Tax Deductions for Medical Residents to Know in 2024

As a medical resident, figuring out tax deductions and how to best reduce your taxable income might feel tricky, especially given the detailed Tax Cuts and Jobs Act. But understanding your income sources—whether they’re salaries, stipends, or benefits—is vital for good tax strategy and to maximize your savings.

Residents are considered employees, eligible for standard deductions and itemized deductions like other professions. While unreimbursed employee expenses are largely non-deductible, exploring options like moonlighting as an independent contractor could open up deductible expenses related to your medical practice. With the average medical resident earning $64,200 in 2022, taking advantage of tax deductions substantially affects your tax situation and financial health.

 

Standard Deductions

As a medical resident, you have the option to either take the standard deduction or itemize your deductions. The standard deduction for the tax year 2023 (taxes filed in 2024) is:

• $13,850 for single filers or married individuals filing separately
• $27,700 for married couples filing jointly
• $20,800 for head of household filers

The standard deduction is a fixed amount that reduces your taxable income, providing a straightforward way to lower your tax liability. It eliminates the need to itemize and track various deductible expenses throughout the year.

However, if your itemized deductions (such as mortgage interest, charitable contributions, and certain unreimbursed medical expenses) exceed the standard deduction amount for your filing status, you may benefit more from itemizing. This decision depends on your individual circumstances and should be carefully evaluated when preparing your tax return.

Pros and Cons of Itemized Deductions

If you’re a medical resident, deciding to itemize deductions or just take the standard deduction really comes down to what makes the most sense for your personal finances.

Itemized deductions can offer significant tax savings if they exceed the standard deduction amount for your filing status. However, navigating itemized deductions requires meticulous record-keeping and a thorough understanding of eligible expenses.

Potential itemized deductions for residents include:

• Work Expenses: As an employee, unreimbursed work expenses exceeding 2% of your adjusted gross income (AGI) may be deductible. As an independent contractor (1099 income), you can deduct a broader range of business expenses on Schedule C, such as CME costs, medical licenses, scrubs, and job search expenses.
• Travel Expenses: Deductible travel expenses include costs incurred when traveling between multiple work sites during the day or to temporary work assignments outside your metropolitan area.
• Student Loan Interest: You can deduct up to $2,500 in student loan interest paid during the tax year.
• Retirement Contributions: Contributions to a 401(k), 403(b), or traditional IRA can reduce your taxable income.
• Medical Expenses: Unreimbursed medical expenses exceeding 7.5% of your AGI, such as copays, dental costs, and eye care expenses, may be deductible.

While itemizing can yield substantial tax savings, it also requires diligent record-keeping and adherence to IRS guidelines. Tax software or a knowledgeable tax professional can help determine the optimal approach based on your specific circumstances.

What Physicians Can Get Deductions From

As medical residents, you can take advantage of various deductions to reduce your taxable income. Here are some key deductions to consider:

• Business Expenses: Deductible expenses include CME costs, medical license and DEA license fees, work-related equipment and supplies, professional society dues, and job search expenses for an attending position.
• Travel Deductions: While commuting costs are non-deductible, you can deduct travel expenses between multiple work sites during the day, either at the actual expense or at the standard mileage rate (67 cents per mile in 2023). Travel to temporary work sites outside your metropolitan area for less than 365 days is also deductible.
• Educational Expenses: Generally, educational expenses are not deductible for residents as they are considered to meet the minimum requirements for your profession. However, exceptions apply if you are self-employed, an Armed Forces reservist, a qualified performing artist, a fee-based state/local government official, or have impairment-related education expenses.
• Student Loan Interest: You can deduct up to $2,500 in student loan interest paid each year, although this deduction phases out at higher income levels.
• Retirement Contributions: Contributing to a 401(k), 403(b), or traditional IRA provides a tax deduction, but a Roth IRA or Roth 401(k) may be a better option for some residents.
• Child Care Expenses: If you have children, you can claim a tax credit for 20%-35% of the first $3,000 (or $6,000 for two or more children) spent on eligible child care expenses.

It’s important to note that due to the Tax Cuts and Jobs Act of 2017, unreimbursed employee expenses are generally non-deductible. To deduct work-related expenses, the best option for residents is to moonlight and be paid as an independent contractor (1099 income).

Key Takeaways

Using every tax deduction you can might greatly help your finances. Checking your income closely, claiming the deductions you can, and maybe even looking into working for yourself could help you save on taxes and put more money in your pocket. It’s really important to keep track of everything, get tips from tax pros, and stay sharp on tax laws to make the best moves.

Even though it might seem hard, taking charge of your taxes can really pay off. By claiming deductions for job costs, travel, student loans, and retirement savings, you ensure you’re not paying too much in taxes. Effective tax planning is therefore invaluable for medical residents, providing critical financial support for both your personal life and professional development.