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Tax Deductions for Physicians: What You Need to Know

With so much to juggle in a medical practice, tax planning often takes a back seat. However, understanding how to leverage tax deductions for physicians can significantly trim your tax bill and increase your bottom line. Physician families can benefit greatly from these strategies, leading to significant tax savings over the life of their career.

Understanding Tax Deductions for Physicians

At its core, tax planning revolves around optimizing business income, deductions, credits, and exemptions to reduce taxable income. The goal is to ensure that you pay only the minimum amount required by law, ultimately saving you money. Just like any business, medical practices have ample opportunities for tax deductions. Let’s dive deep into the captivating world of physician tax strategies and look at how to make the most of your money through careful tax planning.

What Are Tax Deductions for Physicians?

A tax deduction is essentially a reduction in your taxable income. In the context of physicians, tax deductions are expenses related to the practice of medicine that can be subtracted from the physician’s adjusted gross income. For physicians operating their practice as a sole proprietorship, an independent contractor, or a partner, deducting these expenses can significantly reduce the tax bill.

Applying the correct deductions to the right places in a tax return requires an in-depth understanding of the tax code. Sadly, it’s also an area where many physicians often miss potential deductions, leaving money on the table.

The Importance of Tax Planning for Medical Professionals

A well-planned tax strategy can significantly impact retirement savings, college savings for children, and even plans for purchasing rental properties. Moreover, physicians with a strong comprehension of potential tax breaks are more likely to receive a substantial tax refund than owing money come tax time. Plus, a collaborating tax professional can help design effective tax resolution strategies, manage medical expenses, implement a Roth IRA or backdoor Roth IRA, and plan employee contribution limits, all of which play a significant role in a physician’s overall financial health.

Differentiating Between Tax Deductions, Credits, and Exemptions

Understanding the difference between tax deductions, credits, and exemptions is crucial. While all three can potentially reduce your tax bill, they work differently.

  • Tax deductions: Tax deductions reduce your taxable income. For example, if you had $200,000 in gross income and $50,000 in tax deductions, including business expenses, student loans, and mortgage interest on your primary residence, your taxable income would be $150,000.
  • Tax Credits: Tax credits reduce your tax bill dollar for dollar and are often linked to specific activities or expenditures.
  • Tax Exemptions: Exemptions, on the other hand, reduce the amount of your income subject to tax. Historically, taxpayers could claim personal exemptions, but under the latest tax law, personal exemptions are now suspended.
Front view of a group of doctors standing in a row while crossing their arms

Useful Tax Deductions for Physicians

Being a physician can be a demanding profession, not only because of the rigors of the job but also because of the pressure of managing financial matters. Some physicians might miss out on potential deductions simply because they’re unaware of their existence. However, knowing the common tax deductions can save money while reducing your taxable business income.

Health Insurance Premiums and Retirement Contributions

As an independent contractor, you can often write off health insurance premiums for yourself, your spouse, and your dependents. Furthermore, self-employed physicians have access to retirement savings options like a Solo 401(k) and a Simplified Employee Pension IRA, both of which offer much higher employee contribution limits than traditional retirement plans. Contributions to these plans can be significant tax deductions.

Deducting Business Travel Expenses

Traveling for work-related purposes such as medical conferences, professional meetings, patient house calls, and even commuting between your hospital offices can present tax deduction opportunities. These can include mileage costs, airfare, hotel stays, meals, and anything else reasonably related to your business travel.

These tax strategies can help physicians maximize their financial resources and lower their adjusted gross income.

Deductions for Medical Equipment and Supplies

Physicians should also not overlook deductions related to medical equipment and supplies. These can range from expensive apparatuses like MRI machines, stethoscopes, or medical gloves. Additionally, office space can also be utilized for tax deductions. Keeping a detailed track of these can result in considerable tax savings.

Professional Development Expenses

In a profession that demands constant learning and upskilling, expenses for continuing medical education, seminars, workshops, medical literature, dues to professional societies, and even your medical malpractice insurance premiums can all be written off as tax deductions. Similarly, the costs of board exams and professional license renewals are also deductible.

Startup Costs

Did you know tax deductions for startup costs associated with establishing your own medical practice can lower your tax bill substantially? You can deduct up to a specific limit of startup costs in the year you begin your business, and any remaining costs can be amortized over a span of 15 years. It’s crucial, however, to keep meticulous records of all these costs to ensure they are eligible for tax deductions. You can consult a tax professional to help you understand and navigate these details.

Licenses and Certification Fees

As a practicing physician, you’re likely required to maintain various licenses and certifications. While these expenses might initially seem onerous, they can offer a silver lining in the form of tax deductions. Under the current tax code, professionals such as physicians may deduct the costs of buying, renewing, or replacing requisite tools and materials for their practice.

