Learn More About the Aurum Advantage.
The Aurum Group: Empowing Excellence in Dentistry
  1. Home
  2. /
  3. Business

Keep More Money in Your Pocket - Saving Today and for the Future

Published on: Oct 30, 2024
By: Ratna Indah
Share Article

Each year, the U.S. government misses out on approximately $80 billion in potential tax revenue. That staggering figure is equivalent to the GDP of Luxembourg in 2022! That $80 billion loss of tax revenue – is driven by salary deferrals into retirement accounts like 401(k)s.

When it comes to money, many of us are more aligned with Tom Cruise's famous line, “Show Me the Money,” than Biggie Smalls “Mo’ Money Mo’ Problems.” So, let’s cut to the chase: you can keep more money in your pocket by reducing your taxes—all while investing in your future.

___________________________________________________

The Power of Tax Reduction

Contributions to retirement accounts are made with pre-tax dollars, which decreases the amount of income subject to taxation. Saving for your future can have tremendous implications for your tax burden today.

Real-Life Examples
Let’s examine how this works in practice, using an example of an associate doctor in a Dental Service Organization (DSO) based in San Francisco.

The Associate

Dr. Khormali*, works for a DSO in San Francisco, earning $180,000 annually, or $15,000 a month. At a 7.22% effective State tax rate and 18.49% federal rate, Dr. Khormali would face a tax bill of $46,272—about 25.7% of her income.

By contributing $1,050 per pay period, or about 7% of her monthly salary, she can reduce her taxable income to $168,000. This would lower her tax liability to $42,276, saving $3,996, or the equivalent of over 5 ½ days of work.

We haven’t even valued the $12,600 that she has now put aside in the retirement account. Using the S&P 500’ annual return of around 9.9% over the last 30 years as a reference, we can use a conservative 7.5% return for 30 years. Without adding even another single dime, Dr. Khormali would end up with over $110,000 in retirement savings…and the extra $4,000 upfront in her pocket.

What would you do with an extra $4,000? Take your family on a weeklong vacation to Puerto Vallarta, or pay down student debt? Regardless, the choice seems clear when deciding between working 5 days a year for the IRS…or for our families.

The Front Desk
Heidi*, the front desk support at Dr. Jenkins* pediatric office works in Orange County, 30 minutes away from Disneyland. She works 40 hours per week, earning $53,760 a year at an hourly rate of $28. Without deferring any of her income, she’ll pay about $6,139 in taxes—over 11% of her income.

However, if Heidi contributes $350 per pay period (just under 8% of her monthly income), her taxable income drops to $49,560. This adjustment reduces her tax liability to $5,383, savings $756. For perspective, that’s equivalent to 27 hours or 3.5 days of work.

In a state without income taxes like Texas, Heidi’s tax burden would be $4,569 without contributing to retirement. By contributing $350 per pay period, she would pay only $4,065, saving $504, or about 18 hours of work.

Maximizing Your Benefits:
These examples illustrate that the higher your income, the more advantageous it is to reduce your taxable income through retirement contributions. California, Hawaii, New York, New Jersey, and Oregon are the five states with the highest income tax rates. In contrast, nine states—like Texas and Florida—do not impose an income tax, providing a different landscape for tax planning.

Now, before our California, Hawaii, and New York readers book that U-Haul to move to Texas, if you’re subject to state income tax it’s even more vital to consider tax reduction.

In summary, don’t miss out on the opportunity to reduce your tax burden today by deferring income for retirement. By maximizing your retirement contributions, you can keep more of your hard-earned income today while also growing a future nest egg.

For personalized tax estimations, the IRS offers a handy Tax Withholding Estimator. Additionally, you can explore tax calculations based on state income rates through resources like Forbes’ Income Tax Calculator.

___________________________________________________

Dr. Ratna Indah graduated with honors from Tufts University School of Dental Medicine, where she gained valuable experience as an intern at The Gelb TMJ Center and served as a tutor. She has achieved Fellowship status with the Academy of General Dentistry (AGD), an honor awarded to only 6% of general dentists. To earn this designation, Dr. Indah completed over 500 hours of continuing education in various dental disciplines and passed a comprehensive exam, receiving the award in a formal ceremony. Dr. Indah is also certified in Safe Mercury Amalgam Removal Technique (SMART), emphasizing her commitment to patient safety and advanced dental care.

Seay Within

Unlock the Core Principles of Cosmetic Dentistry and Photography with Dr. Amanda Seay. Enhance Your Diagnostic and Treatment Planning Skills. Elevate Your Case Presentation and Acceptance Rates.

You May Also Like

2024-08-16

Owners vs. Associates: Both Are Often Wrong

by Dr. Travis Campbell

Disagreements between dentist owners and associates can be disheartening, and social media often highlights these conflicts. The root of the issue? A lack of understanding from both sides. When both parties grasp their primary roles, success follows. Discover how focusing on these core responsibilities can lead to greater satisfaction for everyone involved.
2024-08-08

How Does Insurance Affect Your Marketing Success?

by Dr. Travis Campbell

Explore the intricate and powerful interplay between your marketing campaigns, your insurance claims processing, the satisfaction of your patients, and your practice’s ultimate profitability. Discover actionable insights to elevate the results you can achieve.
2024-05-03

12 Tips to Maximize Reimbursement from Dental Claims

by Dr. Travis Campbell

Discover ways to navigate your dental insurance challenges more effectively. This article contains 12 actionable solutions to streamline office operations, enhance the satisfaction of your patients while also boosting the profitability of your practice.