By Kari Middleton
Medical Wealth Management
It’s now the tax planning season, and physicians have unique tax situations. Here are some questions every physician should consider:
1) What form of business should I/We have?
The form you choose has a direct bearing on the tax you pay.
Each form has pros and cons. For example, a Personal Services Corporation has a flat 35% income tax rate… lower than the top personal tax rate of 39%. Then there’s the Limited Liability Corporation or LLC. Many physician groups function as LLCs because they can be taxed as partnerships or as corporations, which ever works best for the practice.
2) Do I/We pay our taxes on time?
If your practice is a sole proprietorship, partnership, S corporation shareholder, you generally have to make estimated quarterly tax payments. Also, if your practice is a corporation, you must make quarterly estimated payments.
Don’t be late with your payments. For each month or part of a month that the tax remains unpaid, there’s a half of one percent (0.5%) penalty. These penalties add up and they are totally unnecessary.
3) Do I keep good track of travel expenses?
Physicians often practice in several locations. Travel expenses among these locations are fully deductible; commuting expenses are not.
For example, a physician lives in Redondo Beach and works in two hospitals, one in Anaheim and one in Pasadena. He cannot deduct mileage from his home to the Anaheim hospital, but can deduct mileage from Anaheim to Pasadena.
The current mileage expense deduction is 56 cents per mile, something worth tracking. Make sure to keep a thorough record of mileage that includes date, time, and location.
4) Should I Consider a non-qualified retirement plan?
Physicians that are past residency and have paid off student loans should consider a “non-qualified” deferred compensation plan for retirement. The amount a physician can defer usually far exceeds what’s possible through a “qualified” retirement plan like a 401(k).
And all the income deferred avoids current taxes.
The form of the plan and the amount you can defer depends on the structure of your practice, and should be discussed with your tax and financial advisor.
Kari Middleton is a Registered Representative with, and securities are offered through, LPL Financial. Member FINRA/SIPC. Content in this material is for general information and not intended to provide specific advice or recommendations for any individual. Also it is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.