01 Feb Everything Physicians Need to Know Before Filing 2022 Tax Returns
February is here, which means income tax filing season is underway. To help physicians get their financial ducks in a row, we’ve provided some key items to keep in mind prior to filing your federal income tax returns to ensure accuracy and compliance:
Self-Employed Retirement Plan Contributions
Physicians who are self-employed should be aware of their retirement plan contributions. Whether it be a solo 401(k) or an SEP type plan, make sure to take advantage of these tax deductions. Tax filers have until the due date of their tax return to make the contributions –including any extensions potentially filed to make that payment. Physicians who don’t qualify to deduct their IRA contributions should consider a backdoor Roth IRA contribution strategy.
Donating cash or used items can save taxes, but most physicians forget that they can also donate securities from their taxable accounts. By donating appreciated securities, physicians gain a double tax benefit by getting a tax deduction for the gift and by sidestepping the capital gain on the sale.
Home Mortgage Interest
This is a common tax deduction for physicians, especially those with large homes and larger mortgages. Doctors can also deduct the interest on up to $100,000 worth of a home equity line of credit (HELOC) if used for home acquisition or improvement.
Home Office Deduction
The home office deduction is worth taking a look at. The important factor is that the home office space must be used exclusively for business purposes. You can claim a percentage of the upkeep of the home — the taxes and interest against ordinary income — if you’re not able to itemize for the portion of the home for that use. You can also use a simplified method, which is $5 a square foot for the amount of space that you’ve dedicated for that home office.
Tax Savings for Locums and Self-Employed Physicians
Locum tenens physicians and self-employed physicians may have access to some above-the-line that are 100% deductible against ordinary income. For example, if a physician personally pays health or dental insurance premiums, those are fully deductible. In addition, one-half of your Social Security and Medicare tax paid as a self-employed individual is also considered a deductible expense.
If you work as an independent contractor or own your own practice, physicians can save on taxes by setting up their business as an S-corp. These entities can save 0.09% on Medicare tax on income above $200,000.
If you’re still paying off those medical school loans, there’s actually some good news. You can deduct the interest up to $2,500, subject to income restrictions. It may not sound like much but why not take advantage of it?
Disclaimer: The information contained herein is general in nature and is subject to change. Tax information contained in this document is not intended to be used, and cannot be used, by any person as a basis for avoiding tax penalties that may be imposed by the IRS or any state. We recommend each taxpayer seek advice based on their circumstances from an independent tax advisor.
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