itimized deductions for residents/planning for 2008 tax return

In general, what items can u deduct as a resident when doing your taxes?

I'm thinking:
-step 3 fees
-license/dea fees (not sure)

what form would i fill out for such deductions (not even sure if it's tax deductible?

bulldog said:

In general, what items can u deduct as a resident when doing your taxes?

I'm thinking:
-step 3 fees
-license/dea fees (not sure)

what form would i fill out for such deductions (not even sure if it's tax deductible?

Click to expand...

Now is about the time that it's worth paying someone to do your taxes in order to have someone who knows what they're talking about answer this question. According to my tax guy, these are professional fees and are deductible. As to which form they go on...that's why I pay him to do it. When I get my tax return back I'll look and let you know...or I'll just cash my refund check and forget about this conversation altogether. More likely the latter.

bulldog said:

In general, what items can u deduct as a resident when doing your taxes?

I'm thinking:
-step 3 fees
-license/dea fees (not sure)

what form would i fill out for such deductions (not even sure if it's tax deductible?

Click to expand...

I'm sorry to say that fees related to obtaining you first license are not deductible. So you licensing exam fees and initial license fee would be a no go. You should, however, be able to deduct the DEA fee.

Ed

I agree with the advice that it is sometimes best to seek professional help and that you can deduct professional expenses such as licensing fees.

However, you may wish to investigate whether or not your deductions will exceed that of the standard deduction. There is little reason to itemize $1000 of deductions when they are less than the standard the government allows.

I've had people tell me that they deduct professional books and the cost of going to their program's annual retreat, so I assume that's legit. Or maybe they're just playing the odds that the IRS won't audit them.

colbgw02 said:

I've had people tell me that they deduct professional books and the cost of going to their program's annual retreat, so I assume that's legit. Or maybe they're just playing the odds that the IRS won't audit them.

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First, just following up, you absolutely cannot deduct your initial licensing fees. I've posted the IRS publication about 10 times in the last two years, I just don't have it in front of me at this time.

A resident can deduct the cost of books, journals and professional associations because these are professional expenses. Medical students cannot use this deduction; they would have to use the appropriate educational expense deduction/credit which also has severe limititation. Going to the retreat gets a little more tricky. There are restrictions on meals and entertainment expenses deductions. In theory this is at least partially deductible. If you keep a breakdown of the expenses you'd easily be able to feed it into turbotax.

Regarding the last comment, the odds are very low that anyone making a residents salary is going to be audited. That's a statement of fact without any moral or ethical judgment.

Ed

edmadison said:

First, just following up, you absolutely cannot deduct your initial licensing fees. I've posted the IRS publication about 10 times in the last two years, I just don't have it in front of me at this time.

A resident can deduct the cost of books, journals and professional associations because these are professional expenses. Medical students cannot use this deduction; they would have to use the appropriate educational expense deduction/credit which also has severe limititation. Going to the retreat gets a little more tricky. There are restrictions on meals and entertainment expenses deductions. In theory this is at least partially deductible. If you keep a breakdown of the expenses you'd easily be able to feed it into turbotax.

Regarding the last comment, the odds are very low that anyone making a residents salary is going to be audited. That's a statement of fact without any moral or ethical judgment.

Ed

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Thanks for the great tax advice... What about travel expenses for residency interviews?

gbwillner said:

Thanks for the great tax advice... What about travel expenses for residency interviews?

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It's my pleasure to answer the questions. Expenses incurred in seeking your first job in a new profession are not deductible. For subsequent jobs, however, you can deduct those expenses. Thus, when you're looking for your first attending position (or for fellowship) you will be able to deduct those.

Ed

Damn, books were deductible? There went $300 in deductions. Already e-filed as well. 🙁

Finally M3 said:

Damn, books were deductible? There went $300 in deductions. Already e-filed as well. 🙁

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Well, they are but 1) You have to itemize to qualify and 2) you'd have to exceed the 2% floor to get anything back.

Ed

edmadison said:

Well, they are but 1) You have to itemize to qualify and 2) you'd have to exceed the 2% floor to get anything back.

Ed

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Important point as I think it a common misconception that a deduction automatically = refund.

edmadison said:

First, just following up, you absolutely cannot deduct your initial licensing fees. I've posted the IRS publication about 10 times in the last two years, I just don't have it in front of me at this time.

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Can you clarify a point for me? Do fees and expenses toward board certification fall under the "initial licensing fees" blanket?

Specifically, my specialty's board certification requires a series of payments over the course of residency that ends up totaling about $5000. At present, I've paid the initial $800 of this cost, even though I'm several years away from board certification. Can either this particular cost or the entire collective cost be deducted? It's a big deal to me because it goes a long way toward the 2% floor.

Also, what if these costs will eventually, but have not yet, be reimbursed. Again, specifically, I paid $800 out-of-pocket in 2007, but I will not be reimbursed for that until late in 2008.

Lastly, what about costs to travel to oral boards for certification?