Knowing what sorts of tax deductions physicians can take advantage of can yield significant financial savings. Discover additional tax guidance and tips to get the most out of your finances.

Learn More

Understanding Non-Deductible Expenses

The IRS has strict rules about non-deductible expenses. For instance, while many employee-related plans and benefits can be deducted, expenses related to life insurance are usually not deductible. Moreover, fines and penalties paid to a government for violating any law are non-deductible from your gross income.

Furthermore, while physicians can invest in college savings and retirement plans to save on taxes, these investments must conform to the contribution limits set by the IRS. Over-contributions can lead to penalties and impact your taxable income calculations negatively.

Understanding the tax code regulations and working with a knowledgeable tax professional can help you navigate these complex areas and optimize your tax deductions. As an established and trustworthy provider, Physician’s Resource Services can help.

Get the Most Out of Your Tax Deductions With Physician’s Resource Services

Physician’s Resource Services provides physicians with the financial consultation services they need to achieve their personal and professional goals. Whether you need assistance with tax preparation, insurance guidance, investment management, or financial planning, we’re here to provide the solution.

Want to learn more about tax deductions? Get in touch with us today to schedule a consultation.

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.

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Robin Bales – AGENT

Robin has owned a Commercial Leasing Company providing financing to doctors and other operators for their equipment beginning in 2007. After the global crash of 2008, she went to work for NYL and spent 3 years there working with other entrepreneurs securing their retirement future and safeguarding their personal asset risks. Robin opened her own agency in 2017 Legacy by Design and has run a national firm coast to coast with 50-70 agents. Today the agency is much smaller serving 5 agents who share the same vision and passion for our clients focusing on health insurance, Medicare, and annuities.

Robin is most connected to ethos of PRS mission to improve the lives of doctors and their families. Supporting those who run the leading infrastructure of our country.

Robin has been married for 22 years to her husband Steven. Together they have 3 girls and have built a family with strong values and commitment to each others successes. Robin’s family are home bodies by nature and enjoy their 3 dogs hanging in living room or kitchen.

Karli Allen – HEAD OF WEALTH MANAGEMENT

Karli is a graduate of The Master’s University in Santa Clarita, CA, and has a business degree with emphases in accounting, finance, and management. Karli has been in the financial services industry since 2014 and joined the PRS team in 2018.

Karli oversees investment and financial planning operations and assists with the onboarding and service of the firm’s advisory clients.  Karli was a key part of our firm’s custodial transition to Fidelity in 2019 as part of our decision to become an independent investment advisory firm.  Before joining PRS, Karli worked in personal financial planning in Orange County, California.  She also holds a FINRA Series 65 license. Karli is grateful to be a part of such an amazing team.

Outside of work, Karli enjoys traveling, playing golf, and spending time with her husband and their goldendoodle.

Gabriela Chavez – ANALYST

At Physicians Resource Service Gabby plays a pivotal role in Paul’s advisory team, staying in close contact with clients, driving business development, and lending a hand in daily operational tasks. Additionally, she collaborates with CPA Erin Anderson to prepare tax returns, conduct withholding reviews and undertake various tasks across the division.

Gabby is currently double-majoring in accounting and finance at the University of the Incarnate World in San Antonio, and she plans to sit for her Certified Financial Planning exam in the fall of 2022. Before transferring to UIW, she attended the University of Texas Rio Grande Valley in Edinburg, Texas. Gabby was born in Germany and is Mexican American. She loves to travel and has visited 11 different countries. She has a five-year-old pug named Penny.

Chris Fullbright – FINANCIAL ADVISOR

Chris brings experience in financial services and the perspective of a successful entrepreneur who has launched several businesses. With over a decade in the industry, he has served as both an advisor and in a management role coaching new advisors. Chris attended the University of Georgia and Texas State University and graduated with a Bachelor of Applied Arts and Sciences.

He currently holds many financial services licenses and designations including FINRA Group One, Series 6, Series 63, Series 65, Series 7, ARPC, and Certification in Long Term Care (CLTC). In his free time he enjoys being involved in the local community through organizations such as Comfort Crew for Military Kids. Chris is also an active member of Austin Christian Fellowship Church, and enjoys spending time there as well as reading, fishing, and going to sporting events. He is happily married to Monique with two wonderful sons. In addition to serving physicians, Chris specializes in working with special needs families.

Kevin Burris – PARAPLANNER

Kevin received his BA and MBA from Indiana University, earned the Certified Financial Planner (CFP) designation from the University of Georgia, and Retirement Income Certified Professional (RICP) designation from the American College. Kevin is looking forward to helping physicians live their best life. Kevin enjoys spending time on the lake with his wife, playing golf, and watching Indiana University sports.

