Norvell & Associates public accountants USA Singapore Alabama, 7 overlooked strategies to lower your tax burden
Physicians who are further along in their careers can probably remember the “tax shelters” of the 1980s, which were investment structures designed to create current tax deductions and defer taxable gains well into the future.
While many of these specific tax-leveraging vehicles are a thing of the past, there are still many opportunities to reduce taxable income. A list of “tax tips” could go on for pages, and many tips show up in articles regularly. Here are seven tips physicians can use to improve their tax situation:
1. High-Deductible insurance
Of course, it is important to maximize contributions to your health savings account (HSA).
For 2014, if you have high-deductible family coverage, you can contribute up to $6,550, and if you are over age 55, an additional $1,000. Often overlooked, however, is the opportunity for your spouse to contribute $1,000 to his or her own HSA if he or she is age 55 or older and covered under your high-deductible health insurance plan.
2. Donate securities
Instead of cash, consider making contributions of securities with a low basis that you have held for more than one year. You receive a deduction for the full market value of the securities donated at the time of the contribution, while avoiding capital gains.
Making an “in-kind” donation directly to charity can be somewhat cumbersome to coordinate, and is especially time-consuming if you make multiple in-kind donations. Instead, work with your investment advisor to establish a donor-advised fund into which you can contribute the appreciated securities, liquidate them tax-free, and then make cash donations from the fund.
Contributing to a donor-advised fund provides a current year deduction even if the funds are not sent to the intended charity until a subsequent year. This provides flexibility to apply the deduction in a year when it is most beneficial.
3. Income from outside sources
If you have income that you do not receive through your employer—for example, medical director fees or research stipends—and you report the outside income on your personal tax return (or through an entity you own), you can establish a retirement plan for the separate activity.
If you are covered under another retirement plan, you only need to make sure that the two activities/businesses are not considered “controlled or affiliated service groups” (both defined under the Employee Retirement Income Security Act).
A retirement plan for a sole proprietorship can allow for significant funding, deductible against your income, without significant administrative costs. Read more