Thanks so much for your help. I admit that I'm pretty clueless about all this tax stuff. No wonder there's a whole industry dedicated to this stuff.

colbgw02 said:

Can you clarify a point for me? Do fees and expenses toward board certification fall under the "initial licensing fees" blanket?

Specifically, my specialty's board certification requires a series of payments over the course of residency that ends up totaling about $5000. At present, I've paid the initial $800 of this cost, even though I'm several years away from board certification. Can either this particular cost or the entire collective cost be deducted? It's a big deal to me because it goes a long way toward the 2% floor.

Also, what if these costs will eventually, but have not yet, be reimbursed. Again, specifically, I paid $800 out-of-pocket in 2007, but I will not be reimbursed for that until late in 2008.

Lastly, what about costs to travel to oral boards for certification?

Thanks so much for your help. I admit that I'm pretty clueless about all this tax stuff. No wonder there's a whole industry dedicated to this stuff.

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first, make sure to talk to a licensed cpa. having a cpa makes these sorts of things much easier!

in any event, your "initial" license is steps 1-3. board certification would not be an initial license, as board certification occurs after licensing.

as far as claiming the $800, you certainly could. the reimbursement in the following year may be counted as "income", depending on how you're reimbursed (with or without taxes withheld). depending on whether you are in internship/residency, the $800 may or may not be a big deal.

as far as traveling for oral boards, it could count towards "travel expenditures related to a job" or "non-reimbursed job expenses".

while i'm posting, though it hasn't been mentioned, moonlighting can, in some ways, make filing taxes more complicated... but it can also make filing taxes easier in terms of deductions. as residents, typically we receive w2's and fill out a 1040. some moonlighting positions don't give out w2's, and thus you'd be responsible for the taxes. as such, you fill out a schedule c tax form, which can open up deductions that typically aren't available on a 1040.

Good link here.

Make sure, too, when you are an incoming first year resident/intern, to pay your tuition the same year you start. I got screwed out of the $2,000 Lifetime Learning Credit because our school automatically deducted the tuition for Spring on 12/31/07, so I couldn't count it. MSIV's take note!!!!

Agree with the comments above.
I have recently finished medicine residency so I've been through all this.
You can't deduct USMLE Step 1, 2 and 3 fees or the initial fee to get your medical license. I don't know about the fee you pay to get a DEA number, which is separate...I never thought about it.

The IRS won't let you deduct what you spend on trying to get a first job in a new occupation (like residency interview travel costs, etc.), BUT they will let you deduct what you pay for specialty exams (like the internal medicine board exam) and travel costs for looking for a new job in your same field (like looking for attending medicine jobs or traveling to do medicine fellowship interviews). It is all very crazy...doesn't make much sense, but hey, it's the government.

edmadison said:

First, just following up, you absolutely cannot deduct your initial licensing fees. I've posted the IRS publication about 10 times in the last two years, I just don't have it in front of me at this time.

A resident can deduct the cost of books, journals and professional associations because these are professional expenses. Medical students cannot use this deduction; they would have to use the appropriate educational expense deduction/credit which also has severe limititation. Going to the retreat gets a little more tricky. There are restrictions on meals and entertainment expenses deductions. In theory this is at least partially deductible. If you keep a breakdown of the expenses you'd easily be able to feed it into turbotax.

Regarding the last comment, the odds are very low that anyone making a residents salary is going to be audited. That's a statement of fact without any moral or ethical judgment.

Ed

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Ed, Thanks for all the great advice. One more question on being able to deduct the cost of a medical license. I have had a temporary license in Tx and a temporary license in Illinois and have now completed residency. I have to get a (not temporary) California license for fellowship (I get to pay a bit of a lower fee because I showed proof I'm still in training). Would this be considered my 3rd license (tax deductible) or 1st real license because for the first time I'm not getting a temporary license?

Board Exams are deductible as an employee (resident/fellow/employee). You take them as an itemized deduction on your Schedule A of your 1040. The catch is that the expense must exceed 2% of your income to start being deductible. So if you're making $200,000, then 2% of that is $4,000. If your board exams cost $4001, then you can only deduct the expense in excess of 2%, or $1 in this scenario. Therefore, this really doesn't help an MD with a real doctor's salary. So this discussion really is in regards to residents and fellows who are making $50,000/year with a 2% floor of $1000 and are paying large sums for their board exams.

It is true that you cannot take the deduction for first time licenses to allow you to practice in your field. But board exams have nothing to do with licensure. Your boards are for a certification, not licensure. After you graduate Med school, you are an MD. Typically after the first year of residency, you will receive licensure (and pay the fee). So boards, either way you look at it, pass the test of first-time licensure and are outside the scope of licensure to begin with.

The next argument people may make is that if your boards are classified as an employee education expense, they are non-deductible because they qualify you for a new trade or business. This is clearly false as stated by the IRS in Publication 970 in their examples:

"Example 2. You are a general practitioner of medicine. You take a 2-week course to review developments in several specialized fields of medicine. The course does not qualify you for a new profession. It is qualifying work-related education because it maintains or improves skills required in your present profession.

