5 Effective Tax Strategies for Doctors to Maximize Savings
Doctors must pay taxes like every other American. Their tax liability may be higher, but they can reduce their tax burden by making wise financial decisions and keeping more of what they earn. What are some ways medical professionals can save on taxes?
Benefit From Deductions
Physicians should take advantage of all tax deductions for which they are eligible. These deductions lower their taxable income and overall tax liability. Business expenses are a standard tax deduction for independent contractors and practice owners. Office rent, worker salaries, supplies, and other things needed to run the organization may come from the doctor’s taxes. To take these deductions, the physician must record all business expenses and ensure they comply with tax laws when writing them off.
Licensing expenses may also be deducted from taxes and other requirements-related regulatory expenditures. Malpractice insurance and continuing education fall under this umbrella. Doctors may deduct any expenses their employers don’t reimburse them for. Work with a financial advisor experienced in tax planning for doctors to ensure no deductions are overlooked.
Tax-Deferred savings
Retirement plans help individuals save on taxes. To make the most of the savings, contribute the maximum amount allowed. As the contributions are made before taxes, the physician’s taxable income decreases, and their tax bill is lower. Look into catch-up contributions for those 50 and older and see if contributions can be made to multiple workplace retirement plans for doctors working for more than one organization.
Roth IRAs are another option, but after-tax dollars fund these accounts. Qualified withdrawals won’t be taxed, which doctors find beneficial when they retire. Physicians should see if they are eligible for a Roth IRA, as it comes with income limitations. If a doctor doesn’t qualify, they should ask about a Backdoor Roth IRA. Other retirement plan options should also be considered.
Spousal Retirement Contributions
Married doctors can contribute to their spouse’s IRA if they meet eligibility requirements. To do so, the physician must make more than the total contributions to both accounts; they must be married to the individual whose account they contribute to, and the two must file a joint tax return. Contributing to the spouse’s account may help reduce retirement tax liabilities.
If the spouse works, maximize their retirement plan contributions. Doing so will increase retirement savings and allow the couple to save on taxes. Talk with a financial advisor to ensure all contributions are correctly handled regardless of the option used.
Strategic Planning
Learn how to time income receipts. Many physicians find they can defer income and save on taxes. Doctors who know they will be in a lower tax bracket in the coming years benefit from this strategy. However, those who expect to be in a higher tax bracket in the coming years may wish to accelerate their income. A tax professional can help the physician determine when to employ the income timing strategy.
A physician may do the same with expenses. Accelerating high expenses can offset taxable income while deferring them can offer tax savings in the future. Many physicians combine these two techniques to see the maximum tax savings, and an experienced financial advisor or tax professional can help them do so.
Know the Tax Laws
Tax laws change, and all taxpayers need to keep up with them. The laws may be confusing, which is where an accountant or tax professional can be of great help. Many physicians also hire a wealth advisor to ensure they get the most from their money.
Doctors lead busy lives. They often struggle with finding the right work-life balance. Managing their finances can take up their free time, so many now turn to professionals to help save on taxes. With the right advice, the physician can keep more of their hard-earned money and use it to live a life they love.
Read More: Essential Checklist: What to Consider for Assisted Living