How Much Might the Taxes of a Dermatologist Be?

by

The amount of taxes a dermatologist might pay depends on various factors, including their income level, filing status, deductions, credits, and whether they are an employee or self-employed (e.g., running a private practice). Dermatologists often have high incomes due to the specialized nature of their profession, which can place them in higher federal and state tax brackets. This answer will provide an overview of the factors affecting a dermatologist’s tax liability and illustrate potential tax calculations, citing authoritative sources.

1. Income Level and Tax Brackets

a. Federal Income Tax

  • Tax Brackets: The United States has a progressive tax system, where tax rates increase with income.
  • 2023 Tax Rates: As per the Internal Revenue Service (IRS), the federal income tax brackets for single filers and married filing jointly are:
    • Single Filers:
      • 10% on income up to $11,000
      • 12% on income over $11,000 to $44,725
      • 22% on income over $44,725 to $95,375
      • 24% on income over $95,375 to $182,100
      • 32% on income over $182,100 to $231,250
      • 35% on income over $231,250 to $578,125
      • 37% on income over $578,125
    • Married Filing Jointly:
      • 10% on income up to $22,000
      • 12% on income over $22,000 to $89,450
      • 22% on income over $89,450 to $190,750
      • 24% on income over $190,750 to $364,200
      • 32% on income over $364,200 to $462,500
      • 35% on income over $462,500 to $693,750
      • 37% on income over $693,750

Authoritative Source: IRS Revenue Procedure 2022-38

b. Dermatologist Income Estimates

  • Median Salary: According to the U.S. Bureau of Labor Statistics (BLS), the median annual wage for physicians and surgeons, including dermatologists, was over $208,000 in May 2022.

Authoritative Source: BLS Occupational Outlook Handbook – Physicians and Surgeons

  • Dermatologist Specific Income: Industry sources like Medscape’s Dermatologist Compensation Report 2023 indicate that dermatologists earn an average annual income of approximately $400,000.

Authoritative Source: Medscape Dermatologist Compensation Report 2023

2. Self-Employment Taxes

a. Self-Employed Dermatologists

  • Definition: Dermatologists who own their practice are considered self-employed and are subject to self-employment taxes.
  • Self-Employment Tax Rate: As per the IRS, the self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare.

Authoritative Source: IRS Self-Employment Tax (SE Tax)

b. Wage Base Limits

  • Social Security Wage Base Limit: For 2023, the maximum amount of earnings subject to the Social Security part of the self-employment tax is $160,200.

Authoritative Source: Social Security Administration – 2023 Updates

3. State Income Taxes

  • Variation by State: State income tax rates vary significantly. Some states have no income tax (e.g., Florida, Texas), while others have high marginal rates (e.g., California, New York).
  • Example: California has a top marginal income tax rate of 13.3% for incomes over $1 million.

Authoritative Source: California Franchise Tax Board – Tax Rates and Exemptions

4. Deductions and Credits

a. Standard Deduction

  • Amounts for 2023:
    • Single Filers: $13,850
    • Married Filing Jointly: $27,700

Authoritative Source: IRS Publication 501 – Dependents, Standard Deduction, and Filing Information

b. Itemized Deductions

  • Common Deductions:
    • Medical Expenses (over 7.5% of AGI)
    • State and Local Taxes (SALT) Cap of $10,000)
    • Mortgage Interest
    • Charitable Contributions

Authoritative Source: IRS Publication 17 – Your Federal Income Tax

c. Business Expenses

  • Deductible Expenses for Self-Employed Dermatologists:
    • Office Rent
    • Medical Supplies
    • Malpractice Insurance Premiums
    • Employee Salaries and Benefits
    • Continuing Education

Authoritative Source: IRS Publication 535 – Business Expenses

5. Example Tax Calculation

Disclaimer: This is a simplified example for illustrative purposes. Actual tax liability can be more complex.

