Welcome to our tax planning blog tailored specifically for medical professionals! Are you looking to navigate the complexities of the tax system with ease and maximize your savings? Look no further! In this article, we’ll guide you through year-round strategies designed to help you optimize your tax situation and keep more of your hard-earned money. Discover simple and effective tips that will make tax planning a breeze, so you can focus on what you do best: caring for your patients. Let’s dive in and uncover the secrets to successful tax planning for medical professionals!
Why Tax Planning Is So Important?
Let’s start by describing what tax planning is.
“…the study of a financial plan or situation from a tax point of view.” The goal of tax planning is to save money on taxes. All of the parts of a financial plan work together in the most tax-efficient way possible because of tax planning.”
Tax planning includes choosing investments and retirement plans that will lead to a more secure financial future. You can take many different approaches, but the goal is always the same:
To pay less in taxes and get as much tax-free or tax-advantaged income as possible in retirement.
Planning for taxes is important for all workers, but it’s especially important for doctors who make more than $200,000 per year. The federal tax code says that the more money you make, the more taxes you have to pay. But there are many ways to pay less in taxes while still giving the IRS what they deserve.
Tax planning is not about finding ways to cheat the system and pay no taxes. It helps you keep track of your salary and investments so you don’t end up paying more than you should.
Tax Planning strategies for Medical Professionals
Here are five ways that professionals can plan for their taxes right now
- Spread out your investments
Tax planning is more than just figuring out how to pay less tax this year. It’s also about getting the most out of your taxes when you leave. One way to do this is to put your money into different kinds of things.
To make sure your savings are spread out, you need to look at all of your accounts. Check all of your tax-deferred, tax-favored, and taxable funds. Spreading your investments across different accounts will help you pay the least amount of taxes when you leave.
You can’t just count on your 401(k), IRA, and other tax-deferred accounts. All of these are important parts of your portfolio, but they don’t give you much freedom when you leave.
Spread your money out among several different accounts and spend in different things. When you reach retirement age, this will put you in the best financial position possible.
2. Minimize Your Taxable Income
You need to lower your taxable income if you want to pay less taxes and keep more of what you make. But that doesn’t mean you should work less or make less money. It just means that you need to change how you get money and how you spend it so that your taxed income goes down.
Giving securities from your investment funds to charity is one way to lower the amount of money you have to pay taxes on. Unlike giving cash, giving investments gives you a tax break in two ways. You’ll get a tax break for giving the money away, and you won’t have to pay capital gains taxes when you sell the stocks.
You can also lower your taxable income by putting money into a savings account before taxes are taken out. Give as much as you can to your 401(k) and talk to a financial planner to see if you can use the backdoor Roth IRA approach.
Tax-loss harvesting is another way to lower the amount of money you have to pay taxes on. With tax-loss harvesting, you can sell a business that is losing money and get the money from the sale. You can subtract $3,000 from your income by using your losses, which can save you up to $1,500 on your taxes.
Getting less taxed income as an independent contractor
If you are a doctor who makes money in ways other than as an employee, there are many ways you can lower the amount of money you have to pay taxes on.
For example, if you are a self-employed worker or a locum tenens doctor, you will get a 1099 instead of a W2. And that might make it possible for you to lower your taxed income even more. This is because you can claim discounts against that income in a number of ways.
If you plan well in this area, you could save up to 10% or more on your total income tax bill.
Advanced Strategies for Tax Planning
Talk to your financial planner or doctor. Try to use advanced tactics like the ones below:
- The Cost Segregation Study: can help you get back lost depreciation benefits for your property.
- 14-Day Rental Rule: This rule, which is also called “The Augusta Rule,” lets you rent your home to your business for 14 days without paying taxes.
- S Corporation: saves you 0.09% in Medicare tax on earned income over $200,000, among other perks like QBI, Shift Income, and a lower chance of being audited.
- You can avoid FICA and FUTA by leasing employees or hiring contractors: Your workers can be handled by an outside PEO (professional employer organization).
- Research and Development Credits: A third of businesses that are eligible for this credit never use it. Get a “look back” study if you think you might have qualified in the past. If you didn’t make any taxed money from the project, the 2015 PATH Act may help you get up to $250,000 back from payroll taxes.
- Pay yourself and your family a wage: You can hire children and grandkids as young as seven if the work is appropriate for their age and skill level and is directly related to your business. The money you pay them is then not taxed.
