Tax Advantages for Medical Professionals

Having a medical practice is typically a lucrative endeavor. Then there are the additional tax responsibilities that come with it. Even though their taxes are typically rather expensive, medical offices have a wide range of legitimate tax reduction techniques at their disposal. In the minds of many, tax experts and attorneys are only available to those who can afford them. Because of this, anyone with the time and inclination can take advantage of tax-saving tactics that can be learned in a short period and implemented correctly.

 

The good news is that if you’re serious about exploring new tax methods, there are a few things you can do right now. Some of the methods you can use to handle your medical practice’s taxes in the future are outlined here for your consideration.

 

Selection of the Correct Entity

Your medical practice’s choice of entity is one of the most fundamental but critical decisions you can make. To establish the type of company structure you should choose, you must consider who will control the business and how your practice will tax profits.

 

Several variables must be considered when determining which business entity is best for your needs.

  • How much money do you bring in each year?
  • Do you have any staff members? ‘
  • Do you have any valuables or yourself that need to be protected?
  • Where is your practice situated?
  • Do you have any expenses to bear, as well as any managerial duties?
  • If so, what kind of permanency or transferability are you seeking?

 

Medical practices have a variety of alternatives when it comes to marketing, and we’ve outlined the main advantages and disadvantages of each. Keep in mind that some of these choices may not be available to you if your practice is located in a state that doesn’t allow them.

 

Ownership of a single business

The ease and low cost of starting and running a single proprietorship make it a popular choice for medical professionals. If you are an alone proprietor, you are responsible for paying income tax and self-employment tax on all of your business’s profits. When you are self-employed, you are responsible for all of your Social Security and Medicare taxes, as well as an additional 0.9% Medicare tax if your income exceeds $200,000 if you are filing as a single person or $250,000 if you are filing jointly. You don’t receive a W-2 for your wages.

 

If you’re looking for a simple way to run your business but don’t want to take on the risk of personal liability, a sole proprietorship may be the best option. A single-member limited liability company (SMLLC) isn’t going to shield you from personal liability as a physician.

 

Partnerships

Partners are only conduits for the flow of funds. The partnership’s tax return serves as an informational document, and its profits and losses are reported on the partners’ tax returns.

 

It’s just like a sole proprietorship in that partnership profits will be passed on to the owner and taxed at your regular rate and subject to self-employment taxes. You don’t receive a W-2 for your wages. If you have more than one owner, which can include your spouse in some states, you must select the partnership option.

 

If you’re a physician, you won’t benefit from the LLC protections because you’re a partnership, not a limited liability corporation.

 

S-Corporations

S-Corporations, like partnerships, are pass-through entities, which means that profits and losses are taxed at the company level. In some states, an entity-level tax is in place. In terms of taxation, S-corporations are distinct from partnerships and sole proprietorships. Social Security and Medicare taxes will be deducted from your S-salary, corp’s which must be reasonable. However, if you make more money than your wage, you don’t have to pay social security or medicare taxes on it. Determining how much you can save in taxes depends on your situation.

 

Despite its tax advantages, the S-corporation is more expensive and time-consuming to run than a traditional corporation. There are also restrictions on the forms of ownership you can have.

 

C-Corporations

Only malpractice insurance is required for C-Corporations, a stand-alone organization that protects against most business hazards. In the end, though, it can shield you against common business risks. It’s simple to transfer C-corps via stock, and they’re well-understood. This business structure is appropriate to attract outside investors to your medical practice.

 

C-corporation profits are taxed at the company level. You are paid a W-2 wage from the business, and any gains you make from the business are taxed at dividend tax rates. This results in double taxation of the same earnings. Additionally, C-corporations are more expensive and time-consuming to run.

 

Investing for the Future

Taxes can be reduced by putting money into a retirement plan, the most straightforward method. You can claim a tax deduction for your contributions to a pre-tax retirement plan. When you make a retirement contribution, you lower your taxable income, paying fewer taxes. It’s crucial to keep in mind that the amount you can contribute to your retirement depends on your retirement plan and whether you are an employee or an employer.

 

Medical supplies and expenses that your employer does not reimburse often do not qualify as tax-deductible expenses. Items with a useful life of more than a year should be tracked individually. On a typical tax return, the cost of such assets is not included in the same way as other regular business expenses like business cards or medical supplies.

 

Additional Costs:

You can deduct the costs of searching for a new job in your current line of work even if you don’t land one. Expenses incurred when looking for work outside of town are only deductible if the travel is made primarily for that purpose and not for any other.

 

Expenses for communicating:

You cannot deduct the expense of your first home phone line’s basic local phone service. However, if the calls are business-related, the toll charges are deductible. You can deduct the basic charge, and toll calls for a second phone line in your house as long as it is used solely for business purposes. Personal and business use of the same piece of communication equipment necessitates an allocation of the cost of the equipment. All business calls should be noted on your cell phone account.

 

Dues and Fees for Professionals:

You can deduct your membership fees to professional organizations connected to your line of work. You may join a trade association, a professional group, or a business league such as the National Federation of Independent Business or the National Federation of State Chambers of Commerce. However, dues paid to organizations founded for business, pleasure, amusement, or another social purpose are not deductible. These could include country clubs, golf, and athletic clubs, airline clubs, hotel clubs, and luncheon clubs, among other possibilities.