Assumptions:

  • Dermatologist’s Gross Income: $400,000
  • Filing Status: Married Filing Jointly
  • Business Expenses: $100,000
  • Itemized Deductions (after limitations): $30,000
  • State Income Tax Rate: 5%

a. Calculate Net Income

  • Gross Income: $400,000
  • Minus Business Expenses: $400,000 – $100,000 = $300,000

b. Adjusted Gross Income (AGI)

  • AGI: $300,000

c. Taxable Income

  • AGI: $300,000
  • Minus Itemized Deductions: $300,000 – $30,000 = $270,000

d. Federal Income Tax

  • Using 2023 Tax Brackets for Married Filing Jointly:
    • 10% on first $22,000: $2,200
    • 12% on $22,000 to $89,450: ($89,450 – $22,000) * 12% = $8,094
    • 22% on $89,450 to $190,750: ($190,750 – $89,450) * 22% = $22,242
    • 24% on $190,750 to $270,000: ($270,000 – $190,750) * 24% = $19,080
  • Total Federal Income Tax:
    • $2,200 + $8,094 + $22,242 + $19,080 = $51,616

e. Self-Employment Tax

  • Social Security Portion:
    • Maximum taxable earnings: $160,200
    • Social Security Tax: $160,200 * 12.4% = $19,862.40
  • Medicare Portion:
    • Total Net Income: $300,000
    • Medicare Tax: $300,000 * 2.9% = $8,700
  • Additional Medicare Tax:
    • Income over $250,000 for Married Filing Jointly is subject to an additional 0.9% Medicare tax.
    • Additional Medicare Tax: ($300,000 – $250,000) * 0.9% = $450
  • Total Self-Employment Tax:
    • $19,862.40 + $8,700 + $450 = $29,012.40
  • Deductible Part of Self-Employment Tax:
    • Half of the self-employment tax is deductible.
    • Deduction: $29,012.40 / 2 = $14,506.20
    • Adjusted Taxable Income:
      • Taxable Income after deduction: $270,000 – $14,506.20 = $255,493.80
    • Recalculate Federal Income Tax:
      • This would slightly lower the federal tax, but for simplicity, we’ll proceed with the original calculation.

f. State Income Tax

  • State Tax Rate: 5%
  • State Income Tax:
    • Taxable Income: $270,000
    • State Tax: $270,000 * 5% = $13,500

g. Total Tax Liability

  • Federal Income Tax: $51,616
  • Self-Employment Tax: $29,012.40
  • State Income Tax: $13,500
  • Total Taxes: $51,616 + $29,012.40 + $13,500 = $94,128.40

6. Other Considerations

a. Retirement Contributions

  • Impact: Contributions to retirement plans (e.g., SEP IRA, Solo 401(k)) can reduce taxable income.
  • Limit for 2023: The maximum contribution to a SEP IRA is the lesser of 25% of compensation or $66,000.

Authoritative Source: IRS Publication 560 – Retirement Plans for Small Business

b. Qualified Business Income Deduction

  • QBI Deduction: Up to 20% deduction of qualified business income for pass-through entities.
  • Limitation: Specified Service Trade or Business (SSTB) income (which includes medical professionals) may have limitations based on income levels.
  • Phase-Out Range for Married Filing Jointly in 2023: $364,200 to $464,200

Authoritative Source: IRS Section 199A – Qualified Business Income Deduction

c. Alternative Minimum Tax (AMT)

  • High-income individuals may be subject to the AMT, which requires a separate tax calculation.

Authoritative Source: IRS Topic No. 556 Alternative Minimum Tax

Conclusion

The amount of taxes a dermatologist pays can be substantial due to their typically high income levels. In the example provided, the total tax liability amounts to approximately $94,128.40 on a net income of $300,000, not accounting for all possible deductions and credits. 

Disclaimer: The information provided is for general informational purposes and should not be considered legal or tax advice. Tax laws are complex and subject to change. For advice specific to your situation, consult a qualified tax professional or refer to official IRS resources.