Write off eligible business expenses
Claimed by 46% of physicians.
Who’s eligible: Physicians who own all or a portion of their practice, as well as those who work as consultants or contractors paid with a 1099.
How it works: Doctors who run their business using an LLC or S corporation can itemize the deductions on their Schedule C. There are dozens of deductions that might qualify, including for office space and supplies, medical equipment, uniforms, staff wages and benefits, and state and local tax payments. Physicians who work as consultants can deduct home office expenses, travel costs, and the price of supplies purchased for the job.
“For business expenses, you want to make sure that you’re tracking those expenses on an ongoing basis, rather than trying to reconstruct something at the end of the year from 8 months ago,” Mr. Joseph says. “You want to have a system in place that’s calculating those expenses every single day.”
Pro tip: The Tax Cuts and Jobs Act of 2017 also allows owners of pass-through businesses to deduct up to 20% of their business income.
“Not all physicians will qualify for that, because they are in a service-based business and many of them make too much money, but it’s always a good idea to look at whether that’s something they’re eligible for and make sure that they claim it,” says Eric Bronnenkant, head of tax at New York–based investment company Betterment.
Contribute to a 529 college savings plan
Claimed by 27% of physicians.
Who’s eligible: Those who live in the 37 states that offer a credit or deduction for 529 plan contributions.
How it works: The rules and amounts that qualify vary significantly by state. Most states offer benefits for contributions to in-state accounts only, whereas others offer a tax break for contributions to any 529 account.
Although there is no federal income tax benefit for contributions to a 529 plan, the money grows tax-free until tapped for qualified education expenses, which include both private primary and high school tuition and college costs. Starting in 2024, up to $35,000 in unused funds can roll over into a Roth IRA for the beneficiary.
“It’s not just about the immediate deduction with a 529 account,” says Brian Copeland, partner and director of financial planning with Hightower Wealth Advisors in St. Louis. “It’s not saving you a lot on day one; it’s more about as that account grows, you don’t have to pay taxes on it along the way, so you’re sheltering it from taxes for the 18 years you’re saving for your kids’ college.”
Pro tip: Even if you live in a state without a state income tax or without a tax break for 529 contributions, opening an account can be a smart financial move. Because you don’t need to choose an in-state plan for the tax breaks, look for one that offers low fees and investment options that you like.
Sell investments at a loss
Claimed by 22% of physicians.
Who’s eligible: Anyone who has sold stocks, mutual funds, or other investments at a loss.
How it works: After selling a security that has lost value, you can deduct the value of that loss on your taxes to offset capital gains in the same year. If you have more losses than gains, you can use the losses to offset up to $3,000 in ordinary income per year. If you have more than $3,000 in losses, you can carry those losses forward to offset future income or capital gains.
Pro tip: In years with a lot of market volatility, such as this one, there’s potential to engage in “tax loss harvesting” in which you intentionally sell securities that have lost value to realize the losses for the tax benefits. Keep in mind that if you sell a security at a loss, you cannot repurchase the same security within 30 days – the IRS sees that as a “wash sale,” which does not qualify for a capital loss for tax purposes.