The life of a Doctors is never boring. Whether you’re helping a patient with the small injury or working with a child with a complex diagnosis, you seems to be running from one patient to another!
You spend thousands of dollars each year to make things happen.
Have you ever thought about which expenses are tax-deductible? In this article we’ll be discussing “Tax Deductions for Doctors in 2021 – 2022”.
These strategies can dramatic effect your taxes so read ahead before they change next year’s return too!” also see our bonus tip at the end.
What Are Best Tax Deductions for Doctors?
Do you know what are Best Tax Deductions for Doctors and Physicians. Lets review 18 top tax deductions that Doctors can use in 2021 and 2022.
1. Advertising & Marketing for Doctors
As most of the Doctors get their business from online these days, you can deduct your expenses such as Website, Business Cards, Website Hosting cost, domain cost and so on. You probably also spend money on Yelp, Google AdWords, Facebook and other online advertising platforms. All these expenses are tax deductions for federal and state tax purposes.
If you still do mailing campaigns such as postcards and ads in magazines, you can deduct those expenses as well.
2. Education And Training for Doctors
One of the things we have learned by talking to hundreds of successful Doctors that they always invest money in their earning ability.
Many work with other successful Doctors to learn and upgrade their skills. Many Doctors also spend money on continuing education requirements to stay on top of legal and business requirements.
Many successful Doctors also buy Audio book subscription from Amazon or real estate books, and online courses. These expenses not only reduce your taxable income but also can help you increase your earned income as well.
3. Required Licenses And Dues For Doctors
In order to work as a Doctors you are required to maintain your license and in pay for dues either on year or quarterly basis. This may include but are not limited to City License, County License and State Licenses. All these expenses can be legal tax write off.
4. Phone, Internet & Fax
Doctors spend a large amount of the time over Phone, Internet either answering prospective customers phone or doing marketing.
As a Doctors you can write off Large portion of your Cellphone (Verizon or AT&T), Internet, and Fax/E Fax Charges.
5. Insurance for Doctors
Doctors are required to carry various insurance to protect the public. These insurance include Medical Malpractice Insurance, General Business Coverage Insurance and Business Vehicle Insurance.
If you are successful enough to have your own office, you may have employees and will need to pay Workers Compensation. This is also tax deductible.
6. Doctors Vehicle(Car) Tax Deduction
As a Physician you have to travel a lot. Many doctors work for many hospitals and have to travel to see patients there.
As a physician you also travel for your continuing education or to go to library to research complex medical conditions.
Vehicle expense are important deduction and its crucial that you learn all the options before making your choice.
You have two options when claiming Painting Business Owner Vehicle Tax Deduction:
Simple Method (Standard Mileage Deduction)
The simple method where you take a cost per mile for miles you driven for business.
For 2021, the standard mileage rate is 56 Cents per mile.
For Example: if you drove 10,000 miles, you could deduct $5,600 from your
In addition to Standard Mileage expense, you can also get to deduct DMV Registration fees and taxes, car loan interest, Vehicle Cleaning, Bridge Tolls, and parking fees to the standard mileage deduction.
Actual method is typically used by many Doctors especially when their actual expenses are significantly more than the standard mileage method.
In actual method, you itemize the list of expenses pertaining to your vehicle. Vehicle Repairs and maintenance, Parking, Vehicle Lease Expense, Vehicle Cleaning, DMV fees and Depreciation.
Tip: We recommend looking into Tax Deductions for Doctors regarding Pickup or Large Vehicle Purchase.
This is especially helpful if you purchase a business vehicle that is equal or greater than 6000 Pounds.
In this case you may be able to depreciate the vehicle 100%(Given its purely used for work and not for personal use)
7. Business Travel & Meals
If you work across state or across country you may have to travel a lot.
Many of the Travel Expenses are fully tax deductible.
These expenses may include Airfare, Hotel Stay & Lodging and Travel Meals.
On the other hand if you are not travelling and taking a client out for a business meal and taking another Doctors, or vendor out to discuss business you can write off Meals.