Example 3. While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. The program will lead to qualifying you to practice psychoanalysis. The psychoanalytic training does not qualify you for a new profession.
It is qualifying work-related education because it maintains or improves skills required in your present profession."

Therefore, take the examination costs as unreimbursed, work-related education expense on your itemized deductions.

Hope that helps!

Brian Kim, CPA, MAS
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BMKbusiness said:

Board Exams are deductible as an employee (resident/fellow/employee). You take them as an itemized deduction on your Schedule A of your 1040. The catch is that the expense must exceed 2% of your income to start being deductible. So if you're making $200,000, then 2% of that is $4,000. If your board exams cost $4001, then you can only deduct the expense in excess of 2%, or $1 in this scenario. Therefore, this really doesn't help an MD with a real doctor's salary. So this discussion really is in regards to residents and fellows who are making $50,000/year with a 2% floor of $1000 and are paying large sums for their board exams.

It is true that you cannot take the deduction for first time licenses to allow you to practice in your field. But board exams have nothing to do with licensure. Your boards are for a certification, not licensure. After you graduate Med school, you are an MD. Typically after the first year of residency, you will receive licensure (and pay the fee). So boards, either way you look at it, pass the test of first-time licensure and are outside the scope of licensure to begin with.

The next argument people may make is that if your boards are classified as an employee education expense, they are non-deductible because they qualify you for a new trade or business. This is clearly false as stated by the IRS in Publication 970 in their examples:

"Example 2. You are a general practitioner of medicine. You take a 2-week course to review developments in several specialized fields of medicine. The course does not qualify you for a new profession. It is qualifying work-related education because it maintains or improves skills required in your present profession.

Example 3. While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. The program will lead to qualifying you to practice psychoanalysis. The psychoanalytic training does not qualify you for a new profession.
It is qualifying work-related education because it maintains or improves skills required in your present profession."

Therefore, take the examination costs as unreimbursed, work-related education expense on your itemized deductions.

Hope that helps!

Brian Kim, CPA, MAS
http://www.BMKbusinessSolutions.com

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I've heard differently, but only for 1099 moonlighters. If your license costs during residency allow you to moonlight, you should be able to deduct them on schedule C. Without the license, you would be unable to obtain the 1099 income and thus 100% deductible.

I know this might not be the right thread, but I see a lot of good advice in here so I'm going to give it a try.

I'm a married 4th year medical student. I matched into a residency position this year; so for the fiscal year 2013 I expect to have a half a years income, but also 1/2 a years worth of tuition paid (via student loans). I've been perusing the 1040 looking for ways to reduce my AGI for IBR next year. Can I use form 8917 to deduct tuition/fees for the beginning of 2013 when I'm filing for taxes next year? Also, for future reference, do programs such as Pay as You Earn/IBR count towards the student loan interest paid deduction?

TexasPhysician said:

I've heard differently, but only for 1099 moonlighters. If your license costs during residency allow you to moonlight, you should be able to deduct them on schedule C. Without the license, you would be unable to obtain the 1099 income and thus 100% deductible.

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If you're going to be moonlighting, you are technically considered to be conducting your own sole proprietorship, or your own business (1099 independent contractor), and yes, you can deduct your associated expenses to offset your income.

But we're talking about your regular job, not moonlighting. You are still able to deduct them if you can exceed the 2% AGI threshold. You are able to deduct them as job related expenses in your Schedule A of your itemized deductions (once again, if you exceed the 2% floor, will explain below).

I wouldn't really rely on what you "heard" over the the instructions of Schedule A and publication 970 as I've stated and quoted directly from the IRS guidelines in my previous post.

But to explain the 2% AGI floor... this is just a oversimplified answer, but you'll get the picture. Let's say you have a $200,000 salary. For job related expenses, you'll have to exceed the 2% AGI floor for it to start to become deductible. So in this scenario, any job related expenses over $4,000 ($200k x 2%) that are not reimbursed by your employer, will start to become deductible. So if your exams or expenses amount to $4,500 for the year, you will be able to deduct $500. Remember this is only for unreimbursed expenses. But for certain physicians, you'll run into AMT, others won't. Just depends on your situation.

Hope that helps!

Brian Kim, CPA, MAS
http://www.BMKbusinessSolutions.com

xrevision,

If you paid tuition & fees in 2013, you will be able to take either a credit or a deduction, depending on your income and your wife's. If your goal is to reduce your AGI, then you would use Form 8917. As a single filer, if you make over $80k, you are disqualified, and it's $160k for married filing jointly. So the $160k will apply to your circumstances.

To answer your IBR question, it's a maybe. Yes you can deduct the student loan interest that you paid, but you'll be disqualified if you make over $75,000 (single) or $155,000 (married). So once again, it would depend. As a CPA, I've personally completed returns for physicians making over $500,000 and under $100,000 (I would recommend not going into academia, just my 2 cents).

Brian Kim, CPA, MAS