No matter what kind of medicine you practice, the Internal Revenue Service has specific rules that apply to doctors as well as several opportunities.
Following is a list of tax provisions that affect physicians, in particular.
- Qualified business income. If your business is organized as a passthrough entity — sole proprietorships, partnerships, S-corp or LLC taxed as S-corp — ensure that you are managing your qualified business income according to the rules under Internal Revenue Code Section 199A. Examine the pros and cons of changing your business structure.
- Business deductions. If you are self-employed, you usually can deduct your business expenses, including travel and lodging, airfare, office equipment and supplies, medical equipment, board exam fees, licensing fees, continuing medical education expenses and membership dues. Computer and software expenses also are deductible. Physicians who are Form W-2 employees may wish to explore the possibility of a reimbursement plan. Such a plan would allow you to be reimbursed without having to report the reimbursements as income.
- Standard deductions. Self-employed physicians may be able to employ their children to shift income from their high tax brackets to their child’s lower bracket. The standard deduction can zero out any tax liability on the amount earned. Remember that wages must be reasonable given the child’s age and skill level.
- College savings plans. Consider opening a 529 college savings plan to save for the education of your children or grandchildren.
- Contributions to minors. Examine any contributions you’ve made through the Uniform Gift to Minors Act or Uniform Transfer to Minors Act. The Tax Cut and Jobs Act changed how these funds are taxed, so it would be wise to investigate how much of a withdrawal you can take to take advantage of the capital gains rates. Any withdrawals you make must be used for the benefit of the child.
- Retirement savings. Maximize your retirement savings through tax-saving vehicles like 401(k)s and defined benefit plans.
- Depending on your particular circumstances, other types of accounts, such as backdoor Roth IRAs, which are legal ways to get around the income limits of traditional Roth IRAs, also may be an option.
- Health savings accounts (HSAs) are another good option. Note that unlike flexible spending accounts, which must be spent in a calendar year, HSA funds can continue to grow tax-deferred until they are used.
These tax rules are complex, so ensure that you are using your deductions properly and to maximum effect. This will help you get the most out of any available credits and deductions while also avoiding any penalties.
Consult with a qualified professional to learn more. contact an MCB Advisor at 703-218-3600 or click here. To review our medical practice news articles, click here. To learn more about Medical practice and our medical experts, click here.
©2019