Understanding Tax Strategies for Doctors (2024)

When it comes to tax planning for doctors, one of the most important things to consider is how you can maximize your deductions. Deductions reduce the amount you owe on taxes, allowing you to put more money away for your financial future. Several deductions specifically designed for healthcare workers are available for medical expenses, such as health insurance premiums, long-term care insurance premiums, and medical equipment or facilities. However, there are many other ways that physicians can increase their deductions and reduce their tax burden.

Charitable donations can be used to reduce taxable income for doctors and healthcare professionals. If you’re making charitable donations, consider bunching them up in one year instead of spreading them out over multiple. This allows you to take advantage of the higher charitable tax deduction limits available in a single year, resulting in a larger deduction and reduced taxable income.

Refinancing your home can be a great way to reduce the interest you’re paying each month, but it can also increase your taxable income. For mortgages beginning after December 15, 2017, only the first $750,000 is considered deductible. Refinancing more than this amount can potentially cause you to lose a portion of your deduction.

You can use Section 529 assets to cover a substantial amount of the cost of K-12 private education. However, contributions to a 529 plan are not deductible on your federal income tax return. Instead, the earnings remain free from federal tax when used for qualified educational expenses.

Qualified business income is earned from a sole proprietorship, LLC, or S-corporation. This type of income is not subject to self-employment tax and can present an opportunity for tax savings.

Contributing to a retirement plan is also an effective way to reduce your taxable income. There are a variety of plans and accounts available, such as 401(k)s, 403(b)s, SEP IRAs, and more. These retirement plans are designed to help you save significantly on your taxes. When you retire, they’ll provide a steady stream of income. Contributions to these retirement plans are pre-taxed, allowing them to grow tax-free until you start taking distributions during retirement.

Want to learn more about taking advantage of retirement plans as a physician? Explore our guide to backdoor Roth IRAs and learn how to improve your long-term financial stability.

Charitable donations are deductible, so they’re a great way to help you lower your taxable income. Keep track of all donations you make and obtain receipts for them in case you need to prove the donation amount for tax purposes.

Tax-loss harvesting is a tax planning strategy used to offset gains with losses. Using this strategy, you can sell an asset that has declined in value to realize a loss on your taxable income. The losses are not considered capital losses and can be used to offset capital gains from other investments.

If you own rental property, you can deduct interest expenses associated with that property. For example, if you have a mortgage on your rental property, you can deduct the interest portion of that mortgage. Another common deduction for property owners is depreciation, which allows you to recover income taxes paid on durable goods like furniture, appliances, and fixtures. Or, if you rent a room in your home, you may be able to take advantage of the rental home exclusion. This allows you to exclude a portion of the rental income from your gross taxable income.

If you are a self-employed physician, there are several strategies to maximize your tax deductions and minimize the amount of taxes you owe. For example, if you own a practice or other business entity, you may be able to deduct business expenses such as office supplies, advertising costs, and even some travel expenses. Additionally, you may be able to take advantage of certain deductions related to health insurance premiums and medical malpractice insurance.

If you have dependents, there are additional tax benefits available to you. For example, the Child and Dependent Care Tax Credit (CDCTC) allows for a tax credit for up to 35% of qualifying dependent care expenses. Additionally, if you have a stay-at-home spouse or parent, you may be able to take advantage of the Head of Household filing status. This would allow for a larger standard deduction and lower tax rates on your income.

Tax planning for doctors can be extremely frustrating. However, if you find yourself overwhelmed by the complexities of filing taxes as a physician, working with a physician tax advisor can help. These professionals are trained to help you navigate the intricacies of taxes and can provide personalized advice that helps you maximize deductions and plan for financial stability.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.