Usually meals are 50% deductible but in 2021 and 2022 laws may be slightly different(due to covid) and may allow up to 100% deduction of meals.
9. Home Office Deduction for Doctors
Many Physicians and medical practice owners work from their home. After Covid 19, Many provide Tele Health Services from their home. They usually have their computer, printer and other equipment setup at home.
IRS requires that portion of the home deducted on your tax return is exclusive area and is not share for personal purposes.
For example you cannot have a small table on side of bedroom. There are two methods for deducting your home office. Simple & Complex Method.
Simplified Method for Doctors
Simple method allows you to take your square footage and multiply by 5 dollars a square foot. Max amount you can write of under this methods is $1500.
An example would be a 100 square foot room that you use exclusively as your office. Multiplying that by $5 gives you $500 that you can deduct for your home office.
Detailed Method for Doctors
In order to calculate home office deduction under this method
first you find out what is total size of your home office, example 200 Square foot then you divide that by total home size, example 2000 Sq Feet. So Office is 10% of the total home.
Secondly, you take home expenses such as Mortgage interest, Insurance, Property Tax, Repairs and Utilities and come up with the total example $20,000
Thirdly, you take 10% of $20,000 which will be $2000
10. Doctors Practice Rent And Utilities
If you rent a space for your photography business, then the rent you pay is tax-deductible along with Office utilities such as electricity, water & trash service.
This is an important Tax Deductions for Doctors for 2021-2022 as many Doctors need to store their equipment either at their shop or at rented storage or warehouse space.
11. Business Gifts ($25 Deduction Limit)
IRS allows Business Gifts of $25 Per person Per year. If you pay anyone more than that then it may be taxable depending up the purpose and what was the Gift intended to accomplish.
If a payment can be considered other income or referral and you pay someone $600 or more then you are required to issue them a 1099M or 1099 NEC.
12. Self-Employed Health Insurance Deduction for Doctors
If you are self employed, most likely you have to buy your own health insurance. You can deduct health insurance you pay for yourself or your family.
This is written off as a Adjustment in your income taxes.
13. Doctors Tools, Equipment and Office Furniture
Doctors business owners often purchase standard business equipment like computers, camera, stands, backdrops, iPad for invoicing.
Most of these items are fully deductible(expensed) in the year you purchase them versus having to depreciate them over multiple years.
However, if you find yourself buying expensive items such as Laptops, X Ray Machines, or furniture for patients, that cost over $2500, be sure to check with your Tax Accountant & CPA if it can be deducted or depreciated over time.
You may be able to take Section 179 or Bonus Depreciation on some of the items.
14. Office Supplies & Software
Doctors regularly use office supplies such as Envelopes, Folder, Paper and Pens when writing Commercial Architectural proposals or reports, visiting homes to customers and mailing or sending paperwork.
If you use any software to contact potential customers, keep track of your offers, Contact current customers or keep track of your finances using software such as QuickBooks you can deduct the cost of these softwares.
- CRM( Example Sales Force)
- Marketing System like Mail Chimp
- Medical Transcription or Billing Software
Here is list of Best Accounting Software for small businesses to keep track of their income and expenses.
15. Employee Payroll & Payroll Taxes
If you have employees that work for you such as receptionist, admin, bookkeeper or sales support, you pay them on hourly or salary basis.
You can deduct their W2 Salary and any employer payroll taxes(Such as FICA, State Unemployment Taxes) that you pay in addition to the payroll.
16. Physicians Retirement Plan Contribution
It is important to start putting away money for retirement. You can not only have money available when you are older but you can save a thousands of dollars if you
There are a several good plans to choose from; We have provided top 3:
2022 limit is the lesser of $61,000 or 25% of income. As self-employed, this plan allows Doctors to invest significantly more money each year into retirement versus the traditional IRA plan.
Keep in mind that if you do have employees other than yourself or your spouse, you’ll need to match whatever contribution percentage that you elect for yourself, for your eligible employees as well.
