November 02, 2011
There are many tax deductions for physicians who have their own clinic and even for those who work part time or full time in a hospital. Many such deductions are often overlooked and providers end up paying more than they should which can profoundly affect the revenue and the financial health of a clinic or a health care provider in the long run. Here are some of the most common tax deductions according to the IRS that can be enjoyed and are often overlooked by physicians, clinics and hospitals.
Travel and Entertainment
According to the IRS, taxpayers who travel away from home may deduct related expenses and “the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered “traveling away from home” if their duties require them to be away from home substantially longer than an ordinary day’s work and they need to sleep or rest to meet the demands of their work.” IRS also mentions that 50 percent of actual meal expenses can be deducted and actual costs of lodging are also tax exempt. However, the expenses must be reasonable and appropriate and deductions for extravagant expenses are not allowable. More information can be found on the IRS website under Publication 463.
The Right IRA
The right type of Individual Retirement Account (IRA) for physicians is one which ensures better tax treatment when physicians retire and are in a higher tax bracket. The ideal IRA for physicians is the Roth IRA which benefits people who are expected to be in a higher tax bracket when retiring. Moreover, Roth IRA can be beneficial if you expect to work longer and you do not have to take required distributions when you reach the age of 70 ½ years as is the case with traditional IRA. However, there are income limitations to a Roth IRA and most physicians may not qualify for a Roth IRA due to such limitations.
Physicians in Underserved Areas
Section 10908 of the new Patient Protection and Affordable Care Act, states that existing tax exclusion has been extended to incorporate health professionals in sixteen states who are enrolled in these categories of state loan forgiveness or loan repayment programs. Furthermore, the exclusion is being applied to the year 2009, which means that program participants in these states might be qualified for a tax refund. These medically underserved areas can be found on the U.S Department of Health and Human Services’ Health Resources and Service Administration (HRSA) website.
Repairs to the Clinic or Office
The IRS recognizes some expenses as tax deductible and repainting and such other expenses incurred on a rental property can be tax deductible. The principle for determining whether the repairs are tax deductible is to consider if these repairs add value to the property. If they add value then these are not tax deductible but repainting your property, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs and qualify for tax breaks. Any extensive remodeling or restoration of the property is not tax deductible. More information is available with IRS in the form of publication 527 and 946.
Home Office Deductions
If you use a portion of your home for business purposes, then you may be qualified for Home Office Deductions, according to the IRS. However, there are some criteria that need to be met in order to qualify for such deductions. These criteria are – a part of the home must be used exclusively and regularly as your principle place of business, or as a place to meet with patients, clients, or customers in the normal course of your business, or in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home. You can also enjoy tax deductions if the home is used for certain storage use, rental use, or day-care facility; you are required to use the property regularly but not exclusively.
According to the IRS –“the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.” And “If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.” You can use Form 8829, Expenses for Business Use of Your Home for finding out more about Home Office deductions. These deductions can be reported on line 30 of Form 1040 Schedule C, Profit or Loss from Business.
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