Hi,

In evaluating potential job options, I am trying to consider post-tax income instead of gross salary. I understand this requires significant details and calculation in order to answer accurately, but I kindly ask for a gestalt answer based on your intuition. (including variables like AMT, independent contractor tax and large medical group tax minimizing strategies, self incorporation, etc.)

Scenario 1:
- $350k independent contractor
- Work at home w/ home office
- Limited benefits

Scenario 2:
- $500k partner
- Full benefits

Both scenarios:
- Wife makes $125k with benefits

At first glance, the 2nd scenario appears clearly superior. However, after considering large deductions for IC, high marginal tax rate, and AMT deduction losses, it seems like the 1st scenario has a much higher tax efficiency.

Approximately how much larger is the post-tax income of Scenario 2?

Thanks!

I think I might be missing something. But it appears one place will pay you $500k with full benefits, and the other will allow you to earn $350k with no benefits and you need to pay all of your professional expenses out of the $350k.

If that is the scenario, then you are correct that you can write off the professional expenses directly against the $350k of self-employment income. However, since you will save about 40 cents for each dollar of professional expenses you claim, you will be better off to have your employer pay those expenses for you, give up the 40 percent tax break, and put 60 cents for each dollar not spent into your pocket.

So with the $150k difference in offers, I don't see how the $350k offer can leave you with more after-tax dollars than you would get with the $500k offer. I'd need more specific info to let you know how much better the $500k offer really is.

If I'm overlooking some of the facts, please let me know.

Zip Code: 01801

Thanks for the reply and sorry for not being more clear.

Let me clarify a few things. Please ignore the benefits, as most of them (except med mal) will be provided by spouse's benefits; e.g., health benefits would be redundant. Also, the $350k job offers better location and less workload.

The question, then, is this: The $350k job offers higher tax efficiency (w/ home office deduction, technology equipment write-offs, etc.) and, by saving taxes, may offset some of the difference between it and $500k job. I would like to get a sense for how much the true difference is in $, so I can weigh it against the other variables favoring the $350k job.

If the difference is huge, then the clear decision is to go for the higher paying job. If it is not as large as one might think at first glance, then it might be better to do the better location/hours?

Please let me know if the question is unclear. Thanks!

Thanks for the clarification.

I get that if your wife makes $125k, and you have the option of earning $500k as an employee or $350k as an independent contractor. Assuming you'll be able to come up with $25k to write off against your $350k of independent contractor income, I come up with your federal income taxes going up by about $65k, your social security taxes going up by $7k, and your Medicare taxes going up by $7k - for a total of $79k of additional taxes on the extra $150k of salary.

However, you will not be subject to the self-employment tax if you are paid as an employee, which will save you $22k in taxes that you would pay as part of your federal income tax return on $325k of self-employment income.

All in all, it looks like the cost to you if federal taxes, social security taxes, and Medicare taxes would be just about $57k on the extra $150k. The AMT does not seem to have much of an impact, but it would probably become less of a factor as your total income increases from $475k to $625k.

Zip Code: 01801

Thank you for your analysis. Definitely changes my thinking. I have been overestimating the tax advantages of being self-employed. Your scenario puts the $500k option at ~$90k better post-tax than the $350k scenario, which is significantly more than I assumed (I thought the difference would be closer to $50k: 50% marginal tax on $150k gross difference, then ~$25k of saved taxes via self-employed deductions).

Also very interesting that AMT has less of an effect as income goes up at the level.

I would like to find an excellent accountant who understands these issues (like yourself). I could start this year, even though I am not an attending physician yet. Also, I would like to know the advantage of having a local accountant (rather than the best accountant anywhere), especially relevant given that I will be moving in the next few years.

Thanks again for your help.