Financial Actions Physicians Should Take Before Year-End
By Jared Andreoli, CFP®, CSLP®
With the year quickly drawing to a close, it’s the perfect time for physicians to carefully assess their financial situation to avoid any surprises in the upcoming year.
But while many professionals focus on tax-saving strategies, they may be missing out on an equally crucial component: withholding enough taxes throughout the year. In fact, one of the biggest financial challenges for young physicians is navigating and managing their tax liability.
Even if you’ve already taken advantage of every opportunity to save on your taxes, you’ll also need to consider whether enough taxes have been withheld to offset the amount owing. With that in mind, let’s explore some specific actions physicians should take before year-end to prevent an unpleasant shock at tax filing.
Enhance Your Savings
By this time of year, many physicians notice they have squirreled away extra funds. If this is the case, there are a few options you should consider:
Health Savings Account (HSA): An HSA can be an effective, multi-purpose tax-minimization strategy. How? It’s simple: you can deposit pre-tax dollars into the account and use it to pay your medical expenses. But if you’re fortunate enough to not ever need it, you’ll have successfully taken advantage of the ultimate tax shelter—depositing pre-tax dollars, growing them tax-free, and withdrawing them tax-free in retirement (for non-health-related expenses).
Keep in mind that the 2023 contribution limit is $3,850 for individuals and $7,750 for families, so if you can manage, try to hit the maximum by year-end.
Contribute to your employer-sponsored plans: On top of contributing as much as you can to your 401(k), 403(b), and IRA plans, you’ll want to look at the investment allocation to confirm it aligns with your age and career stage.
If you haven’t done so already, consider topping up your contributions to take advantage of the tax deduction. Many physicians see this as the prime time to rely on the help of a professional to review their portfolio, gauge their progress, and increase the likelihood of becoming successful investors.
Use Your Flexible Spending Account Funds
A flexible spending account (FSA) is a great resource to help pay for medical costs, childcare, and care for other dependents (such as elderly parents or disabled adults) while lowering your household’s taxable income. But there are two important limitations: you must utilize the contributions to your FSA by the end of the plan year, and you cannot take them with you if you change employers.
If you have an FSA with remaining funds, don’t worry—there are a few options for you to consider. Some companies allow up to $570 of unused FSA funds to be rolled over into the following year. You may also be offered a grace period of up until March 15th to spend the unused funds. Even still, other companies may offer you 90 days to submit receipts from the previous year, so you have extra time to use up all the funds.
Check Your Health Insurance Deductible
If you’ve already met your deductible for the year, you should consider incurring additional medical expenses this year instead of waiting until next year when your deductible resets. This way, you save more on those out-of-pocket expenses because the deductible has already been met.
Don’t Overlook This Step
While it’s tempting to focus on tax-saving strategies, they’re only part of the equation. It’s equally important to watch for whether enough taxes have been withheld throughout the year.
Income taxes must be paid as you earn or receive your income during the year, either through withholding by your employer or by making estimated tax payments. This is important for self-employed professionals who are responsible for paying estimated tax payments quarterly for both income tax and self-employment taxes.
The penalties and interest incurred for late or missing payments or underreporting your income are costly but entirely preventable by staying on schedule with an estimated payment.
Concerned About Year-End?
As a young physician, you clearly understand the importance of staying on top of your finances—and that includes managing your taxes. While many professionals focus on tax-saving strategies this time of year, it’s just as crucial to review your withholding and estimated tax payments to avoid an unpleasant surprise when you file.
If you’re like many of our clients, you would rather spend less time agonizing over year-end and more time doing what you do best: helping your patients. That’s why Simplicity Financial is here to help.
We provide financial advice and planning catered to medical physicians and residents who want to manage their taxes, optimize their investments, and develop a comprehensive financial plan. Get started by scheduling a free consultation, or reach out to us by emailing jared.andreoli@simplicityfinancialllc.com or calling 414-207-6473.
About Jared
Jared Andreoli, CFP®, CSLP®, is president and financial planner at Simplicity Financial, a fee-only RIA dedicated to helping early-career physicians conceptualize their financial picture and achieve their financial goals. Jared specializes in devising individualized financial road maps for clients, and he loves nothing more than a full-day meeting with clients who value his partnership to solve problems—big and small.
After college, Jared spent six years working as a mutual fund administrator for a large company. While he learned an immense amount about the financial world, he was missing the personal connection of working with individual clients. Combining his passion for finance and personal connection, he established Simplicity Financial in 2017.
Jared has a degree in finance with a concentration in financial planning from Western Kentucky University, along with the CERTIFIED FINANCIAL PLANNER™ (CFP®) and a Certified Student Loan Planner (CSLP®) certifications. Outside of work Jared enjoys cooking and traveling. He played baseball in college and still coaches occasionally. He and his wife recently welcomed a daughter, who occupies most of their time. To learn more about Jared, connect with him on LinkedIn.