5 Ways Physicians Can Reduce Their Tax Bill

By Jared Andreoli, CFP®, CSLP®

As a physician, you are accustomed to demanding and stressful work. With the long hours of your job, as well as other obligations in your life, it can be easy to overlook key areas of your financial life. Sure, you might spend less than you make, and pay off your credit cards each month, but are you truly optimizing your financial situation?

One overlooked yet essential aspect of your financial life is your taxes. The tax code is constantly changing, and there’s a number of factors that go into lowering your tax bill both in the current year and over time. 

Additionally, physicians in particular have the unique concern of navigating high taxes along with high amounts of debt, which can be difficult (yet not impossible) to overcome. 

In this post, we’ll share five strategies physicians can take to optimize their financial life and lower their tax burden.

1. Customize Your Tax Strategy

There are a lot of rules of thumb in the financial world. While some of them are sound (spend less than you make, save 15% of your income), when it comes to taxes, all of the rules of thumb need to be thrown out the window.

The reason why is that your tax strategy is highly tailored to everything else going on in your life, and that will vary from person to person. For instance, it might make sense for you to contribute as much as possible into pre-tax accounts so that you can lower your income in the current year. Yet if you and your family are hoping to buy a home, or plan to have children, then you might want to reconsider contributing that much money, which will be tied up in retirement accounts, and instead put it in less tax-advantaged accounts with more flexibility.

Working with a financial planner who can help you tailor a tax strategy to align with your goals is the most important step, and once that’s complete, then you can drill down into the specific ways you can achieve meeting your goals while still saving on taxes.

2. Take Advantage of Losses, Credits & Deductions

The tax code offers a number of ways to lower your taxable income every single year. However, you need to follow all the rules and restrictions around each of these options so you can qualify for them.

If you have children, you might be able to qualify for the Child Tax Credit, while if you give away money to charity, you might be able to deduct that (and other expenses) from your taxable income when you file. 

Lastly, if there’s a bad year in the stock market (like what we’ve experienced in 2022), you could take advantage of something called tax-loss harvesting. Simply stated, this allows you to sell an investment that is trading at a loss, and use the amount you lost to lower your taxable income the next time you file your taxes.

3. Maximize Your Workplace Retirement Plan

One of the best ways to save for retirement and be tax smart is to take full advantage of the retirement plan you have at work. If you work at a company, you might have the option to participate in a 401(k) or 403(b), which will allow you to contribute up to $20,500 (as of 2022) in a tax-advantaged retirement account every year.

Yet if you are self-employed, you actually have the option to contribute even more into these types of accounts, since you are both the owner of the company as well as an employee. For these types of plans, it’s especially important to work with a retirement plan specialist who can help you determine the best type of plan to set up for your business.

Regardless of whether you’re self-employed or working at a company, if you’re able to put the maximum amount into your retirement plan, this can help you save money on taxes now and provide for a comfortable retirement in the future.

4. Utilize Business Expenses

It takes a lot of focus and dedication to run a successful business. That’s especially true of physicians, who are doing everything they can to help their patients have the best health outcomes possible. Unfortunately, we’ve seen some owners who are so focused on their patients that their organizational responsibilities slip through the cracks. 

One common example is that there are certain business expenses that are able to be deducted as a normal part of doing business—but only if they are recorded and categorized properly. In our work with physician-owned practices, we know what types of deductions you can take advantage of, and we can also help you stay organized with everything going on with your business’ finances.

5. Maximize Your Tax Savings

At Simplicity Financial, we take great pride in understanding every aspect of each client’s financial life. Through our comprehensive financial planning services, we identify your goals, examine your cash-flow and debt-reduction strategy, help you create a proper estate plan, and strategize to pursue your retirement goals. Yet what many people don’t know is that your tax situation affects every one of these areas! Because of that importance, we also offer the option to help our clients file their taxes, in addition to creating higher-level tax-planning strategies. As a result, we are able to maximize your tax savings over the course of your lifetime.

Paying Too Much in Taxes?

If you feel like you’re paying too much in taxes, we’d love to see if we can help lower that bill. If you think Simplicity Financial would be a good fit to help you keep more of your wealth, get started by scheduling a free consultation, or reach out to us by email at jared.andreoli@simplicityfinancialllc.com or by calling 414-207-6473. 

About Jared

Jared Andreoli, CFP®, CSLP®, is president and financial planner at Simplicity Financial, a fee-only RIA dedicated to helping early-career physicians conceptualize their financial picture and achieve their financial goals. Jared specializes in devising individualized financial road maps for clients, and he loves nothing more than a full day meeting with clients who value his partnership to solve problems—big and small. 

After college, Jared spent six years working as a mutual fund administrator for a large company. While he learned an immense amount about the financial world, he was missing the personal connection of working with individual clients. Combining his passion for finance and personal connection, he established Simplicity Financial in 2017.

Jared has a degree in finance with a concentration in financial planning from Western Kentucky University, along with the CERTIFIED FINANCIAL PLANNER™ (CFP®) and a Certified Student Loan Planner (CSLP®) certifications. Outside of work Jared enjoys cooking and traveling. He played baseball in college and still coaches occasionally. He and his wife recently welcomed a daughter, who occupies most of their time. To learn more about Jared, connect with him on LinkedIn.