IRAs(Traditional & Roth)
2022 limit for Traditional IRA is $6000 and $7000 if you are over 50 years old. If you don’t want to put a large amount of money away, then a Traditional(Pre Tax) or Roth IRA(Post Tax) might be for you.
2022 individual contribution limit is $22,000, $27,000 if over 50. However, like a corporate 401k, your company can also contribute to this plan – as much as 25% of your compensation.
The max individual plus business contribution to this plan can be as high as $58,000 or $64,500 if over 50, for 2022.
Key requirement is you need be self-employed with no employees in your business( Basically you and your spouse only) It is ok to have independent contractors as long as they are properly classified.
Defined Benefit Plan ( Pension Plans)
A defined benefit plan is a retirement plan in which an employer agrees to provide a certain level of benefits to employees upon retirement. The benefits are typically based on the employee’s length of service and salary.
Pension plans are the most common type of defined benefit plan. Other types of defined benefit plans include cash balance plans and hybrid pension plans. These plans can allow you to put away a very large amount of money in your retirement, helping you lower your taxes dramatically. If you are over 50 years of age, this plan contributions can be over $100k (please check with your CFP)
Pension plans are regulated by the Employee Retirement Income Security Act of 1974 (ERISA). Cash balance plans are not subject to ERISA regulation. Hybrid pension plans are a combination of a pension plan and a cash balance plan and are subject to ERISA regulation.
Defined benefit plans are an important part of many employees’ retirement planning.
Employees who participate in these types of plans can be assured of a certain level of income during retirement, which can help to ensure a comfortable retirement lifestyle.
17. Legal Or Professional Services
If you pay an Attorney, CPA or a bookkeeper for your photography business, you can deduct these professional fees.
Don’t forget to issue 1099M or 1099 NEC as needed. See our guidelines for 1099s.
18. Set up a S Corporation for Doctors
Doctors can save thousands by incorporating their business as a Professional S-Corp by filing election(Form 2553), Doctors can save thousands or even tens of thousands of dollars on self-employment tax versus being a sole proprietor.
The IRS typically charges self-employed business owners 15.3% for self-employment (12.4% for social security and 2.9% for Medicare).
If you are a Sole Proprietor
If you haven’t set your company up as an S-Corp, you will pay this 15.3%, in addition to your income tax, for all of your adjusted gross income.
For example, if you earned $100,000 in after deductions, adjusted gross income, your SE tax alone would be $15,300 (not including what you’d pay for income tax).
Your Business Setup as an S-Corp
If you set yourself up as an S-Corp, you will pay yourself a reasonable salary and also receive distributions(K1) Based on number of hours work if a Doctors salary is around $40,000 annually then the Shareholder will take 40k in w2 and 60k in K1
Going back to our example of $100,000 adjusted gross income, let’s assume you paid yourself a salary of $40,000 and took $60,000 in dividends.
In this case, you’d only pay the 15.3% SE tax on the $40,000.
In this example, your self-employment tax is $6,120, effectively lowering your tax burden by nearly $9,000.
18. Merchant Credit Card Commissions
If you are a Physician that accepts credit cards from your customers, then you may be aware that credit card companies charge you a commissions.
For example visa and master card may charge from 1.5 to 2.5% commissions and American Express may charge from 2.5 to 3.5 per cent commissions.
You are allowed to deduct this commissions from your income as an expense.
You can typically get a printout from their online portal of how much commissions you paid during the year or you can download their monthly statement and total the amount and provide to your tax preparer or accountant.
Video Explanation of Tax Deductions for Physicians.
Finally, Tax Deductions for Physicians in 2021-2022: Ultimate Guide provides comprehensive list of expenses for Doctors
These deductions can help you lower your taxes. These will only benefit you if you track them and keep supporting documents.
Use this Ultimate guide as a reference and discuss these with your CPA and see how they apply to your tax situation.
1099 NEC Forms are Due January 31st
If you paid contractors such as Other Physicians, Nurse Practitioners, Medical Assistants, Nurses, don’t forget to issue them a 1099 NEC form by no later than January 31st each year to not receive a penalty.
See IRS page here for more info about 1099 Forms
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