facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Tax Planning for Medical Professionals: Minimizing Your Liability  Thumbnail

Tax Planning for Medical Professionals: Minimizing Your Liability

Greetings, medical professionals! Today, let's address a topic that's crucial to your financial journey – tax planning. 

Why is Tax Planning Essential?

Given that medical professionals often fall into a higher income tax bracket, effective tax planning is critical to safeguard your earnings and accelerate wealth growth. When structured effectively, it can substantially increase your retained earnings.

Strategies for Tax Planning

Leverage Retirement Accounts

Maximizing contributions to your 401(k), 403(b), or other employer-sponsored retirement plans can substantially reduce your taxable income. Traditional IRAs also often provide tax-deductible contributions.

Health Savings Accounts (HSA)

HSAs offer triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

Itemizing Deductions

The 2018 Tax Reform bill doubled the standard deduction, which reduced the number of people itemizing their deductions. Particularly if you have a large mortgage, itemizing can still add up and it makes sense to track these expenses. If you are charitably inclined, there are a few strategies available to you to increase your itemized deductions in the years you could use higher deductions. 

Medical and Dental Expenses: You can deduct the portion of your medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI).

Taxes You Paid: This includes state and local income taxes or sales taxes (but not both), real estate taxes, and personal property taxes.

Interest You Paid: This could include mortgage interest you paid on a loan for your main home or a second home.

Gifts to Charity: Both cash and non-cash charitable contributions may be deductible.

Casualty and Theft Losses: Losses from theft or damage to your home, household items, or vehicles due to a federally declared disaster could be deductible.

Other Itemized Deductions: These include certain job expenses and select types of interest and taxes. For example, unreimbursed employee expenses such as union dues, or the hobby expenses, to the extent of hobby income.

Student Loan Interest

If you're still paying off student loans, you may be able to deduct up to $2,500 of the student loan interest you paid during the year, depending on your income.

Tax-Loss Harvesting

Consider tax-loss harvesting in your taxable investment accounts. This strategy involves selling investments that have lost value to offset the capital gains from other investments.

Backdoor Roth IRA and Mega Backdoor Roth

Since direct contributions to a Roth IRA are income-restricted, high earners may use a strategy known as a "Backdoor Roth IRA." This involves making a nondeductible contribution to a traditional IRA and then converting that to a Roth IRA. Note: This strategy is complex and has potential tax implications, so it's recommended to consult with a tax advisor before proceeding.

Some 401(k) plans allow after-tax contributions over the standard limit. These after-tax contributions can then be rolled over to a Roth IRA, where earnings grow tax-free. Since the contributions are generally far larger than what is available through IRAs, this is known as the "Mega Backdoor Roth."

Tax-Efficient Investing 

High earners can reduce their tax liability by choosing tax-efficient investments. Index funds, ETFs, and tax-managed funds are designed to minimize capital gains distributions, which can reduce your tax bill.

Deferred Compensation Plans

Some employers offer deferred compensation plans, which allow you to postpone receiving part of your income (and paying taxes on it) until later, often retirement.

Tax-Advantaged Education Accounts

 If you're saving for your child's education, consider 529 plans and Coverdell Education Savings Accounts. These accounts provide tax-free growth and tax-free withdrawals for qualified education expenses.

Opportunity Zone Investments

Investments in designated economically distressed communities, known as Opportunity Zones, can offer significant tax benefits, including deferred and potentially reduced capital gains taxes.

Navigating the Challenges

Balancing a bustling medical career with effective tax planning can be challenging. However, the right effort can result in significant savings. Partnering with a financial advisor can help align your tax strategy with your broader financial plan.

Remember, tax planning isn't a task just for tax season – it's a year-round effort.

If you enjoy this content, then check out our YouTube channel: The Storybook Adventure.

Storybook Financial is a financial planning firm determined to help those that believe in the betterment of the world around them. As a fiduciary, our service promotes unbiased financial planning with an emphasis on young medical professionals and their families. We are constantly pushing for new ways to give back to the Cystic Fibrosis community. We are based out of Iowa City | Coralville Iowa, but we serve clients nationwide with our robust virtual presence. This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.


1. IRS Guidelines: [https://www.irs.gov/](https://www.irs.gov/)

2. Health Savings Accounts: [https://www.irs.gov/publications/p969](https://www.irs.gov/publications/p969)

3. Student Loan Interest Deduction: [https://www.irs.gov/taxtopics/tc456](https://www.irs.gov/taxtopics/tc456)

4. Home Mortgage Interest Deduction: [https://www.irs.gov/publications/p936](https://www.irs.gov/publications/p936)

5. Charitable Contributions: [https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions](https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions)

6. Tax-Loss Harvesting: [https://www.investopedia.com/terms/t/taxgainlossharvesting.asp](https://www.investopedia.com/terms/t/taxgainlossharvesting.asp)

7. Backdoor Roth IRA: [https://www.investopedia.com/terms/b/backdoor-roth-ira.asp](https://www.investopedia.com/terms/b/backdoor-roth-ira.asp)

8. Mega Backdoor Roth: [https://www.investopedia.com/terms/m/mega-backdoor-roth-ira.asp](https://www.investopedia.com/terms/m/mega-backdoor-roth-ira.asp)

9. Qualified Small Business Stock: [https://www.investopedia.com/terms/q/qualifiedsmallbusinessstock.asp](https://www.investopedia.com/terms/q/qualifiedsmallbusinessstock.asp)

10. Deferred Compensation Plans: [https://www.investopedia.com/terms/d/deferredcompensation.asp](https://www.investopedia.com/terms/d/deferredcompensation.asp)

11. 529 Plans: [https://www.irs.gov/newsroom/529-plans-questions-and-answers](https://www.irs.gov/newsroom/529-plans-questions-and-answers)

12. Opportunity Zones: [https://www.irs.gov/credits-deductions/businesses/opportunity-zones-frequently-asked-questions](https://www.irs.gov/credits-deductions/businesses/opportunity-zones-frequently-asked-questions)