Many medical professionals earn salaries that push them into higher tax brackets and are unable to take advantage of certain deductions and credits available to low-income taxpayers. Whether you are an employee or self-employed there are still viable options for lowering your tax liability. Below are a few of the deductions, credits, and strategies that could be considered:
- Employee Business Expenses—Although these deductions are subject to 2% of AGI some taxpayers may accumulate enough expenses to help lower their tax bill. Examples include travel, 50% of meals and entertainment, supplies, tools, work clothes and uniforms, professional books and journals, home office deductions, and depreciation on property used for business such as equipment and vehicles. If you are fortunate enough to be self-employed you would be able to deduct all the expenses on the Schedule C of your 1040, or could be paid by your corporation or partnership.
- Student Loan Interest—This deduction may not be deductible for most medical professionals since it is phased out at higher income levels. However, you could consider using a home equity loan to pay down your student loans or any other high-interest debt and convert the interest into a tax deduction.
- Pre-tax Contributions to Retirement Plans—If you are an employee, you may be eligible to make pre-tax contributions to 401(k) plans. If you are self-employed you can make pre-tax contributions to a SEP-IRA up to 20% of your net income which could amount to significant tax savings. An additional tax strategy would be to make a “backdoor” Roth IRA contribution if you are not able to deduct your IRA contributions. Nondeductible IRA’s could also be a viable alternative which would provide tax-free growth at possibly a 5% ROI.
- State Tax Credits—If you are a physician in Maryland you may qualify for additional tax credits such as the Health Enterprise Zone Practitioner Income Tax Credit or the Income Tax Credit for Preceptors. If you work in a state other than Maryland there is an array of tax credits available to medical professionals.
- Charitable Contributions—Unfortunately, while you won’t be able to deduct the value of your time for services you provide to charitable organizations, you are able to deduct the expenses related to those services along with the mileage you are driving to these activities. You may also want to consider donating appreciated securities because you are able to get the tax deduction for the value of the gift and avoid the capital gain on the sale.
For more information about these tax strategies, we encourage you to contact our tax specialists at 301.231.6200.