How would you answer your accountant if they asked you to maximize taxes? Most individuals dread these conversations because they don’t want to discuss finances. And, even worse, no one wants to admit to being bad at managing their financial situation.
Physicians face increasing pressure from hospitals, payers, patients, and regulators to improve patient care and cost efficiency in today’s competitive healthcare environment. This means physicians must also demonstrate productivity toward achieving their organization’s goals and targets – such as quality improvement, compliance mandates, or value-based purchasing initiatives – while simultaneously balancing the demands of their personal lives.
Physicians often struggle to achieve a balance between their professional and personal responsibilities. They spend much time working long hours dealing with complex paperwork, attending meetings, providing excellent patient service, and participating in community events.
How does tax planning for physicians work? What should physicians consider before sitting down with their accountants? These questions are addressed in our practical guide.
Here is what you will learn:
* The importance of identifying and meeting your goals for retirement
* Tax strategies that can help them accumulate wealth
* Strategies to minimize income taxes by maximizing deductions
* Legal issues every physician needs to know about
The most important thing a physician should do when talking to their accountant is to be honest about their situation. You cannot get good advice if you don’t tell us how you earn money, your spending habits, and your current assets. If you try to gloss over any aspect of your financial situation, we won’t have enough information to give sound recommendations.
Tax Planning For Physicians- Advantages and Why It’s Important to Save Now
If you are considering retiring early, please read this section carefully because it discusses several advantages for physicians who retire early and why saving now is critical.
Retirement Savings Plans
When an individual reaches age 59 ½, s/he can withdraw up to $3,000 per year without paying additional federal income taxes on the amount withdrawn. As discussed earlier, many people save more than required under this rule (i.e., they take advantage of all available tax-advantaged accounts). However, it pays to be aware of limits to avoid running afoul of IRS rules.
Plan Withdrawal Amount Limitations After Age 59½ 401(k)
Individual Retirement Account $6,000
$9,000 Traditional IRA
$5,500 Roth IRA
$2,000 Employee Stock Ownership Plan
$8,000 SEP-IRA $4,000
Simplified Employee Pension Plan (SEPP) $7,500
Health Reimbursement Arrangement $15,000
Government 457(b) plan $22,000
Health Flexible Spending Accounts $1,100
Ameritax Individual Retirement Accounts (Ameritax IRAs)
$3,750
Ameritax Simple IRA $4,250
Ameritax Simple Rollover IRA $4,250
Nonqualified Deferred Compensation Plan $10,000
Note: The above data reflects the pre-tax portion of withdrawals. Once income taxes are paid, the total amounts may vary.
There are other ways to contribute to a retirement savings plan. A common practice is employer-matching contributions. Another option is establishing a self-directed rollover IRA. To see if there are any tax benefits to doing either, consult your CPA.
Another popular option for retirement savings is a “catch-up” plan where an individual has until age 70 1/2 to contribute the maximum allowed. Once again, there is a limit to the total amount eligible for catch-up contributions ($5,500 in 2016), but individuals may make additional contributions to their qualified plans each year.
Other Retirement Benefits
Numerous other benefits are available to individuals through their employers and the government, encouraging early retirement. Some of these include
* Health insurance coverage for retirees and dependents at no cost
* Pension payments and Social Security benefits
* Retirement health benefits
The team of Pearl Lemon Accountants will help physicians with tax planning, bookkeeping, and other services. Get in touch to avail the services.
Featured Image by Firmbee from Pixabay
