It’s tax season again, which seems an even colder season than winter for many of us. Physicians, especially, can feel a chill in the air this time of year as they attempt in vain to get ready for April 18^th.

Between taking care of their patients and trying to comply with the many different tax regulations, doctors have little time to understand how they can properly take advantage of the tax codes to save on taxes, and so they wind up getting involved in questionable investments and “tax shelters”, save very little in the end.

With a bit of knowledge, however, physicians can reduce their tax bill substantially. Let’s take a look at some of the biggest write-offs.

1) Business Expenses

If you’re a self-employed doctor and you don’t know which expenses are deductible and which aren’t, chances are that you’re missing out on numerous ways to reduce your tax bill. The main benefit of even being the business owner (instead of an employee), is the amount of business expenses you are allowed to deduct. Without these deductions, you’re stuck paying the employer portion of your payroll software without anything to offset the costs. The freedom to deduct business expenses is one of the great benefits of being a business owner. But to take full advantage, you’ll need to know how to keep track of business expenses efficiently.”

So think about things like:

• Meals
• Travel
• Accommodations
• Office equipment and supplies
• Medical equipment
• Licensing fees
• CME expenses
• Board exam fees
• Communication expenses

Read  6 Tax Deductions for Private Practice Owners

2) The Backdoor Roth IRA

While a backdoor Roth IRA won’t give you a tax break this year, it will allow you to shelter retirement investments from any future taxes. This is a much better option than many of the other available insurance-related tax shelters. With this option you can invest up to $5K in a non-deductible IRA for yourself and $5K for your spouse, then immediately convert them to an IRA.

The only catch is, that if you want to call it that, then you can’t have any other SEP-IRA or traditional IRA because of the pro-rata rule, but  there are ways around this, such as rolling those IRAs into your 401K.

Read  Ins & outs of “backdoor” Roth IRA contributions for physicians

3) Health Care

Ironically, many doctors fail to deduct their personal healthcare costs for health insurance. Yes, health insurance premiums are a deductible business expense, as are the contributions to a health savings account (also called a stealth IRA). Though high-deductible health plans combined with an HAS aren’t the best option for everyone, if you’re healthy, you can save quite a bit of money, both on premiums and on your taxes.

4) Tax-deferred Retirement Plans

This is one of the biggest tax deductions doctors miss out on, which is a shame, because every dollar put into a tax-deferred retirement account in a given year, isn’t taxed that year. Doctors who are in the highest tax bracket, and have significant state and local income taxes, can find themselves paying close to 50% come tax time. So, for every $2 put into a retirement account, $1 is saved on the tax bill.

Independent contractors who are over the age of 50 and are paid through 1099s are able to contribute 20% of their income to a SEP-IRA, up to a maximum of $50K, with an additional “catch-up” contribution of $5500. Those doctors making less than $250K are allowed to contribute more than 20% to a solo 401K.

All is not lost for employees. Though you may be limited to contributing as little as $17,000 into a 401K, many 401Ks will match you. If your current plan doesn’t allow this, speak to your employer about switching plans.

5) Mortgage Interest

If you’re like most doctors who use payroll software to manage their finances, you are currently holding some hefty loans, such as credits cards, student loans, car loans, home equity loans and mortgages. While your best option is to pay these down as quickly as possible, sometimes you have no choice but to hold onto the debt. Luckily, Uncle Sam makes carrying mortgage interest tax-friendly.

If you are forced to carry many loans, consider converting them into loans that have a low rate and are tax deductible. Let’s look at a quick example:

• You have $75,000 in student loans at 6.8%.
• You also own a house worth $500K with a 5% mortgage for $300K on it.
• By refinancing the mortgage into a 4% $375K loan, you can pay off your student loans and at the same time lower the interest rate on your mortgage.

You can do the same thing with any kind of loan.  While it’s not a good idea to start thinking about your home as an ATM machine, it is a smart option to move your debt around when there are tax-deductible loans that can work in your favor.

6) Charity

Since doctors genuinely want to help people, they tend to give a lot to charities each year. This generosity can be in the form of cash or time volunteered. These charitable contributions are also tax deductible. Whether you’ve donated $10K, 30 hours of your time, or an old car, you have the right to make these deductions.

You can use an online resource like Turbotax to determine the value of items you’ve given away to charity. When it comes to donating your time, you may deduct the miles you’ve driven to and from your charity location, and any other expenses associated with donating this time – though you can’t actually deduct the value of the time itself.

7) EHRs

You may have initially purchased your EHR to collect those meaningful use payments and avoid any penalties, but the good news is that you can write it off. Section 179 of the US tax code allows a business to deduct the full cost of medical and computer equipment, so long as that equipment was being used by the end of the tax year.

Even if you were only in the early stages of implementing your EHR, you can still claim this deduction, as well as a deduction for the full cost of peripheral equipment like scanners and printers, via Sec 179 depreciation. If you purchased an EHR last year, you can write this expense off – up to $25,000. Even if you have only made a few payments, you are still allowed to take the deduction for the full cost.

You work hard to keep your patients from experiencing any pain, and we hope this post will keep your bank account from feeling any unnecessary pain come April 18^th.

Want to know more? Read: Last Minute Tax Tips for Physicians