Michael Kohles – AGENT

Michael attended Lake Michigan College and Siena Heights University, graduating magna cum lade with a Bachelor of Business Administration, with a major in Finance and minor in Marketing. Michael has been in the financial services industry since 2015 and has experience with multiple insurance verticals. Michael is excited to help physicians achieve their financial goals by providing insurance solutions. Michael is married to Erin and has 4 children. Michael also enjoys reading, golfing, playing poker, learning, and traveling.

Erin Kohles – UNDERWRITING PROCESSOR

Erin supports our advisors and clients during the insurance underwriting process in multiple ways. On a given day, she helps by processing applications, tracking and following up on open cases, and answering client questions. She appreciates the part she plays in helping clients prepare for the future, and she strives to make the process as simple and efficient as possible.

Erin has been in the insurance industry for two years and brings with her six and eight years of experience in accounting and quality control, respectively. She graduated from Ball State University and has her life & health and property & casualty insurance licenses. In her free time, she enjoys cheering on her two boys who play basketball, soccer, and baseball; traveling with her husband; and playing with their Yorkie, Mingo.

Erin Anderson – CERTIFIED PUBLIC ACCOUNTANT

As a certified public accountant, Erin is a valuable part of our tax division at PRS. She enjoys working with our advisors to develop tax-efficient strategies, and she strives to provide clarity for every client she serves. Erin started her career as an accountant after graduating from Oklahoma State University in 2012 with a master’s degree. She earned her CPA license in 2018. Erin and her husband have two little boys, and they love spending time outdoors as a family and watching OSU football.

Alex Simmons – BUSINESS DEVELOPMENT

Alex oversees Business Development at Physician’s Resource Services. She works with each department to assist in continually improving PRS so we remain a leading competitor in the industry. Alex graduated from Texas Tech University with a Bachelor of Business Administration in Energy Commerce. She is a Texas native who loves to spend her free time traveling and taking her pup, Teddi, to the dog park.

Jennifer Khan- UNDERWRITING SPECIALIST

Jennifer is an Underwriting Specialist at Physician’s Resource Services, with an extensive background in customer service and administration. Jennifer grew up in Texas, graduated from Southeast Missouri State University with a BFA in Theatre, and spent six years in Chicago performing sketch and improv. She is a graduate of the Conservatory Program at The Second City and iO Chicago. Jennifer and her husband, Qamar, moved to Texas with their dachshund mix, Dobby, to be closer to family, sunshine, and good BBQ.

Cheryl Breeden – OFFICE MANAGER

Cheryl is the Business Manager for the firm and a licensed service assistant. She graduated from the University of Texas at Austin with a Bachelor’s Degree in Business Administration. She has years of experience in the areas of process management, customer service, benefits, and insurance. Cheryl has three girls — Ashley, Hannah, & Olivia. She brings this experience to our firm where she manages the underwriting and service process. She also manages the business operations for the firm.

John C. Jackson IV – ASSOCIATE FINANCIAL CONSULTANT

John is an agent from Austin, TX, a graduate of Westlake High School and The University of Texas at Austin, with a Bachelor’s Degree in Economics and a Minor in Business Administration. While at UT, John was a 2-Time Captain and 4-Time All-Conference performer for the men’s lacrosse team. While away from the office, John coaches with the Westlake Youth Lacrosse program and volunteers with Austin’s Young Men’s Business League, and Austin Sunshine Camps.

Paul Smith, CFP® ChFC® MSFS – FINANCIAL ADVISOR

Paul has helped his clients in financial, business, and estate planning for over 10 years. Paul is a graduate of Texas State University, with a Bachelor’s Degree in Psychology. He has also completed the extensive studies necessary to earn the Certified Financial Planners (CFP®) and Chartered Financial Consultant (ChFC®) designations. Paul is actively involved in the community through his volunteer work and service on Community Action Board for the Helping Hand Home for Children. Paul is married to Heather and they have two children, Nyla and Hazel.

Richard Cunningham – MANAGING DIRECTOR

For 30 years, Richard has been helping clients reach their financial goals with sincerity and integrity. He works with GME program administrators, individual physicians and their families to help doctors achieve financial security. Richard is a graduate of the University of Texas at Austin, with a Bachelor’s Degree in Economics. He studied in Paris at the Sorbonne. Richard supports numerous charitable organizations, is actively involved in Austin Recovery, and he participates in the Leukemia Lymphoma Society as a survivor of CML. Richard is married to Adrienne with two children, Raven and Coates.