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Don’t lose your end bonus to the tax-man

As the year draws to a close, many doctors receive year-end bonuses. However, with these bonuses come potential tax implications that can impact the overall financial picture.

Understanding the tax landscape

Before diving into strategies, it’s essential to grasp the tax landscape. Different types of income, including bonuses, may be taxed at varying rates. Knowing the tax implications helps doctors make informed decisions. Seek a financial advisor who understands your situation if you are uncertain. The time and money spent can save you many times over.

Considerations for doctors:

  • Marginal tax rates. Understanding the marginal tax rate – the tax rate applied to the last dollar of income – is crucial. Doctors should be aware of how their bonuses might push them into higher tax brackets.
  • Types of bonuses. Year-end bonuses can be classified as discretionary or nondiscretionary. Discretionary bonuses are subject to different tax treatment, potentially affecting the timing of their receipt.

Timing matters: Defer or accelerate

Deciding when to receive a year-end bonus can impact the tax consequences. Doctors can consider deferring or accelerating the receipt of bonuses based on their current and future financial situations.

Considerations for doctors:

  • Deferring bonuses. By deferring a bonus to the next tax year, doctors may have the opportunity to spread their income across multiple years, potentially reducing their overall tax burden.
  • Accelerating bonuses. Conversely, accelerating the receipt of bonuses may make sense in certain situations, especially if doctors anticipate a lower income or higher deductions in the upcoming tax year.

Tax-deferred savings contributions

Making contributions to tax-deferred savings vehicles is an effective strategy to reduce taxable income while simultaneously building wealth for the future.

Considerations for doctors:

  • 401(k) contributions. Maximizing contributions to a 401(k) plan can lower taxable income. Doctors should ensure they are taking full advantage of employer-sponsored retirement plans.
  • IRA contributions. Contributing to individual retirement accounts (IRAs) is another way to reduce taxable income. Depending on income levels, contributions to traditional IRAs may be tax-deductible.

Health savings accounts (HSAs) and flexible spending accounts (FSAs)

Health-related accounts, such as HSAs and FSAs, offer doctors additional opportunities to reduce taxable income while addressing health care needs.

Considerations for doctors:

  • HSA contributions. Contributions to HSAs are tax-deductible and can be used for qualified medical expenses. Doctors should evaluate the benefits of contributing to an HSA, especially if they have a high-deductible health plan.
  • FSA contributions. Flexible Spending Accounts allow pre-tax contributions for eligible medical expenses. Doctors should review their expected health care costs and contribute accordingly.

Charitable contributions

Making charitable contributions not only supports worthwhile causes but also provides potential tax benefits through deductions.

Considerations for doctors:

  • Donations of appreciated assets. Contributing appreciated securities or other assets to charitable organizations can result in a double benefit – a deduction for the fair market value of the donation and the avoidance of capital gains tax.
  • Qualified charitable distributions (QCDs). For doctors who are age 70½ or older, making charitable contributions directly from their individual retirement accounts (IRAs) can satisfy required minimum distributions (RMDs) and reduce taxable income.


Handling year-end bonuses strategically can significantly impact a doctor’s overall financial plan. By understanding the tax landscape, considering the timing of bonuses, maximizing contributions to tax-deferred savings accounts, and exploring opportunities for charitable contributions, doctors can optimize their financial situation while minimizing tax liabilities. Adopting a proactive and strategic approach to year-end bonuses contributes to a more resilient and financially secure future.

Amarish Dave is a board-certified neurologist with over 20 years of experience in both neurology and active stock investing. In addition to his medical career, he holds a background in business from the University of Michigan and has successfully passed the SIE exam administered by FINRA. Dr. Dave is founder,, a website dedicated to educating doctors at all stages of their careers, ranging from residents to retirement, about financial planning.

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