Tax deductions every doctor should know about

By Jonathan Ford Hughes | Fact-checked by MDLinx staff
Published September 13, 2022

Key Takeaways

  • With high pay comes a high tax burden, but deductions can help you come tax season.

  • Retirement contributions and donations can help lower your taxable income.

  • Interest deductions for a home mortgage and student loans can also help.

Most physicians hand over a non-trivial amount in federal taxes and would prefer to pay less. Fortunately, saving money on taxes is within reach. 

This is an area where working with a qualified financial advisor and an accountant pays off. However, we’re confident that a motivated physician who does some basic research can handle this (time permitting).

Consider this your physician primer on tax deductions. These are the low-hanging fruit that you’ll want to grab if you’re looking to reduce federal taxable income.

Pre-tax retirement contributions

Pre-tax retirement contributions are one way to lower your taxable income. They have the added benefit of funding your golden years. A pre-tax retirement contribution is money that you put into a tax-advantaged investment account, such as a traditional IRA, 401(k), or 403(b). Tax-advantaged means you pay taxes on the money later, when you withdraw it.

For example, let’s say you made $100,000 last year and contributed $10,000 to a 401(K). Your taxable income for last year would be $90,000.

A so-called backdoor Roth IRA may also be a good option for some doctors, especially those who have maxed out their pre-tax retirement contributions. Most physicians expect their income to rise throughout their careers, making a backdoor Roth IRA worth consideration.

With a backdoor Roth IRA, a doctor will pay taxes on their income now (when it’s lower) rather than later (when it’s higher). Think of it as tax savings for your future self.

Charitable donations

A charitable donation is actually two gifts: One for the person or organization on the receiving end, and one for yourself. Most doctors think of the two most obvious charitable donations: stuff, including cars, clothes, or furniture; or cash. But well-invested doctors also have the option of donating securities, such as stocks, bonds, and mutual funds.

Securities donations earn doctors deductions for the gifts and avoid capital gains taxes in the sale.

Tax-loss harvesting

If you’re working with a financial planner, this is something they should be doing for you. If they aren’t, ask why (and maybe find another planner). Tax-loss harvesting is a strategy in which an investor sells an investment that has depreciated in value and replaces it with a similar one. The sale of the investment at a loss offsets any gains that the new investment might make.

Done right, tax-loss harvesting can lower taxes owed on capital gains or income. Unfortunately, tax-loss harvesting does not apply to tax-deferred retirement accounts, such as traditional IRAs, 401(k)s, and 403(b)s. If you want to take advantage of tax-loss harvesting, you’ll most likely want a brokerage account. 

Home mortgage interest

As higher earners, physicians tend to have more upscale homes and consequently, higher mortgage payments. While there’s something to be said for buying the home that fits your needs right now, a larger mortgage comes with the benefit of a tax deduction. Keep in mind, however, that the mortgage interest deduction applies only to mortgage interest on the first $1 million in mortgage debt.

If you work with a tax preparer, make sure that they are itemizing your mortgage interest on your return.

Student loan interest

Unfortunately, this is going to be a tough one for many physicians to cash in on — but for a good reason. Most physicians make too much money to take advantage of the student loan interest deduction. To qualify, your modified adjusted gross income (MAGI) must be less than $70,000 in the previous year. MAGI is your household’s adjusted gross income with any tax-exempt interest income and certain deductions added back.

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