Doctors, nurses, dentists and other medical professionals are incredibly busy with demanding schedules, and there’s usually little time to think about tax planning. But medical professionals also tend to have complex financial situations and stand to benefit the most by being aware of tax opportunities and pitfalls.
If you are a doctor, dentist or other health care professional, here are the five things you need to think about when planning for taxes:
First,keep track of your expenses.This is a significant way to save on taxes. Travel, business meals, continuing education, membership dues and equipment can all be deducted as long as you have the proper documentation.
Second,consider a deferred compensation program.By deferring a portion of your compensation, you reduce your current taxable income. And it’s possible that income you receive in the future during retirement could be taxed at a lower rate.
Third,invest in a 529 savings plan to pay for your children’s education. Contributing to a 529 plan reduces your state taxable income, and these funds grow tax deferred and can be withdrawn tax free if used for higher education, or for K – 12 private school tuition. Also, starting in 2024, 529 account holders will be able to transfer up to a lifetime limit of $35,000 to a ROTH IRA for a beneficiary. This is a great option if the beneficiary does not need the 529 funds for education.
Fourth,shelter your income with a retirement plan. If you have an employer-sponsored retirement account like a SEP-IRA or 401(k), you can deduct the money invested in these accounts from your income and it grows tax-free over time.
And finally, if you generally make annual charitable gifts,consider bunching your charitable contributions. Bunching is when you move multiple years’ worth of charitable giving to one single tax year, and then you give nothing the following year. This may allow you to itemize beyond the standard deduction in the year that you bunch all of your giving.
These are just a few tips that you can consider when you’re thinking about your taxes. Tax law is complicated, and it changes regularly. The best thing you can do is hire a professional who is not only going to file your taxes, but who will also help you develop a comprehensive tax-smart financial strategy.
Call Davie Kaplanto learn how we can help you make the most of your tax benefits and reduce your tax burden.
*Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing. Investors should also consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state's 529 plan.