Tax Deductions for physicians was recently our topic in the July 23rd blog. As you might have guessed, the topic proved to be a little large for just one blog. So, we promised you a Part 2 on this topic, and this is it.
First of all, we invite you to read and/or review that previous blog. You see, that blog article began with the smallest deductions, like your white coat, and then we continued to medium and larger, more major deductions.
Focusing on More Major Tax Deductions for Physicians
Now, this week’s blog for medical professionals continues to include some of the major tax deductions for physicians who own practices, are partners, or contract physicians. (not W-2 Employees!)
We call these deductions, the doctors’ Major Tax Deductions. We also want to mention that in tax planning. These major deductions help you think about taxation at this time of year–a year in advance, not at the last minute.
1. Get A Major Tax Deduction for Your Own Health Care: “Physician Cure Thyself”
You are, for sure, deeply involved in the healthcare world. Yet, we know it can be very easy for doctors to forget about their own health, much less their insurance and deductions.
- And remember your health insurance premiums are pre-tax. So, in the midst of counting up deductions, don’t forget about this one.
- Doctor, have you been healthy this year? If you had “personal medical expenses, you might also be able to take a deduction.”
Likewise, if you don’t qualify for a federal deduction, don’t give up. You see, there might be a deduction available from the state income tax.
Do You Know the Benefits of Having a HAS?
Gavrilov & Co also suggests that doctors who choose high-deductible health insurance plans can set aside funds in a HAS, a Health Savings Account. You do this on a pre-tax basis. Then, later, you can use those funds to pay for co-pays and insurance deductibles.
Attention, Physicians! A Special Note on your Health Savings Account
Are you aware that after age 65, you can use your accumulated HSA dollars for any purpose?
You can just utilize it as you would any other IRA account. For now, you need to know your contributions to an HSA are deductible.
- Plus, remember there is no income limit in order to get permission to take this deduction on HAS contributions.
- But there is an income limit for being able to take a deduction when you create contributions to traditional IRA accounts. So, beware!
2. Taking Major Tax Deductions for Charitable Causes
First of all, dear physicians, you can deduct more than financial resources when you can contribute to charity. You can also obtain tax deductions for any assets or talents you contribute to charitable organizations and causes.
For the Full Benefit of a Major Tax Deduction: Keep a Record of Your Goodness
If you contribute to charitable causes, you are a good person. But to get tax credit for your goodness, you must keep careful track of those charitable contributions. And, that can require you put in some work on your documentation.
- Of course, document the dollar value.
- Additionally, be sure you keep track of mileage related to that deduction.
- Little things mean a lot, and your bookkeeping work on this issue will pay off in the long run.
3. Mortgage Interest and Major Tax Deductions
Frankly, some physicians create too much income to take advantage of deductions on student loans payments. However, on the bright side, home mortgage interest is not, as of this time, subject to income limits.
Just because home mortgage interest is a major tax deduction, keep in mind, this does not mean we encourage you to purchase a large house . In fact we favor your living below, not above your income. You need not invest in the best house on the block in the best neighborhood. Do not use social standing or this mortgage tax deduction as an excuses for going into deep debt.
High Society: Too Much House for Too Much Money?
We see this tendency a great deal when doctors go from being poor residents to getting into private or partner practices. They go from a 40,000 per year income to about a 200,000 dollar income. It’s dazzling. And it’s difficult to manage without the kind of experienced financial, business and tax help available at companies like ours.
Rejecting the Expectations of High Society
Prior to taking advantage of major tax deductions, and perhaps just as important, we advise you to reject the expectations of high society. According to the words of the White Coat Investor, society encourages “physicians to spend more than they should. The typical image that the lay public has of the financial situation of a physician is one of abounding wealth.”
However the author of White Coat Investor adds, “In fact, a large percentage of doctors are not wealthy by any reasonable measurement.
We have discovered most physicians do not even believe they are rich, although they live a very rich lifestyle with expensive homes, cars, vacations, hobbies and outings. In reality, they sometimes are in deep debt, living paycheck to paycheck, just like some of their neighbors.
To this Gavrilov & Co accountants often must softly say, “It’s not just what you make; it’s what you spend.”
This Week’s Terrific Tax Take-Away
Gavrilov & Co is letting physicians know it is time for tax planning. It takes more than one visit to your accountant to lay out your financial and taxable future. It takes more than a list of your major tax deductibles.
We invite you to review your fiscal picture, finances, medical business, and tax situation. With tax planning for major tax deductions and advice on investment strategies, we can look into your fiscal future–not only for next year, but also for the next 3, 5, even 10 years.
Worth More than Major Tax Deductions: A Business and Tax Plan
In this way, a physician’s ongoing relationship with his or her accountant can help plan their business growth and development. Likewise, we help physicians safely discover additional opportunities and mitigate major tax bills in the future.
We leave you this week with one final thought from Chris Hogan’s book, Everyday Millionaires: His research shows that showed that 69% of today’s millionaires attained their millionaire titles on an income of less than $100,000 a year. On average, did you know physicians make twice that amount of yearly income? Yet, very few of them become millionaires.
So, please remember, at Gavrilov & Co, we are here to help. (Of course we cannot claim to make physicians into a millionaires, but we can coach you into healthy fiscal habits.)