Common 1099 Physician Tax Deductions
Common 1099 Physician Tax Deductions
Despite their high incomes, doctors sometimes fail to take advantage of tax benefits they qualify for because of outdated information. Physicians who work for themselves can deduct their basic business expenses from taxes on their returns. It may be simpler for medical offices to categorize these deductions if they use professional accounting services accurately.
Physicians who switch from W2 to 1099 filing might take advantage of significant tax savings that can reduce their tax liability and free up money for business reinvestment. The home office deduction, auto or vehicle expenditures deductions, CME and CME travel, medical malpractice, the QBI deduction, and more are possible deductions for 1099 filers.
Even though there may be significant tax savings, it's crucial to speak with tax experts to be sure you've considered all eligible deductions.
1- Decrease your taxable income significantly
You want to minimize your taxable income to make sure you are optimizing your tax savings. As a 1099 provider, you can deduct the following essential expenses:
- Health insurance premiums
- HSA contributions
- Retirement contributions (see more below)
- Deductible business expenses
- Heavy vehicle purchase – e.g. SUV
- Qualified Business Income (QBI)
You can lower your taxable income by 20% by using the QBI deduction. Still, the computation required to be eligible for the deduction is intricate and may need the assistance of a tax expert to ensure correctness.
2- Home office
You can deduct administrative expenses from your taxes if you use your home or a portion of it for work-related purposes and that area is set aside for such purposes. To find the percentage of home expenses acceptable for business use, take the square footage of the home used for business purposes and divide it by the total square footage of the home.
3. Take advantage of generous retirement contribution limits.
As a self-employed physician, you have a few alternatives for retirement savings, and this can sometimes be one of your most significant deductions. The SEP-IRA and Solo (or "Individual") 401(k) are the two most common accounts for 1099 doctors. Each strategy has its own set of advantages. You can also fund a Roth IRA (or Backdoor Roth IRA) through the Solo 401(k).
4. Office supplies and equipment:
Electronics and furnishings utilized at your home office, such as iPads, PCs, or desks, may be tax deductible. If they aren't, you can capitalize and depreciate the purchases over a few years, depending on the circumstances.
5. Check to see if you qualify for the QBI deduction.
The QBI deduction is enormous. As a 1099 doctor, your retirement contribution was likely the most significant deduction you took. Your QBI deduction may exceed your retirement contribution amount. The idea is to reduce your taxable income to between $340,100 and $440,100 for married couples filing jointly and between $170,050 and $220,050 for single filers.
6. Tax Deductions for Income Allocation
Self-employed physicians can deduct various qualifying contributions and payments from their taxable income to decrease their total tax burden. After deducting these contributions from their gross income, physicians' adjusted gross income (AGI) generally falls into a lower marginal tax band.
7. Charitable donations
Up to 60% of the physician's adjusted gross compensation. Physicians can optimize their charitable giving tax benefits by donating a substantial amount of appreciated stocks to a donor-advised fund in a single tax year and using the money to make lesser donations in subsequent tax years.
8. Retirement plans
You can match your contributions to your 401(k), and the employer match can be deemed a business deduction even if you're still contributing the full amount to your retirement account.
Physicians can easily decrease their tax burden by 50% or more by taking advantage of tax credits and deductions, whether claiming tax write-offs for supplementary income or a privately owned medical practice.
Physicians and medical practices should plan their tax history proactively with the help of a small business accountant who has experience with the medical industry and is up to date on the latest updates to federal and state tax laws to optimize their earnings and expenditures for the most favorable tax return possible.