https://physiciansrs.com/wp-content/uploads/2024/10/Maxing-Out-Retirement-Plans-Before-Year-End.jpg 1250 2000 AbstraktMarketing /wp-content/uploads/2022/03/prs-logo-color.png AbstraktMarketing2024-10-01 15:43:332024-10-10 15:28:56Why You Should Max out Your Retirement Plan Before Year-EndWhy Is Tax Preparation for Physicians Important?
Medical professionals have unique needs when it comes to taxes, and that’s where experienced help becomes essential. From healthcare expenses and insurance premiums to student loan interest deductions, there are many tax benefits available to physicians. However, navigating through the complex tax code can be overwhelming. With tax professionals who specialize in serving physicians, you can maximize your tax savings while staying compliant. They will ensure you don’t miss out on tax breaks specifically tailored to your profession.
Physician Tax Planning Tips
Tax season can be intimidating for healthcare professionals. Below are some tips to make your life easier and ensure you stay on top of your financial responsibilities:
Keep Good Records of Your Expenses
Keep detailed records of your expenses. The IRS may grant you tax exemptions for certain expenses, such as transportation, fuel, and dining—especially if you incurred them while traveling abroad. Make sure to track every cent you spend and bring those records to your tax appointment.
Seek the Advice of Your Employer
Reach out to your employer, hospital, or medical group. These individuals are knowledgeable about tax planning in the healthcare industry and can assist you in navigating the process. They have insider information on which deductions you can claim, which expenses are eligible for reimbursement, and how to maximize your tax savings.
Use a Health Savings Account (HSA)
Another tip for tax preparation for physicians is to use a Health Savings Account (HSA) to save for medical expenses. Not only can you set aside money for unexpected medical costs, but HSAs also offer three major tax advantages. First, you can make pre-tax contributions to an HSA, reducing your taxable income. Second, withdrawals for qualifying medical expenses are tax-free. And lastly, the funds within an HSA accrue tax-free interest.
Explore All Possible Deductions for 529 Plans
You may be missing out on valuable tax savings by not exploring your state’s tax benefits for 529 plans. A 529 plan is a specialized savings account that allows doctors to make tax-free withdrawals for qualifying education expenses. Each year, you can withdraw up to $10,000 to pay for elementary, secondary, or higher education costs. Many states also offer state income tax deductions for 529 contributions. That means that by investing in a 529 plan, you can create a tax-advantaged nest egg for future education expenses.
Maximize Contributions to Employer-Sponsored Retirement Plans
Taking full advantage of your employer-sponsored retirement plans can not only lower your tax burden, but also boost your retirement savings. Each year, make sure you contribute the maximum amount allowed to your employer-sponsored retirement plan, whether it’s a 401(k), 403(b), 457(b), or 401(a). For example, if you’re 50 years old or younger, you can deduct up to $19,500 in 2020, and if you’re 50 or older, you can contribute up to $26,000. Some employers even offer contribution matching programs, meaning they’ll help fund your retirement savings as well. If your employer sponsors multiple retirement plans, you may be able to maximize contributions to more than one account, further reducing your tax burden.
Document and Claim All Charitable Donations
Whether it’s cash or non-cash donations, recording and claiming your qualifying donations can potentially save you hundreds or even thousands of dollars on your tax bill. To make things easier, there are apps that can help you track and calculate the value of commonly donated items. And if you plan to itemize your deductions, don’t forget to follow the IRS guidelines and provide proper records for your charitable gifts. For smaller cash donations, a receipt, canceled check, or credit card statement will suffice. But for larger contributions, you may need written acknowledgment from the recipient or evidence of a professional appraisal for expensive items like vehicles. With some planning and documentation, you can claim valuable tax deductions for all of your charitable contributions and donated goods.
Categorize Your Active and Passive Income Strategically
One common mistake that physicians make is misclassifying their sources of income. If you own your own practice, remember to classify your business income as active income. This is because there are stricter limits on claiming losses from passive income sources. By properly categorizing your income, you can ensure that you are taking advantage of all available tax relief. If you actively participate in managing your rental property, you may be able to claim it as active income in certain states. This opens up the opportunity to deduct up to $25,000 of real estate losses on your current year’s tax return.
Track Depreciation on Real Estate Rentals
Many physicians don’t keep track of depreciation on their real estate rentals, and it can end up hurting your wallet in the long run. By not recording depreciation, you could be paying more in taxes based on the value of your property. When you eventually sell your rental property, you’re required to include depreciation in the calculation of its value. However, you can only retroactively adjust your property value for the previous three years of taxes. If you’ve owned a rental property for many years but have never recorded depreciation, you will end up paying a higher rate on the cost basis of the property.
Avoid this expensive mistake by diligently keeping track of depreciation on your rental properties. It’s an important tax preparation tip for physicians that can save you thousands of dollars in the long term. Consult with a tax professional to ensure you are accurately recording depreciation and maximizing your tax savings.
Understanding tax deductions for physicians allows for cost savings that can then be reallocated for your business.
Key Takeaways
Tax preparation for physicians is essential for financial success. Physician’s Resource Services is here to save you time and money with our tax services. We understand the complexities of tax law and know how to navigate the unique challenges that physicians face. Our experienced tax professionals will ensure you comply with IRS policies while minimizing your tax liability. Contact us today to learn more about our physician tax preparation services.
529 Plan, or “qualified tuition plan,” is an investment account that provides tax benefits when the savings are used for qualified education expenses. Withdrawals from a 529 plan account can be taken at any time, for any reason. But, if the money is not used for qualified education expenses, federal income taxes may be due on any earnings withdrawn. A 10% federal penalty tax and possibly state or local tax can also be added.
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.
Related Postings
https://physiciansrs.com/wp-content/uploads/2024/10/Maxing-Out-Retirement-Plans-Before-Year-End.jpg 1250 2000 AbstraktMarketing /wp-content/uploads/2022/03/prs-logo-color.png AbstraktMarketing2024-10-01 15:43:332024-10-10 15:28:56Why You Should Max out Your Retirement Plan Before Year-End
https://physiciansrs.com/wp-content/uploads/2024/10/How-Much-Life-Insurance-Do-You-Need-as-a-Physician__.jpg 1250 2000 AbstraktMarketing /wp-content/uploads/2022/03/prs-logo-color.png AbstraktMarketing2024-10-01 15:32:192024-10-10 15:28:57How Much Life Insurance Do You Need as a Physician?
https://physiciansrs.com/wp-content/uploads/2024/10/How-to-Choose-the-Right-Life-Insurance-Policy-as-a-Physician.jpg 1250 2000 AbstraktMarketing /wp-content/uploads/2022/03/prs-logo-color.png AbstraktMarketing2024-10-01 15:23:542024-10-10 15:28:57How to Choose the Right Policy for Physician Life Insurance