Benjamin Franklin famously noted, “In this world nothing can be said to be certain, except death and taxes.” Taxes are an inevitability of life, but with complicated and confusing laws and codes, many CRNAs don’t have the time to proactively work to legally minimize their taxes, and most don’t realize the types of exemptions or strategies for which they may be qualified.
High income earners, like CRNAs, should especially be concerned about taxes. With an average salary of $160,250,1 CRNAs can pay between 28% and 35% just in taxes (depending on their filing status and spouse’s income). Beyond income taxes, many CRNAs are bumping up against the Alternative Minimum Tax (AMT), meaning they must calculate their liability twice (once under income tax rules and the other under AMT rules) and pay the higher amount.
Don’t wait until March to start reviewing your taxes, and don’t file your taxes without speaking with a professional. Working with your financial advisor and CPA to develop a tax minimization strategy can help you legally reduce your overall tax liability. Here are just four steps you can take now to prepare for Uncle Sam:
1. Get Organized Now
Whether you’re planning for your taxes today or next month, get all of your documents together now. This will make preparing your income tax return easier for you or your accountant. The most common documents you’ll need are your Social Security number, W-2s from employers, 1099-INTs for any interest earned, receipts for business, healthcare, and education expenses, and 1098s for any mortgage interest statements. TurboTax offers a great tax preparation checklist to help you gather the paperwork you’ll need.2
2. Reevaluate Your Investments
While you want your investments to grow, some investment strategies are more tax efficient than others. Based on your risk tolerance, time horizon, and financial goals, there are a variety of investment options from which you can choose.
One option is municipal bonds, which are tax-free investments that prevent your income from being affected by tax rate increases. While these bonds may not bring in as much income as taxable bonds, they offer some protection against tax hikes. As taxes are set to increase, focus on tax-efficient returns which may increase your investments.
3. Max out Your Retirement Plan Contributions
One of the best ways you can qualify for tax breaks while simultaneously saving for your future retirement is to take advantage of a company-sponsored retirement plan. As of 2016, CRNAs with a 401(k) or 403(b) can defer up to $18,000 (or $24,000 if you’re over the age of 50) of their annual earned income on a pre-tax or after-tax basis (These amounts can change annually).3 Before January 1, make any final contributions you can.
4. Contribute to a Health Savings Account
Medical expenditures are inevitable. Even if you have competitive deductibles, routine appointments and ongoing care costs can quickly add up. Consider taking advantage of a Health Savings Account (HSA) if your employer offers one.
An HSA offers three tax benefits when you contribute: a deduction when you put money into the account, tax-free compounding, and tax-free withdrawals. This means you can put pre-tax funds aside to pay for qualified medical expenses, and you won’t have to pay taxes when you withdraw the money for those qualified expenses.
For 2016, an individual can save up to $3,350 in their HSA for individual coverage, and $6,650 for family coverage.4 There is also a catch-up contribution of $1,000 per year for those 55 and older. For 2017, the contribution limits increase to $3,400 for individual coverage, but remain at $6,650 for family coverage.
Don’t Fall Prey to Tax Myths
Many Americans pay too much in taxes because they assume tax planning takes too much time and/or money. Here’s the truth: because of taxes, you actually have to earn two dollars for every one dollar that you spend. Conversely, every dollar you save in taxes is worth two earned dollars. Tax planning can help you save thousands, tens of thousands, and in some cases millions of dollars in taxes paid. Instead of wondering if you can afford tax planning, you should be wondering how you and your family can afford not to plan.
Because tax planning can be so beneficial, it’s recommended you don’t go it alone. The IRS tax code is 72,536 pages long and filled with various opportunities and strategies for optimal tax efficiency. The key is understanding how each possible opportunity works, and how it fits into your structure and long term goals. These strategies must be implemented by professionals in accordance with the law and on a foundation of honesty. In addition to working with your CPA, it can be worthwhile to meet with a financial professional who specializes in tax optimization and understands the unique needs and circumstances of CRNAs. At CRNA Financial Planning®, we can help you evaluate your investments and financial plan and determine appropriate tax minimization strategies to help you save more of your hard earned money. Call us at 855.304.3748 or email [email protected] to get started.
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning®. He has been providing advice and guidance for Certified Registered Nurse Anesthetists (CRNA) for over two decades. As a CERTIFIED FINANCIAL PLANNER™, Jeremy has met rigorous certification and professional standards set by the CFP® Board. He is committed to adhering to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients.
Jeremy is also the author of The Wealthy CRNAand A CRNA’s Life After Anesthesia. The Wealthy CRNA features insights into becoming a financially successful CRNA and how to start planning for your financial future, and has been prior approved for up to 4 Class A CE credits by the AANA. A CRNA’s Life After Anesthesia serves as your financial roadmap for a smooth emergence into retirement. It reviews recent changes in the CRNA industry along with the new rules of retirement and the final steps of legacy planning. This book has been prior approved by the AANA for up to 2 Class A CE credits.
Jeremy Stanley is a financial professional with and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and CRNA Financial Planning® are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax 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.