Financial Resources for Early-Career Physicians


5 Tax-Saving Strategies for Early-Career Physicians

Five simple tax strategies for helping early-career physicians minimize your tax bill and hang onto more of your hard-earned money.

Jackson Pace, CPA

Let’s talk about every early-career physician’s favorite topics: taxes. (Cue the doomy, villainous music.)

Now before you turn the channel, hear me out. I know the topic of taxes can be a real snoozer. And I know that trying to understandout the US tax code can feel more perplexing than trying to diagnose a rare disease. (Not-so-fun fact: did you know the internal revenue code (1) is over 4,000 pages long? Ugh.)

As a busy physician, I know what you'rethinking. "Nowadays, I barely have time to eat lunch, let alone worryabout taxes.”

But here's the thing: being savvy with your taxes can save you a lot of money in the long run.

Think about it: you've worked hard to get whereyou are. You've invested tons of time, money, and energy into your training, and now you finally are (or will soon be) earning a good income. And if you're not thoughtful about your taxes, you could end up forking over more of your hard earned money than you need to to Uncle Sam. So, if you’re interested in holding onto your money, you should be at least moderately interested in taxes.

Luckily for you, there are a handful of simple tax strategies that, when employed starting early in your medical career, can have a big long-term impact on your finances. By taking advantage of them, you can keep more of your hard-earned money in your own pocket and out of Uncle Sam’s coffers. And the best part is: you don't have to be a tax expert nor read through 4,000 pages of mind-numbing tax code to make it happen.

I’ve got your back. We eat, drink and breathe this stuff, and help early-career physicians minimize their taxes all day everyday. So let me share 5 simple strategies we’re often using to help physicians like you minimize your tax burden and hang onto more of your hard-earned money.

Strategy No. 1 - Contribute to Pre-Tax Accounts

One of the most effective ways to minimize your tax bill is to contribute to pre-tax accounts, such as a 401(k) or traditional IRA. These accounts allow you to save for retirement while also reducing your taxable income. For example, if you contribute $10,000 to your 401(k), your taxable income will be reduced by $10,000, which can lower your overall tax bill.

Another option to consider is a Health Savings Account (HSA), which allows you to save money for medical expenses tax-free. Any contributions you make to your HSA are tax-deductible, reducing your taxable income and lowering your overall tax bill. As a bonus, you can also invest the funds in your HSA to help you grow the money available for medical expenses down the road.

Strategy No. 2 - Maximize Your Deductions

If you’re interested in minimizing your tax bill (hands raise), maximizing your deductions is key. Some common deductions for doctors (particularly those who own their own practices) include:

Home office expenses: If you work from home, you can deduct certain expenses, such as your internet and phone bills, as well as a portion of your rent or mortgage interest.

Continuing education expenses: As a doctor, you're required to complete continuing education courses to maintain your license. You can deduct the cost of these courses, as well as any books or other materials you need to complete them.

Professional association fees: If you belong to a professional association, you can deduct the cost of your membership fees.

Business-related travel expenses: If you travel for work, you can deduct your transportation costs, lodging, and meals.

It's important to keep detailed records of your expenses throughout the year so that you can accurately claim your deductions when it comes time to file your taxes. 

Strategy No. 3 - Take Advantage of TaxCredits

Tax credits are another effective way to lower your tax bill. Some common tax credits for doctors include:

Student loan interest deduction: If you're still paying off your student loans, you can deduct up to $2,500 in interest payments from your taxable income.

Retirement savings contributions credit: If you contribute to a retirement account, such as a 401(k) or IRA, you may be eligible for a tax credit that can lower your tax bill.

Child tax credit: If you have children under the age of 17, you may be eligible for a tax credit of up to $2,000 per child.

Earned income tax credit: If you have a low to moderate income, you may be eligible for the Earned Income Tax Credit (EITC), which can help you lower your tax bill and potentially receive a refund.

Strategy No. 4 - Consider Tax-Loss Harvesting

Once you’re making the big bucks as an attending and you start accumulating assets in investment accounts, tax-loss harvesting comes into play. Tax loss harvesting is a strategy that involves selling investments that have lost value in order to offset gains in other investments. By doing so, you can reduce your taxable income and lower your overall tax bill. The bigger your investment accounts get, the bigger the impact this strategy can have on minimizing your taxes.

However, it's important to work with a financial advisor or tax professional before implementing tax-loss harvesting. Executing this strategy can be complicated and involves several tax rules and regulations, so it's important to understand the risks and potential benefits before getting started.

Strategy No. 5 - Hire a Tax Professional

Finally, one of the best strategies for minimizing your tax bill is to hire a tax professional, who cantranslate the complex tax code into practical tax strategies that fit your unique situation.

A good tax professional should pay for themselves many times over by saving you time (and brain drain) fumbling your way through your taxes yourself, keeping you on the right side ofthe IRS regulations, and making sure you’re taking full advantage of these andother strategies to minimize your tax bill.

While we’re on the topic, its important to reiterate: be sure to talk with a qualified accountant or tax professional to know whether and how to use these different strategies in your specific situation.

(1) As published by companieslike Thomson Reuters and CCH

Important Note: This blog post is intended to provide general information and should not be considered as professional advice nor investment advice. Please consult with a qualified financial or insurance professional for personalized guidance based on your specific circumstances.

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5 Tax-Saving Strategies for Early-Career Physicians

Five simple tax strategies for helping early-career physicians minimize your tax bill and hang onto more of your hard-earned money.

Jackson Pace, CPA