March is here, and the clock is ticking until taxes are due. Physicians and other high-income earners have some additional considerations to know about at tax time. Here are four physician tax tips strategies to know before you file:
Physician Tax Tips: Know your Deductions
In January, I talked about some of the tax changes you can expect from the Tax Cuts and Jobs Act. Those changes don’t apply until you file 2018 taxes, so your deductions for this year will probably look similar to last year. Whether you’re self-employed or have an employer, it’s important that you know which deductions apply to you.
For self-employed physicians, you are likely eligible for the usual business owner deductions. These might include business insurance, office supplies, professional fees and business-related travel expenses.
Then there are the deductions that most physicians are likely to qualify for. Pre-tax contributions to retirement plans, including 401(k)s, 403(b)s and 457 plans are tax-deductible. Max out those accounts before the end of the year to claim the largest deduction.
Home mortgage interest also tends to be a significant deduction for physicians, especially if you have a more expensive home. Don’t forget to take that deduction if it applies to you.
Donate to Charity
Charitable donations are another common deduction for physicians, and it’s one you probably know about. But did you know you can also donate your securities to charities? If you have an appreciated stock that you’ve owned for at least a year, there are double tax benefits to donating it. You will avoid capital gains taxes on your investment, and you’ll also be able to deduct that donation.
Just remember that the standard deduction is doubling for 2018 – to $12,000 for individuals, $18,000 for heads of household and $24,000 for married filing jointly – so it only makes sense to itemize if your deductions will exceed that amount. If you make substantial donations to charities on an annual basis, you might want to consider making donations every other year to hit that threshold.
Make Pre-Tax Retirement Contributions
Here’s another of my key physician tax tips: contributing to retirement accounts is a great way to save some money at tax time, while also boosting your savings. Pre-tax contributions to accounts like a 401(k), 403(b) or 457 plan are tax deductible. Aim to max those out every year.
However, these accounts are not enough for many physicians. If you supplement retirement income with an IRA, be aware that depending on your income, you might not be able to deduct your IRA contributions. You can opt for a backdoor Roth IRA instead. This will allow you to avoid those income limits. You can also contribute to a brokerage account, which are taxable accounts where you can buy and sell investments like ETFs and mutual funds.
Maximize your Refund
Your refund is another opportunity to put your earnings to good use. There is nothing wrong with using it to treat yourself to a vacation or some home updates if you’re in good financial standing. However, there are other ways to maximize your refund over time.
If you want to get a jump start on cutting down your tax bill next year, you can allocate that money right into your investments or retirement accounts.
You can also boost your emergency fund if you need it, or put money away for any big expenses you know are on the horizon.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.