Are You Leaving Tax Money on the Table?

Karen Riccio

Disclosures

March 23, 2017

In This Article

How to Correct Withholding Errors

If you're an employee, whether you work for someone or for your own healthcare entity, the simplest way to correct for under-withholding or over-withholding of federal income tax is by turning in a new Form W-4 (Employee's Withholding Allowance Certificate) to your employer to adjust the amount you're withholding from your paychecks for the rest of 2017.

This is done by increasing or decreasing the number of allowances claimed on line 5 of Form W-4. The more allowances claimed, the lower the withholding from each paycheck, and vice versa. If claiming zero allowances for the rest of the year will still not result in enough extra withholding, you can ask your employer to withhold an additional amount from each paycheck by entering the desired figure on line 6 of Form W-4.

Benefits of Owning a Company vs Being Employed

Besides fixing common withholding errors, one of the most effective ways to lower your taxes is to avoid being an employee, says Tinsley. You cannot deduct work-related expenses as an employee and can only apply the standard deductions on your form. In 2017, those deductions are:

  • For single taxpayers and married couples filing separately: $6350

  • For married couples filing jointly: $12,700

  • For heads of households: $9350

The secret to being able to deduct work-related expenses is to be a business owner instead.

According to Tinsley, the secret to being able to deduct work-related expenses is to be a business owner instead. One way for a resident to accomplish this is to moonlight and be paid as an independent contractor (1099 income) or to form a limited liability corporation (LLC). As an incorporated business, you can also deduct your losses, which is much more difficult to do if you are a sole proprietor. Plus, income earned by the corporation is not subject to Social Security taxes—only the portion that you yourself take home as salary. Corporations also tend to be taxed at a lower rate than self-employed business owners.

Once you incorporate, all of those business-related expenses are suddenly completely deductible on Schedule C. It doesn't matter whether you itemize or not; it's 100% deductible against your business income. That can include all kinds of items you might need for your regular employee job, too, such as:

  • CME costs;

  • Medical license;

  • DEA license;

  • Lab coats;

  • Scrubs;

  • Stethoscope;

  • Books;

  • Pager;

  • Cell phone;

  • Computer; and

  • Professional society dues.

Last year, Congress began allowing businesses to accelerate the deduction of equipment in the year of purchase rather than over time. The change was designed to encourage business owners to invest in new equipment, effectively lowering the sticker cost of a major purchase. And with the ongoing shift from paper records to electronic records, doctors and hospitals are spending more money than ever on software, hardware, and hosting fees. All of that is deductible as well.

You can also deduct marketing expenses, including social media, advertisements, and content.

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