The alternative minimum tax: Guess who takes the brunt

Why yes, it’s primary care physicians. Can’t catch a break:

In the physician community, the AMT is most likely to affect those at the lower end of the physician income range, said Joseph Nicola, tax manager specializing in the health care field for Sisterson & Co. LLP in Pittsburgh. Specialists typically are not affected by the AMT because they are in higher tax brackets and owe more under the regular system.

Comments

K.
I’m confused: the article excerpt posted on the page clearly states that the reason why the AMT doesn’t hit specialists is because they’re already paying more taxes.
That means that a primary care doc paying the AMT is being taxed at a lower bracket than a specialist. I’m sympathetic to your overall defense of primary care on this site, but this particular post seems nonsensical to me.
Anonymous
BooHoooo — doctors hit by the AMT.
Plenty of others are hit with it also — this ISN”T a soapbox for the Primary Care whine.
Anonymous
As someone who pays hundreds of thousands of dollars in taxes in a typical year, yet is not subject to the AMT, I have little sympathy. My spouse works as well, so we pay twice the FICA/SS than if I earned her income myself. Then there is the marriage penalty. Not eligible for ROTH IRA’s either.
Deductions phase out as you earn more; a tax return is simple: write a big check as itemization is futile due to phase-outs. Why are mortgage interest and state/local taxes deductible for everybody but those of us who have worked hard, lived below our means, saved and invested for years? I am all for abolishing the mortgage interest deduction as I believe it will lead people to be more cautious in their real estate overindulgence. Maybe then fewer people will be subject to the AMT.
Hopefully if you too live below your means, go to the most reasonably priced state rather than private medical school, forego the big house with its big mortgage, pay cash for your Honda which you drive into the ground, save and invest diligently, and avoid divorce at all costs, you will find that more and more of your income comes from investments than from your practice as the years pass. At this point you will practice only because you want to practice. And you may retire if you desire, though few older physicians I know seem to retire until they are incapacitated even if they can retire.
On the other hand, not all is bad with a lower income; who knows, maybe you will qualify for a ROTH IRA and your children will get a great deal at Harvard, Yale or Duke with their generous new financial aid packages for the merely top 5-10% of income earners.
All I know is it sure is hard to “catch a break” the more responsible and hard working you become.
Anonymous
That is why I cut back to 4 day work weeks. At 5 days I lost the Roth and other tax breaks. It isn’t that I wasn’t getting ahead with the extra 20% gross, but it wasn’t proportionate and I have other things I would like to do before I die anyway. There is more to life than medicine.
Anonymous
That is why I cut back to 4 day work weeks. At 5 days I lost the Roth and other tax breaks. It isn’t that I wasn’t getting ahead with the extra 20% gross, but it wasn’t proportionate and I have other things I would like to do before I die anyway. There is more to life than medicine.
Anonymous
Good observation. For even the most affluent, there are only 24 hours in a day.
The trade off is as follows: If you work 4 days instead of 5, you have increased your discretionary days by 50%(weekend is 2 days). Let’s say you gross 200K working 5 days a week and your overhead is 100K per year. You net 100K. If you cut back your total revenue by 20% to 160K (4 days work versus 5 days) then your pretax income is reduced by 40% to 60K. As far as saving and investing money goes, this could be huge. Let’s say your annual living expenses were 60K and you made 100K after taxes working 5 days/week. You therefore could save 40K per year. If you cut back to 4 days a week and took a 40% cut in income , you now save NOTHING as you only taking home 60K. Very few practitioners can scale back their overhead to keep income loss proportionate to the lessened time worked.
Michael Rack, MD
Anon 12:45
I don’t think the situation is as bad as you describe it. Not all overhead is fixed, and overhead would decrease some if a practitioner cut back to 4 days. In addition, the practitioner might be able to cut some of the lower paying insurance plans as he cuts back his hours, thereby increasing the average reimbursement per patient seen.
A Doctor who grosses $300,000 working five days a week, with an overhead of $120,000 would take home $180,000. IF he cuts down to 4 days a week, overhead might drop to $100,000 and revenue to $250,000, leading to a take home of $150,000- a 20% drop in hours worked and a 17% drop in income.
Anonymous
Imbedded in smarty 8:17′s response is the secret to financial success. The lowest marginal tax rates are for investment income. The top marginal tax rates are like the earth’s gravitational pull. You have to struggle to save at a 35% rate, but if you save enough, eventually you are earning long term capital gains at a 15% rate. The sooner you can start earning money from investments, the better.
Like all the rest of your advice, too.
b
Anonymous
Yes, long term capital gain rate is only 15%, but capital gains can put someone with lower income into the AMT range, and you get to pay more in taxes anyway.
AMT is totally illogical and ridiculous. Just ask the telecom and former startups employees whose lives were destroyed simply because they didn’t sell the stock they bought as a result of exercising their incentive stock options (that they got as part of their fairly modest salary) on time. Every finance advisor was telling them to hold on to that stock for a year because under regular taxes ISOs exercise is a non-event. Then the stock crashed, but they still owed more money in AMT they have ever made.
How can a provision that was claiming to have a goal of making sure that super rich pay their share of taxes not be adjusted for inflation? Between 1969 when it was introduced and today we had several years of two-digit inflation of late 70s-early 80s.
Anonymous
>>”How can a provision that was claiming to have a goal of making sure that super rich pay their share of taxes not be adjusted for inflation? Between 1969 when it was introduced and today we had several years of two-digit inflation of late 70s-early 80s.”
Easy. The people for whom the AMT was designed to tax found other ways to avoid having to pay. Eventually the AMT became valuable as a revenue generator because of the broader bite it was able to take out of a larger but less-high-earning stratum of the taxpaying population, and not the folks whose liability is at the 15% rate on investment income.

The alternative minimum tax: Guess who takes the brunt

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