NEW TAX SAVINGS FOR PHYSICIANS
WORKING AS INDEPENDENT
Taxes owed are driven by TAXABLE INCOME. Historically, as an independent contractor you have been able to reduce your taxable income by deducting health insurance premiums, HSA contributions, 50% of social security & medicare tax, retirement contributions (up to $55,000 in 2018 or $61,000 for individuals age 50+) and deductible business expenses. With the new tax code, you have a larger minimum itemized deduction AND you can potentially further save with a 20% pass-through deduction more formally referred to as the Qualified Business Income (QBI) deduction.
The QBI Deduction Can Significantly Reduce Taxes Owed
For married individuals, the goal is to reduce your taxable income to $315,000 to get the full benefit of this new tax rule. At this point you can apply a 20% deduction… $315,000 x 20% = $63,000. If your taxable income is between $315,000 and $415,000, you can still save on taxes through the phase-out portion of the new pass through rule. For single taxpayers, the taxable income limits phase out from $157,500 to $207,500.
An Example of How the QBI Deduction Works
John Doe, MD, an emergency medicine physician, is married and has $435,000 of I.C. income.
Business Income $435,000
Deductible Business Expenses -$15,000
Net Business Income $420,000
50% of S.S. & Medicare Tax -$12,000
Health Insurance and HSA Contributions -$15,000
Individual 401(k) Contribution -$55,000
Standard Deduction -$24,000
Taxable Income $314,000
QBI Deduction* -$62,800
Net Taxable Income $251,200
At a 24% tax rate, Dr. Doe would be saving approximately $15,000 in taxes by utilizing the new QBI deduction. Now that’s worth paying attention to! For more details on how this deduction might work within your tax strategy, contact your tax professional or our experienced CPAs.
*The QBI deduction is equal to the lesser of:
- a) 20% of Net Business Income ($420,000 x 20% = $84,000)
- b) 20% of Taxable Income ($314,000 x 20% = $62,800)
Information provided by Financial Designs Tax Services, LLC. Financial Designs, Inc. is not affiliated with Mint Physician Staffing or Financial Designs Tax Services, LLC.
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