Tax Deductions for Employed Physicians
By Jared Andreoli, CFP®, CSLP®
Despite often enjoying a comfortable income, physicians face a complicated financial landscape that includes substantial tax liabilities. The good news is that in addition to the standard deductions available to most taxpayers, employed physicians are also eligible for a number of specialized deductions that can drastically lower their tax burden.
These deductions are tied to the unique costs of the profession—things like professional memberships, continuing medical education, and certain out-of-pocket work expenses. While keeping track of these deductions requires careful record-keeping and a solid understanding of tax rules, the potential savings make it well worth the effort.
In this article, I’ll walk you through the key tax deductions available to employed physicians and share practical tips to help you maximize your savings.
Looking ahead: Next month, I’ll take a closer look at tax deductions for physicians who own their practice. But for now, let’s focus on those who are employed.
Retirement Plan Contributions to a 401(k), 403(b), or IRA
By making contributions to a tax-incentivized retirement account, employed physicians can lower their current tax burden while building wealth for the future. They should make the most of the matching contributions offered by employer-sponsored plans such as 403(b)s and 401(k)s. In addition, they can potentially reduce their taxable income and current tax bill by making contributions to traditional IRAs.
HSA Contributions and Qualified Medical Expenses Paid With HSA Funds
Contributions to a health savings account (HSA) provide triple tax incentives, including tax-deductible contributions, tax-free growth, and tax-free withdrawals on qualified medical expenses. A win-win-win!
Student Loan Interest
Another significant tax deduction for employed physicians is student loan interest. Employed physicians with school loan debt may be able to lower their taxable income by deducting interest paid on their loans throughout the year. Although this deduction may offer some financial relief, it is subject to certain eligibility conditions and income limitations.
Charitable Donations
By giving money or equipment to qualified charities (such as medical missions), employed physicians can lower their tax liability and possibly claim a deduction for the fair market value of the donated goods. Careful documentation of these donations is necessary, including receipts and appraisals for larger items, to validate the deduction and comply with IRS laws.
Business Travel Expenses
When traveling for work-related reasons (e.g., conferences, hospital visits, or continuing medical education), employed physicians may be allowed to deduct unreimbursed business travel expenses, such as flights, hotel stays, and meals (subject to certain restrictions).
Continuing Medical Education (CME)
Costs associated with CME, such as those for conferences, workshops, and courses, that help employed physicians keep or advance their professional abilities are typically deductible. The costs of staying current on medical field updates can be partially offset by these deductions, but to prove the validity of the deduction, thorough documentation of CME activities and associated expenses must be maintained.
Professional Licenses and Certification Fees
Expenses for professional licenses and certifications (e.g., state medical license renewal fees, board certifications, and DEA registration) are frequently deductible since they are considered essential expenses for upholding an employed physician’s professional status. These deductions help offset the cost of maintaining professional credentials.
Medical Association Membership Dues
Since membership dues to professional medical societies are frequently seen as essential business expenses associated with their practice, employed physicians may be eligible to deduct these costs. However, to claim this deduction and comply with IRS rules, it is necessary to preserve documentation of these dues payments.
Work-Related Subscriptions and Books
As long as they are directly related to their profession and used in their work, employed physicians may be eligible to deduct the cost of books and subscriptions, such as medical journals and online subscriptions. Keep a record of these purchases to validate the deduction and compliance with IRS rules.
Scrubs and Uniforms
While work uniforms are generally tax-deductible, scrubs can be a bit tricky for employed physicians. Since they’re often seen as suitable for everyday wear, they might not qualify for a deduction. However, if your employer requires you to wear scrubs and they aren’t practical for use outside of work, you may be able to deduct the cost.
Make the Most of Tax Deductions for Employed Physicians
The tax deduction strategies discussed above can significantly reduce your tax liability and help you keep more of your hard-earned income.
As specialists in helping medical professionals navigate their financial road map, Simplicity Financial LLC has the knowledge and experience you need.
Get started by scheduling a free consultation, or reach out to us by emailing jared.andreoli@simplicityfinancialllc.com or 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.