- Work Opportunity Credit (WOC): If you hire people from groups with high unemployment, you can get a dollar-for-dollar tax credit by claiming this credit.
- A Roth SEP: also called a Single Employee Pension IRA, lets you make tax-deductible contributions that are more than the usual $5,500 cap and can be turned into a Roth IRA.
- Defined Benefit Plan: Setting up a DBP for your business costs more, but those costs are offset by higher deductions and a small company pension plan credit. You can also join a DBP with a 401(k), SEP, or profit-sharing plan
Qualified Business Income
Your QBI may also matter. As long as it’s not from limited income sources, you can deduct 20% of your QBI from your tax returns. Only 80% of QBI on 1099 earnings is taxable.
This deduction is limited to certain individuals. You must earn less than $157,000 as a single filer or $315,000 as a married filer to lower your taxable income by 20%. SSTBs cannot deduct either. Physicians and pharmacists must have business-related revenue to qualify. Talk to a professional about your case because this is complicated.
3. Cut down on how much tax you owe
The less money you make that is taxed, the less money you will have to pay in taxes. And that means taking as many tax benefits as you can. Most people deduct the interest on their mortgage, but you can also deduct the interest on a home equity line of credit of up to $100,000. Make sure to subtract the interest on a home equity line of credit as well.
As a doctor who makes a lot of money, the interest on your student loans is probably not tax deductible, but a cash-out refinance of your home is. Consider refinancing your home to pay off your medical school debt so you can take a tax credit for the interest you paid on that loan. Some doctors may be able to get tax credits as well. You might be eligible for different tax credits if you pay for continuing education, adopt a child, or make home changes that save energy.
4. Get help from professionals
Tax planning is best done by getting help from the right people. Don’t wait until April 15 to make a plan for getting your taxes ready. Instead, hire a team of experts now so that you can look at your tax situation for this year and start next year with a good plan.
You need three different types of workers on your team:
- A guide for money
- An accountant or CPA
- A person who does taxes
A financial manager will work with you over time to make a good plan for your money. This plan will lower your taxable income, make your stocks more diverse, and lower your taxes next year.
During the year, a CPA or accountant will keep track of and keep an eye on all of your costs. This will make it easy to get the most out of business and personal tax deductions.
The real work of filing your taxes will be done by a tax pro. They will make sure you take the right tax deductions and get any tax refunds you are entitled to. Tax experts know the rules and keep up with changes to the tax code so that you don’t have to. These experts can point you in the right direction so that you can save as much money as possible on your taxes next year and when you reach retirement age.
5. Make a plan for the long run
The point is not just to save money on this year’s taxes. The main goal is to make a plan for the long run. You can save money on taxes if you have a long-term plan. But what’s more important is that you’ll be able to keep more of your income for yourself during your job and when you retire.
Why is an Accountant Who Specializes in Physicians so Important?
Doctors, physicians, and other medical workers spend years learning how to keep their patients healthy. However, it’s hard for them to find accurate and useful information about how to grow and protect their own wealth.
That’s why having an accountant who specializes in helping doctors can be a big help. They don’t want to lose their savings, stocks, and other assets to taxes, either now or in the future.
Taxes can take up to a third of a doctor’s salary if they don’t have a good tax plan. Plus, if they own a home, a car, and a growing medical business, their revolving debt can take up another third of their income. That means they only have one-third of their income left, and there’s no easy way to give them more money.
That’s why it’s important for medical workers to have a good tax and financial planning made by an accountant. This will make sure that they, not Uncle Sam, are in charge of what they’ve earned.
Tax planning is an important part of financial planning for medical professionals. By taking advantage of year-round strategies, you can reduce your tax liability and keep more of your hard-earned money. Some of the most effective year-round tax planning strategies for medical professionals include:
- Making tax-deductible contributions to retirement accounts, such as a 401(k) or HSA.
- Deducting medical expenses that exceed a certain threshold.
- Taking advantage of tax credits, such as the Lifetime Learning Credit or the Child Tax Credit.
- Donating to charity.
If you are a medical professional, it is important to work with a qualified tax advisor to develop a year-round tax planning strategy that is right for you. A tax advisor can help you understand the latest tax laws and identify the strategies that will save you the most money.
For more information on tax planning for medical professionals, please visit our website at ERPS Group. We offer a variety of tax planning services to help you reduce your tax liability and keep more of your hard-earned money.
Thank you for reading!