Tax Tips for Healthcare Professionals

According to the Bureau of Labor Stats last year, 12 of 20 of the fastest growing occupations were in the healthcare industry. If you are one of the many in, or are just thinking about joining, the health industry, then the tips in this blog can help you find some savings and keep more of your money at tax time.

Initial Education
To be a healthcare professional first requires a lot of schooling. The good news is that getting your education may qualify you for an American Opportunity Credit (AOC), which allows a credit of up to $2,500 per year per student during the first four years of a degree program. If you don't qualify for the AOC, you may qualify for the Lifetime Learning Credit, which allows a credit of 20% of tuition and fees paid to attend a college or trade school up to $2,000. If neither credit applies, then it is possible the course qualifies for the tuition and fees deduction. You can only use one of the credits or the tuition deduction, the IRS does not allow combining of the American Opportunity Credit, Lifetime Learning Credit, and tuition and fees deduction.

Speaking of deductions, in the past, my doctor friends say tracking their expenses carefully has never really paid off because of the 2% rule, which generally means you can only deduct the part of your expenses that exceed 2% of your adjusted gross income. Well, perhaps they didn't know that even if you don't itemize deductions you might be able to deduct up to $2,500 of your student loan interest paid each year. And, in certain cases, you may even qualify to discharge all or part of your student loan without having to include it as income. The loan must contain a provision for you to work in a given profession for a certain period for a broad class of employers. For example, a full-time nurse or a medical technician who agrees to work for a public hospital in a rural area may qualify.

Continuing Education
After you have earned your certification, you may be able to deduct work-related courses or seminars if they meet certain requirements. Continuing Medical Education (CME) tuition, lab fees, course materials, CPR certification and recertification, and certain travel costs associated with the courses can be deducted. Courses that are part of program that will qualify you for a new role or that help you meet the minimum education requirements for your program are not deductible. For example, a licensed practical nurse cannot deduct the cost of going to nursing school to become a registered nurse or to become a physician's assistant as work-related education business expense.

Work-related Expenses
Generally, you are able to deduct any work-related expenses that you aren't reimbursed for, which are considered ordinary and necessary. In your field, uniforms and shoes are common deductions and even the cost to clean them can be deducted as long as they aren't suitable for ordinary use. If you work in the medical profession, here are some other deductions that may apply to you:

  • Answering service and smart phone
  • Professional dues, union fees, and license renewals
  • Subscriptions to professional magazines or medical journals
  • Professional liability insurance premiums or malpractice insurance
  • Specialized equipment or tools like stethoscope, safety equipment, voice-recognition software, and handheld devices to record notes
  • Mileage between locations such as office to hospital or home to home

Eyes on a nice Rolex, think again, watches, even with a second hand, aren't considered a deductible expense; according to the IRS you would use a watch anyway. But, you can deduct required medical exams if you are itemizing deductions, you can save by counting the cost with your unreimbursed employee business expenses instead of with your medical expenses. The 2% rule is more advantageous to you than the 7.5% threshold for medical deductions. People in healthcare are already in the habit of documenting everything thoroughly, which is critical when it comes to tracking your deductions and credits; write it all down so you can make sure to take advantage of every credit and deduction available to you.

Few taxpayers ever really have a tax return so simple that "doing it themselves" makes sense, especially when considering risk, time and effort, or overlooked tax benefits. And I can safely say that those in the healthcare industry typically face more complex tax issues ranging from education expenses to professional expenses whether working from one location or as a traveling professional - as an employee or a self-employed person. However, when it comes time, if you decide you want to do your own taxes, at least find a good - no, make that a great software package and review the various IRS resources before you begin. For example, IRS Publication 970 - Tax Benefits for Education and Publication 529 - Miscellaneous Deduction have a lot, as in about 100 pages each, of guidance to get you started. All those pages, and about a dozen individual tax benefits regarding education alone combined with all the other intricacies of tax credits and allowable deductions and you can see why a best practice may be finding a tax pro.