For decades, I had been the DIY type. If the task at hand conferred low risk to my main career and if outsourcing the job was more expensive than what I could generate with my own career in the same amount of time, I was game. Tasks that I’ve tackled included changing the lightbulbs in my car, fixing a sensor in my hot water heater, replacing a fan in my furnace, and even repairing a chest freezer relay. I still consider myself the DIY type, except that with age and limited time I am more often faced with outsourcing tasks that I otherwise would have tackled years ago.
I don’t expect most doctors to be handy, techie, or even analytical outside of their careers. I’m willing to bet that most doctors don’t ever track their monthly expenses, let alone be able to draft out their financial plan. We are all capable of doing it, our jobs simply rob us of our brainpower. I need to unwind after a long day at work, and after a week of long days, the weekend simply can’t come soon enough. Sometimes the weekends are consumed by on-call emergencies. The last thing I really want to deal with in my limited free time is to fix an irrigation line or come up with strategic ways to increase my savings incrementally.
Grade school math and compulsiveness is all you need to file your taxes
Before tax software became mainstream, basic math and an incredible amount of persistence in reading about the U.S. tax code were all you needed to file your taxes. The biggest impediment was the time, energy, and motivation to thumb through pages of instructions not really knowing if you’ve interpreted the rules correctly. The challenges came when certain blanks were ambiguous–do you ask an accountant, check with a lawyer, or just fill in the numbers to the best of your abilities?
The game has changed with the Internet and tax software. You only need to follow basic instructions in order to file your taxes through tax software, and with some persistence with online forums you can easily become an advanced beginner to tax nuances. The beauty with tax software is that you can view changes to your filing dynamically and work backwards to figure out how each line on your 1040’s and Schedules are populated. Do that for a few years, and you’ve got the system down pat. Moreover, you’ll become less daunted when new tax rules are enacted.
All doctors should spend some time learning how to file their taxes
Even though all doctors should understand how to taxes are filed doesn’t mean that we need to be filing our taxes every single year of our lives. The principle of tax filing can be compared to learning the clotting cascade during medical school. You needed to learn it for your tests, but as an orthopedic surgeon you probably don’t need to be able to recite it by heart. However, even if you’re a bone doctor, you know that aspirin and direct clotting inhibitors work in different segments of the cascade.
Likewise, understanding how you file your taxes and what information is needed to file your taxes is helpful even if you have a tax accountant. You have to produce the tax documents for your accountant anyway, and it’d be a whole lot easier for your accountant to do your taxes if you already know what forms are needed. You’ll be more attuned to any changes in tax code, and you can even ask meaningful questions and confidently know that your accountant is doing the right thing for you by reviewing the results.
Start filing your own taxes in residency.
Even though you are chronically sleep deprived in residency, your tax status ought to be at its simplest—it would behoove you to try to file your taxes while the forms are still straightforward. Most medical residents will find themselves taking a standard tax deduction. Those who can itemize will likely have mortgage deductions, a working spouse, and children. Even then, residents are paid through a W2 as employees so income is easily reported.
Farm out your taxes to an accountant once you become rich
That’s right. You don’t have to be condemned to filing your own taxes forever…unless you love working through the tax code. Many doctors will have real estate investments, multiple income streams through dividends and stocks, and more complex business deductions. You can still figure out how each one of these variables fit into the tax returns, but at some point in your life you won’t have as much time to dedicate to this.
There’s no shame in farming out your taxes to your accountant, as long as you have a fundamental grasp on how the forms are completed.
Have you filed your taxes yourself before? If not, take the leap and start!