A Quick Note on Income Taxes
As tax season approaches, cardiologists will often turn to tax preparation software or a tax professional to file their return. Independent of how this is completed, it can be helpful to have a basic understanding of how your income is taxed. The federal income tax system is marginal in nature, which means only incremental income above the previous lower tax bracket is taxed at the new higher rate, not all prior income.
The table here lists the different federal income tax rates from 10 percent to 39.6 percent and the range of income taxed at each rate for a married couple filing jointly in 2017.
Keep in mind that even if you are in one of the higher tax rates, your weighted average, or effective tax rate, will be lower than your marginal tax rate because of your income taxed at lower rates.
The important takeaway is that if a couple has taxable income that would put them in the 39.6 percent tax bracket, then not all their income is taxed at 39.6 percent. The first $18,650 of taxable income is taxed at 10 percent, the next $57,249 taxed at 15 percent, and so on. Below is a visual representation of income taxed at each federal tax rate for a married couple filing jointly in 2017 with $500,000 of taxable income.*
While the first few thousand dollars is taxed at 10 percent, attending cardiologists easily reach the upper tax brackets, resulting in sizeable amounts of income taxed at 28 percent or higher. Keep in mind that even if you are in one of the higher tax rates, your weighted-average, or effective tax rate, will be lower than your marginal tax rate because of your income taxed at lower rates.
Please keep in mind this article is meant as a teaching tool only and should not be considered tax advice. You should consult a tax professional for specific tax advice for your situation.
*Taxable income is the result of gross income less all deductions and exemptions, but before tax credits.
Keywords: ACC Publications, Cardiology Magazine
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