I no longer am surprised at the creativity of my peers in the medical community, whether one of them finishes an Ironman competition (common) or runs an army of fast food restaurants in addition to curing cancer (not common). In medical school, I recall having classmates who wrote complete review manuals to help us ace each of our in-service exams. This produced unintended consequences of raising the bar and convincing the course directors to conceive even more devious ways to grade their students. Ultimately, it allowed all of us to become more competent doctors.
Likewise, the collective brainpower of the Internet has allowed us to broaden our fund of knowledge. Want to learn how to write an app? No problem! Want to hire someone to write an app? That can be done too. As a doctor, one of the most financially useful skill that I’ve developed was learning the basics of filing my own taxes. I remember that the first year that I filed taxes as an intern, I paid my parent’s accountant to complete my tax return. He gave me a discount, since he already had our business. I don’t recall exactly how much he fees were, but I assumed that I paid at least $100…maybe more.
Six months after filing taxes, I received a dreaded letter from the IRS stating that I forgot to include a special state filing form and incurred a penalty of a few hundred dollars. Ouch.
Those of you financial whizzes who have gone through the medical training are probably tasting bile in your throat at this point. Medical interns who have no other significant source of income have only worked for half the year–this roughly translates to $25,000 of pretax income, depending on which century you underwent medical training. ?
You might also like: Why doctors should do their taxes at least once
Collect the paperwork
You will need to keep copies of all of the forms that you use to to file your taxes. Make sure that you keep copies of your tax returns as well–there is some variability with how long you should keep your paperwork for, but seven years seems to be a plausible duration. With the number of medical journals and textbooks that we tend to keep in the garage for decades, holding onto something as important as your tax returns for a few years should be reasonable!
Most medical residents will start receiving electronic or paper forms after January of the following year (i.e. you will receive paperwork for your 2018 taxes after January of 2019, and hopefully before April 2019). Common paperwork will include:
- W2 form – This is a summary of your earnings broken down distributed by your employer. The numbers in each of the blanks will eventually make sense as some of the numbers will reflect your 401k contributes or HSA deferrals.
- 1099-INT – These forms are distributed by your financial institutions to reflect any interest income that you may have accumulated throughout the year. This can come from interest-bearing savings accounts or certificates of deposits (CD’s) that you might have purchased. Yes, you have to pay taxes on these earnings, and you pay them at the marginal tax rates.
- 1099-DIV – These forms will come from your brokerage firms if you have stocks that have distributed dividends. For instance, your Microsoft stock will distribute you quarterly dividends. You have to pay taxes on these earnings too, although at qualified rates most of the time.
Frankly, that’s all of the paperwork that I accumulated as an intern. I did not own any property, had no other income, and did not have any itemized deductions.
Use tax filing software
The easiest way out is to use a tax filing software. Years ago, the only option was TurboTax, but the market is now saturated with competitors. You can even find free software for the simple tax situations like the one above. Even with more complicated tax situations, I am still able to file using the software. These services also offer electronic filing for both federal and state forms. Nothing has to go in the mail, and you can fill out your data over several weeks as you obtain more forms.
File your taxes manually
The traditional way to file your taxes is to go to your local library to pick up tax forms, an instruction manual, and comb through the tax rules. You can still do that now, and it’s actually never been easier to manually file. It’s actually conceivable to file your taxes this way even through moderately challenging income scenarios, but it is quite daunting to start in this manner unless you have the most rudimentary tax situations.
Filing your taxes as a resident really isn’t that challenging, and it is worthwhile to go through the motions at least once in your working career. You actually can get a better idea of what each of your financial forms is useful for—if you end up using an accountant later in your career you will at least know what paperwork she will need in order to complete your tax return.
Happy New Year!