It's that time of year again. Time to start thinking about taxes.
If you act now rather than wait until April 2020 to sort through your receipts and records, you can quite possibly save on your tax return. Because the standard deduction has increased so much since 2017—now up to $12,200 for single filers and married people who file separately, $18,350 for head-of-household filers, and $24,400 for married joint filers—there are bigger challenges for physicians looking to further trim their tax bill.
With this in mind, we asked tax experts—who also advise doctors on their investments and finances—to offer smart moves that you can make before December 31 to reduce your tax bill come next April.
Tap Your Office for Tax Savings
Have you taken a good look around your office suite lately? If not, come in one morning before everyone else, grab a cup of coffee, and take a tour. Is the couch in your waiting room begging to be reupholstered or replaced altogether? What about those laptops in the back office, the slow ones running on older or outdated software? Is that ancient treadmill you use for stress tests about to draw its last breath?
If you're self-employed and have had a good year in terms of earnings, now is the perfect time to redirect some of that money into your practice and get a tax break for your efforts. The biggest savings often come from replacing expensive diagnostic equipment. You can write off the entire amount on your corporate return in the year that you purchase the equipment, up to as much as $1 million in some cases. One caveat, though: The equipment must be both bought and placed into service before the end of 2019.
"A doctor can purchase the equipment with short-term financing in December—by putting down a big deposit on a credit card, for instance—then arrange for longer-term financing to begin in January. That way, the entire purchase price qualifies as a write-off for 2019," advises Al Zdenek, CPA/PFS, executive vice president of Mercer Advisors, based in New York.
This is also the time to think about smaller practice-related expenses that may qualify for a tax break: magazine subscriptions, cell phones, continuing education fees, and airfare and hotel bills to attend conferences, among other things. It may seem silly to assume that "the little things add up," but they really do.
In fact, you can prepay some of your smaller expenses for 2020 before the end of the year and write them off on your 2019 return. That said, it's wise not to get too aggressive in this department.
Don't forget, too, about professional fees you pay to accountants, lawyers, and other advisors, especially if you used to itemize these expenses.
"Although these costs are no longer deductible as itemized deductions under the Tax Cuts and Jobs Act of 2017 (TCJA), part or all of these fees could be claimed as self-employment expenses instead," Zdenek says. "A physician client of ours couldn't get a tax benefit for claiming his accountant's fee as an itemized deduction but was able to deduct it by having his practice pay for it."
Pack All You Can Into Your Retirement Plans
We'll say that again, only louder: Contribute all you're allowed into your retirement plans!
If your employer offers a 401(k) or other tax-deferred savings plan, every dollar of pretax income you contribute reduces your taxable income by an equal amount. For instance, a physician in the 32% tax bracket who makes the maximum $19,000 contribution to a 401(k) plan this year will save $6080 in federal income taxes. That's on top of the standard deduction or the total of any write-offs that exceed the standard deduction.
Medscape Medical News © 2019 WebMD, LLC
Any views expressed above are the author's own and do not necessarily reflect the views of WebMD or Medscape.
Cite this: Dennis G. Murray. Doctors' Advisors Share Their Best Year-End Tax Tips - Medscape - Oct 21, 2019.