Tax Deductions For Medical Professionals

[Editor's Note:  This is a guest post from Jayson Mullin, a partner at a tax debt resolution company called Top Tax Defenders.  We have no financial relationship.]

As with other professions, tax deductions for medical professionals must meet specific guidelines that have been set forth by the IRS. The deductions that you are allowed to take will depend on whether you are self-employed, an employee or both, and the expenses must be necessary for your profession. Here are some guidelines that will help you determine if you can deduct some of your job costs when you file your taxes.

Supplies


In order for supplies to qualify as a deduction, they must be something that is ordinarily used in your profession and necessary for your job. If your employer reimburses you for the cost, then you cannot deduct it. Typical medical deductions may include your answering service, referral services, medical equipment, office supplies and your briefcase. If you buy something that costs more than $100, then keep it in a different list because it may be recovered separately.

Out of Town Expenses

If you have to travel out of town for your job, then your travel expenses can be deducted from your taxes. In order for this to qualify as a deduction, you must travel away from home, which is defined as the city in which you work. If you spend the night out of town, you can deduct mileage, food, lodging, valet services, phone calls and tips. If you drove to your destination, write down the business miles that you traveled. You must keep your lodging receipts in order to use them as a deduction, but you are not required to keep receipts for expenses that are less than $75. Just be sure that you write down how much you spent on your business trip, and keep lodging and meal expenses separate.

Vehicle Travel Expenses

While you cannot deduct the miles that you drive from your home to your office every day, you can include mileage from trips to temporary work sites. If you are driving to different locations for your job, you need to keep a detailed journal of your expenses. Your journal should include the date, the purpose of the trip, the place where you are going, the odometer readings when you leave and when you arrive, and the number of business miles that you have traveled. You should also keep the receipts for repairs, car insurance, gasoline and maintenance costs.

Telephone Expenses

You cannot deduct the basic service costs of your primary telephone line. However, you can deduct toll calls if they are related to your business, as well as the costs of a second line that is used in your office for business calls. These may include your answering service fees, paging service costs and pay phone fees.

Uniform Expenses


If your employer requires you to wear a uniform, you may be able to deduct its cost and upkeep from your taxes. In order for your uniform to qualify as a deduction, the IRS stipulates that it must be required by your employer and that it cannot be adapted to be worn as street wear. If a medical facility requires you to have an emblem, name or logo on your uniforms, then your uniforms may qualify as a deduction. You can also deduct your expenses for work shoes, dry cleaning and alterations.

Continuing Professional Education Expenses

If you take classes about your profession, then you may be able to deduct the expenses. When your employer requires you to take a class or go through training in order to keep your job, it is deductible. You can also deduct expenses when you earn continuing professional education credits in order to maintain your medical skills. However, you may not deduct expenses for training that is required in order to meet minimum requirements to get a new job. If you have taken classes, then you may be able to deduct the tuition, lab fees, copy fees, cost of supplies, textbooks and registration fees.

Professional Fees

Certain professional fees and dues can be deducted from your taxes. If you are a member of a union, then your membership payments are deductible. You can also deduct any money that you place into a strike fund, but personal expenditures are not deductible. You can also include your membership dues and fees for professional associations.

Miscellaneous Fees

You can also deduct your expenses from many other areas of your job. For example, you can include your malpractice insurance and liability insurance in your deductions, as well as any legal protection that you have. You can also deduct the costs of looking for a new job, such as hiring someone to update and edit your resume. You can even deduct the costs of medical journals and periodicals that you receive.

In addition to these deductions, there may be others that you can claim if you operate your medical business from your home office or if you perform services for non-profit organizations. Since there are many IRS laws about which expenses can be deducted from your taxes, your tax professional will be able to help you sort through them.

[Editor's Note:  Keep in mind that if you are an employee instead of self-employed (partner or independent contractor) many of these deductions are subject to the 2% floor on Schedule A, which can often times eliminate any benefit to you.  It's usually best to arrange to have your employer pay for things like CME if you're an employee.]

What do you think?  Any other tax deductions unique to medical professionals that should be listed here?  Comment below!

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Tax Deductions For Medical Professionals — 22 Comments

  1. I would love to see if any of these deductions could apply to residents or fellows. Obviously during that phase of training, we’re still employees, but I’m always interested in trying to minimize the tax burden.

    • for most of these probably not, i believe, unless the employee expense exceeds 2% of your AGI, which is hard to do. license is the one area where you could achieve this, but many residency programs pay for it or reimburse it, or the states charge a reduced rate.

      • All of this applies to residents and fellows, and you should definitely take advantage of it while it lasts. Exceeding 2% of AGI (ie $1000 for an income of $50K) is not at all hard to do, depending on if your program reimburses you for the items above.

        • Don’t forget you don’t just have to exceed the 2% threshold, but you only get credit for what is above the threshold. And to get that, you have to itemize, which doesn’t make sense unless you have a bunch of other deductions too. I’m not saying there aren’t residents who won’t benefit, but there aren’t many, and even for those who will benefit, the benefit isn’t big. This is nothing like maxing out a profit-sharing plan as an attending. Combining that with my defined benefit plan and HSA saves me $24K a year in taxes. I don’t even have to itemize to get those. Some tax breaks are worth a lot more than others.

  2. What about unreimbursed expenses from a job interview? I had a job interview where the guy paid for nothing. Airfare, hotel, car? If so what would you need to keep to document that you indeed had an interview and did not just play at the beach? Would an email that outlines the day be enough?

