liability for 2022 I walked the doctor through how they can either pay the full tax bill in one payment or how they can set up a payment plan with the IRS to pay off the tax bill in installments over time.

Solution #2

After going over payment options I walked the doctor through the process of adjusting their W4 with each one of their W2 employers on taking out the correct amount in taxes during each paycheck and for the year.

Solution #3

With regard to the S Corporation, I walked the doctor through the process of paying estimated taxes during the year as they continue to run and grow the size of the profitability of their medical practice. Doing that will help them avoid a large tax bill when they are more profitable in the future.

Conclusion

Managing taxes for high-income earners with multiple sources of income can be complex, as evidenced by this case study. The key takeaways are: 1) Work closely with employers and tax professionals to ensure proper withholding and estimated tax payments throughout the year to avoid a large tax bill. 2) Pay estimated taxes to avoid self-employment tax. 3) If faced with an unexpected tax liability, take advantage of IRS payment plans or adjust withholding going forward. 4) Itemizing deductions needs to be evaluated each year to maximize tax savings. With proactive planning and compliance, high-income taxpayers can optimize their tax situations. This case provides a blueprint for other high-earning professionals to learn from and improve their own tax planning and preparation.