Many people enter the medical profession because they want to help others and appreciate the paychecks these individuals receive. Doctors, in particular, typically have high incomes, leading to them entering a higher tax bracket. At the same time, they have business expenses they may write off. They need help with comprehensive tax planning to ensure every write-off is received. Doctors should use these strategies to maximize their deductions and receive the most retirement benefits possible.
Business Expenses
When it comes to tax planning for physicians, one of the most important things they can do is deduct their business expenses. They can deduct the medical supplies and equipment they use when practicing, their professional liability insurance, office rent, travel expenses, and continuing education. To do so, however, they must keep good records. They will need receipts, invoices, and other documents that outline these expenses and how they were used.
Retirement Plans
Doctors can contribute to retirement plans to give them tax advantages. They may choose a 401(k) plan, SEP IRA, a simple IRA, or health savings accounts. With each contribution to one of these accounts, they reduce their taxable income, allowing their funds to grow tax-deferred. They will only owe taxes on these funds once they withdraw the money.
A doctor should contribute to a 401(k) plan, particularly if their employer may match their contributions. An SEP IRA is ideal for those doctors who are self-employed. They can contribute a percentage of their net earnings to this account. Positions who are small business owners should choose a simple IRA. If the company has fewer than 100 employees, this retirement plan can be offered to them. Health savings accounts are used to cover certain medical costs, and contributions are tax-deductible. The money grows tax-free.
Form a Business
Doctors may choose to form a business entity to obtain tax advantages. An LLC or S corporation is ideal because it can deduct health insurance premiums and self-employment taxes. Before establishing a business, the doctor should speak to a tax professional to learn which options will provide them with these deductions and other benefits.
Hire a Tax Advisor
Doctors spend their time helping patients, so they don’t have time to keep up with the latest tax law changes. For this reason, many doctors hire a tax advisor to help them devise a tax planning strategy that meets their unique needs. The advisor will ensure that the doctor claims all deductions and credits that they can and complies with all tax laws and changes.
Additional Tax Savings
Doctors need to ensure they are deducting their student loan interest. Many medical school students complete their education with hundreds of thousands of dollars in student loan debt. They can deduct up to $2,500 annually of this interest on their taxes. In addition, they can deduct continuing education expenses, as this education is required to maintain their licenses. The IRS considers these courses a business expense.
Medical malpractice insurance premiums can be deducted from a doctor’s taxes because they are necessary. Doctors may also deduct charitable donations if they donate to a qualified organization. Doctors may be eligible for other tax credits; their tax advisor will ensure they take all possible.
Every medical professional should work with an experienced tax advisor to ensure they comply with tax laws that change frequently. This advisor will ensure the professional gets every tax deduction and credit available, allowing these individuals to keep more of their hard-earned money.