    • You can’t deduct them for your first job or for a job in another line of work. It is subject to the 2% floor as you deduct it as a miscellaneous expense on Schedule A. If you are self-employed, I suspect you can deduct it as a business expense on schedule C as it is more lining up another customer than getting “another job.” I would think an email outlining the day, your receipts, and a mileage log if you’re deducting mileage would be plenty adequate as documentation. You probably don’t even need the email, but it would probably help. Remember you don’t need any documentation unless you get audited.

  3. Any ideas on if the usmle step 3 would be deductible, specifically I paid for it in 2013 tax year, the same year I will start residency, so this exam fee alone hits that 2% floor, not including travel or hotel.
    Thanks,
    This is my first post on the site so I just want to say a quick thank you for everything you have done here.

  4. Are fellowship interview expenses tax deductible? You are already in your profession and are getting additional training. How about fees for specialty specific board exams like the pediatric board exam or internal medicine exam? Many programs/practices may cover this expense (mine does not). My thoughts are that you already are part of of the profession of medicine and they are deductible but I am not sure. Any thoughts?

    • Definitely a gray area. You could try and see what happens! I think you have a decent argument. Worse case scenario you get audited and have to give that money back. You still to itemize and beat the 2% floor to get it though. Can’t be that valuable to you I wouldn’t think.

  5. Along the lines of Scott’s post:
    I am a PGY-1 prelim in General Surgery. If I am applying to a different specialty this year, can I deduct the expenses associated with interviewing and application fees?

    Specifically, would these expenses fall under the new job search deduction? I am technically looking for a new job within my existing profession…

    • Pretty gray area. If you feel it is a new job within your existing profession then yes, it’s deductible. If you feel a different specialty is a different profession, then no dice. I haven’t seen anywhere that the IRS defined a specialty as a profession, so I think you’re okay. But again, you’re a resident, do you even itemize?

  6. While disability insurance can be deducted, my CPA advised me against doing that. He said that if you do that and then make the claim, the claim will be subject to taxes.

    • That’s true that it would then be subject to taxes. When I actually went to look up how to deduct premiums, I found that I couldn’t actually do it anyway. I think a corporation can for a group plan, but found no way to do it for a partnership.

      • Premiums paid by an individual ( including a sole proprietor) are not income tax-deductible according to IRC Sec. 213. As a result, benefits are received on an income tax-free basis according to IRC Sec. 104.

        Premiums paid by a Partnership or an S Corporation are income tax-deductible by the Partnership or S Corporation but are included in the partner’s or S Corp owner’s personal taxable income according to Rev. Ruling 91-26. As a result, benefits are received on an income tax-free basis according to Rev. Ruling 91-26.

        • Exactly. Since I’m a partnership, premiums are taxable but benefits are tax-free. I guess that wouldn’t change even if I incorporated, but at least I’d get the Medicare tax savings.

          I think people fear disability benefits being taxable too much. I see no reason not to have some of your benefits be taxable. The tax deduction on the premiums is guaranteed, but you don’t know if you’ll ever actually get the benefits and the tax break there. Plus, your income on disability will definitely be lower than your income now. And if you have some of your disability insurance be tax-free and some taxable, you can “fill up” the lower brackets. $30K in deductions means you can take $30K in fully taxable disability benefits without paying tax on it. That’s amazingly similar to tax free benefits.

          Too bad it’s pretty much impossible to buy good disability for most docs pre-tax.

  7. Thank you for the helpful information on your website!

    What about purchase of surgical instruments when outfitting your office (forceps,
    needle holders, scalpels) – most are usually slightly less than $100 each -
    are these considered expenses or durable equipment that must be depreciated?
    Is there a chart for how many years one must depreciate over?

    How about medications used in procedures, so that are not charged separately
    to the patient, such as local anesthetic? Can this be considered an expense?

    • Of course those medications are an expense. However, the instruments are a little more complicated. Here’s a good explanation:

      http://www.accountingweb.com/topic/tax/owners-decide-expense-vs-asset-treatment-purchases

      A business owner is expected to make decisions about the expense vs. asset treatment of purchases, based on several general guidelines:

      Longevity. If the item is expected to last for several years, both in the sense of its durability and of its usefulness, the tendency is to depreciate the item rather than expense it.

      Materiality. If the cost of the item is minimal, when compared to income and the other expenses of the business, the tendency is to expense the item rather than depreciate it.

      Consistency. When deciding to expense or depreciate an item, consider how similar items have been treated by your business in the past.
      Conservatism. When in doubt, be conservative and depreciate the item rather than expense it.

      When considering the above guidelines, bear in mind not just your own experiences with your business, but traditions of your industry in general. Find out how other businesses like yours treat the kinds of purchases you are making. If you are unfamiliar with other businesses like yours, or are reluctant to consult with competitors about accounting issues, consider purchasing some time from an accountant, a professional who deals with many such businesses and who can provide insight into industry practices.

  8. Thank you for that explanation. It is helpful to me to understand the reasoning! The advice to seek out the services of an accountant is good also; I admit that I didn’t even know who would have that information :-). I looked into the IRS prescriptive documents which seem so filled with minutiae and yet cover so few cases.

    If anyone reading this cares to comment on how they expense or depreciate/asset instruments, I’d be curious to see if it’s actually consistently done.

    Thank you, White Coat Investor, for your time and kind help.

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