As if you didn't already have enough things to worry about, the deadline for filing your taxes is quickly approaching. Unfortunately, the U.S. tax code is comprised of over 5 million words so there is probably a lot that you don't know about filing your taxes - CPA Scott Goble estimates that the ratio of doctors filing their taxes correctly is about equal to the number of patients who self-diagnose correctly after a quick sit-down with WebMD.
In order to minimize your taxes, here are eight tips from tax experts that every physician should know, but that most probably don't.
- Taxpayers who are filing complicated returns should consider filing an extension. If you own your own practice, are a principle in a group practice, or own rental properties and certain investments, you may not get your K-1 or brokerage paperwork in time to meet the April 18th deadline. Filing for an extension also gives you more time to think through your options with your CPA or attorney (and procrastinate, but we don't recommend that).
- Even if you file for an extension, it only applies to the paperwork and not to the payment, which will still be due on the 18th of April. Self-employed physicians should make an estimated tax payment each quarter, and employed physicians should double check that the proper amount is being withheld each month from your paycheck in order to avoid penalties and interest if you do pay your taxes late.
- If you own your own practice, consider setting up a simplified employee pension (SEP) IRA plan, which has a higher contribution limit than does a regular IRA. The drawback is that employers must make contributions for their employees, but contributions are tax deductible and you can contribute up to 25% of your income tax deductible.
- If you are employed and have a retirement plan set up with your employer, consider maximizing your contributions to your plan. If you don't have a retirement plan with your employer, you can make IRA contributions up to $5,500 for this calendar year.
- New guidelines for the IRA's tangible property regulations means that many expenditures that had been considered capitalized items can now be considered wear and maintenance expenditures. Using these new guidelines, you can expense many costs associated with owning or leasing a building or property for your business.
- Now that the Section 159 tax deduction of $500,000 is permanent, physicians are able to make deductions for purchases of new or used assets (computer software, medical equipment, etc). Previously, physician practices were only allowed to depreciate these expenses over a number of years.
- Private physician practices that have 25 or more employees who earn $51,000 or higher average compensation, and that pay 50% or more of their employees health insurance plan are eligible to receive a 35% tax credit for health insurance premiums from the ACA.
- For those of you who are employed by another party, you should report any additional income from miscellaneous sources (pharmaceutical companies, expert testimonials, etc) on a schedule C, and consider reducing this income by reporting any associated business expenses.