Most of the physicians and medics in the US need to learn how tax deductions for doctors work. Understanding and planning taxes are necessary to go ahead. So, you must require a CPA’s assistance to explain why tax planning is essential for physicians, especially in 2024. SG INC CPA explains in this guide how tax planning is critical for physicians and how it proceeds with maximized tax write-offs for doctors in the US.
Tax Throwbacks in the US
Recently, the Biden administration has just passed a trillion-dollar infrastructure bill. There is a budget deficit whenever there’s a big bill like this in the economy. The big question is, who’s going to pay for the bill? Most of the time, the simple answer is to raise the taxes.
And, like it or not, the taxes for the last few years have been down. So, there are a lot of bills out there in the Senate and Congress. But so far, the overall consensus is people making more than 400,000 will be impacted the most.
Tax Impact on Doctors
Now, we will give you some of the provisions on the bill. If the income is more than $400,000 in a physician’s pocket, it will be taxable. For any income more than 400,000, there’s a provision you pay an additional 12.4% social security tax. It’s a big jump. And also, medics and doctors will have to pay the taxes.
So, physicians should sit down with their CPAs and financial advisors and come up with all the strategies for tax deductions for doctors. SG INC CPA guides the clients to understand how to control their overall taxes.
Strategies & Possibilities for Doctors’ Tax Deductions
Now, let’s talk about tax deductions for doctors. The tax filing deadline, of course, is April 15th. Now, what are some of the tax doctor strategies to file for maximize tax deductions?
Prepare For Tax Deductions
When you file for your taxes, take advantage of the deduction, at least for the year 2024 and every year. The deductions, at least the foundation, are the same for the previous few years. So, since 2018, there have been two types of deductions when you file taxes.
1. The Trump administration doubled the standard deduction from around $12,000 to nearly $25,000.
2. Many CPAs opt for the standard deduction route due to its simplicity.
3. Physicians, in particular, often overlook potential deductions.
1. QBI Tax Deduction
SG INC CPA sees a rare deduction, especially for self-employed physicians, that they miss a QBI (Qualified Business Income) deduction. So QBI means whatever income you collect as a business, you can write off 20% of the company as a deduction. For example, if a physician’s income is $100,000, he can write off 20% of $100,000, around $20,000, as a straight deduction.
That was passed a few years ago and is still applicable. There’s a QBI similar to rental income. For example, if you have a rental income of $50,000 per year, you can still get the write-off on the subject amount after depreciation and everything else.
2. Apply For Rent Deduction
Physicians can also write off 20% of the rent as a deduction. So again, we see physicians miss rental income deductions as well. Now, before April 15th, these are for self-employed physicians to write off in the taxable income.
How to Do?
Doctors can open a SEP IRA. Until the due date, they have time for a SEP IRA. So, if you still need to file your taxes, SG INC CPA is here to process and write off 20% of their adjusted gross income or $58,000, whichever is less, as a SEP IRA. And this money is tax-free.
3. Use Your Cash Balance Plan
Another method is to open up a cash balance plan. You can contribute to a cash balance plan for last year. Let’s say, over 60, almost close to $260,000, all money is pre-tax. However, you have to sit down with the CPA and come up with the calculation. Our CPAs can assist you in establishing a cash balance plan with an IRA to save your big bills.
4. Add Your HSA
Physicians miss HSA (Health Savings Account) if the employer allows them to contribute to the high deductible savings account. They can contribute $8,200 for the family; for the money, they are pre-tax. And the beauty is, if you leave the money until age 65 or after 65, you can also take it out for non-health-related reasons.
5. Student Loan Deductions
The next item is a student loan payment deduction. A lot of physicians think they don’t qualify, but if your income is below about close to $140,000, you can write it off. You can also write off about close to $2,500 of the interest you pay. A lot of medical students do qualify for it.
6. Real Estate Deductions
Medical professionals who own real estate property can use it as tax deductions for doctors. If you have a home or real estate space, make sure that you write down all the following expenses to maximize tax deductions.
• All renovation costs
• Depreciation
• Rental income can be considered an expense
• Home expense deduction for physicians working from home due to the pandemic:
• A certain percentage of the square footage of the house can be written off
7. R&D Tax Credit
This tax credit is for medical practitioners who research different drugs and diseases. It is known as the R&D tax credit. Usually, our research medical professionals are surprised when our CPA team reveals that this can also be a deduction for tax doctors.
How does it apply?
If you have bought equipment up to $250,000 that improves the service or overall research on the disease or drug, you can get an R&D tax credit from your payroll. Again, ask your CPA if you are doing any research that consumes budgets.
How to Process the Maximized Write-offs?
401(K)
The most frequently used form is 401(k) for medical practitioners’ tax write-offs. In a 401(k), if you have an employer-sponsored plan, ensure you max out for 2024. Husband-wife can contribute over the age of 50 almost $27,000 each in an employer-sponsored 401(k). Again, all this money is pre-tax, and often, there’s a match from the hospital.
I. 457 Plan
The 457 plan is not for profit. You can contribute here, but there needs to be a match. But again, you can defer the money. You can take this money out before age 59, and there’s no penalty.
II. 409(a) Plan
409(a) plan is what many physicians miss out on. A 409(a) plan is similar to a 457 plan. However, the contribution amount is almost as high as 90% of your salary. So the problem with the 409(a) plan compared to 457 is the money is not 100% principal guaranteed if the hospital fights for bankruptcy. SG INC CPA can sketch plan 409(a) with 457 to make sense for you on the way to the tax doctor.
III. SALT Tax Affiliation
We want to discuss a new law called the SALT (State and Local Tax) cap workaround. A lot of states have started to implement it. If you have an S corporation or C corporation, you can pay the same state taxes from the corporation and get the right to the total amount from the federal level. But it’s not automatic; you have to elect to do it. Our tax experts can help you register with the SALT for Health Insurance Tax.
Final Thoughts
It’s vitally essential for physicians to stay informed in light of changing tax laws to get maximum tax deductions for doctors. It can provide invaluable guidance through working with experienced CPAs and financial advisors. SG INC CPA has shared new and rarely-known tax doctor sets to maximize tax deductions. We can also help you plan and maximize tax deductions for doctors.