Physicians have some of the most important jobs in the world and also the most hectic. Most doctors do not have time to sit down and have lunch let alone worry about planning their income taxes. Physicians are also some of the highest paid professionals in the country. Doing your taxes can become more complex the higher your income is. This means, if you do not plan ahead of time, things can get really tricky.
One of the most important factor to remember is that documentation is everything. In order to get the most out of your tax return, you must keep all of your records and receipt so that everything is accurate. This will also make it much easier for your accountant to prepare your taxes.
If you are a physician who does not have time to be bothered with taxes, here are some helpful planning tips that might make you reconsider.
Tip 1: Defer or Avoid Income Recognition
If you make a higher income then it is important to defer your taxable income if at all possible. Deferring your income until you are ready to retire will help you pay taxes on your income at a much lower rate. Deferral can also help if you expect to be in a lower tax bracket next year. If you use tax-deferred retirement accounts, you can then invest the money that normally would have been paid in taxes to significantly increase your retirement fund.
Tip 2: Set up a Retirement Plan
Many physicians work for themselves or run their own practices. If you own your own business, you are not employed by anyone, and therefore may not have a retirement account set up. If you are running a medical practice, then you should consider setting up your own retirement plan and make sure you are contributing to it regularly. There are a number of these different types of plans available which can also decrease the amount of paperwork that is needed to administer a plan.
Tip 3: Contribute to an IRA
If you are currently earning income via wages from self-employment, you can build tax investments by contributing to an IRA. It may even be possible for you to contribute to an IRA belonging to your spouse even if they have very little or no income. IRA investment income are deferred in terms of taxation and can also be withdrawn tax-free or tax deductible.
Tip 4: Defer Earned Income and Bonuses
If you receive a bonus or any other earned income at the end of the year then you might be able to defer the receipt of these bonuses until January. If you are currently self-employed, try not to send bills or invoices to clients and customers until after the New Year. As a physician, you may not be able to do this so check with your accountant before doing so. It has the potential to save you on taxes and put you in a much lower bracket the following year.
Tip 5: Watch Your Portfolio Trading Activity
When the manager of your mutual fund sells a stock when it is at a gain, these pass over to you as potential taxable gains, even if they are never withdrawn. So you may instead decide to purchase a fund with a much lower turnover if this is a method of good investment management. Turnover is not considered to be a tax sheltered fund such as an IRA or 401K.
As a physician you may not feel as though you have the time to prepare for your taxes as you should. These tips take very little time to implement and have the potential to save you a great deal of time and money.