I'm a 4th year student and am hearing talk about tax write offs for residency interview expenses, since it's considered to be searching for a job. I spent around $5k on interviews and am looking to write that expense off... The only problem I see is that I don't have an income. Would the state reimburse the expenses or is this talk that I heard all hog wash? Anyone have comments?
4th year tax write offs
- Thread starter dbleoh7
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Sorry, the state does not reimburse you for reaidency interview expenses. Wouldn't that be a fun world!
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Nope you can't do that. Go to the IRS website...read their explanations of the tax code.
Regardless you should have some deductions and get most of your money back.
Also there is an active thread talking about this btw. http://forums.studentdoctor.net/threads/residency-application-expenses-taxes.1122136/#post-16249783
Regardless you should have some deductions and get most of your money back.
Also there is an active thread talking about this btw. http://forums.studentdoctor.net/threads/residency-application-expenses-taxes.1122136/#post-16249783
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My understanding is that job search expenses are only deductible if you're already working, not if you're a student looking for your first job. This is definitely something to run by a pro as I'm far from being a tax expert.
My sense from reading your post is that you don't really understand what a write-off is, and are probably confusing a deduction with a tax credit (and we'll save the refundable vs non-refundable credit thing for another time). Even if your expenses are deductible, you would only see some tax advantages if you actually had an income. Now, any expenses you incurred from Jan 1st onward could (assuming they are actually legally deductible for you) claimed on your taxes next year, and you will presumably have income from July 1st to Dec 31st.
What a deduction actually does is simply lower your taxable income. Lets say you may 25k from July to Dec this year; if you can deduct 5k, you will only pay taxes on 20k of income. A deduction does not mean that you get a 5k tax refund -- that's what a tax credit is. What a deduction boils down to in simplest terms is a discount equivalent to whatever your tax rate is, in your case this year probably 15-20% or so.
This gets a little more complicated though with earned income like you'll have. You have the option of taking EITHER the standard deduction ($6200 if you're single) OR your itemized deductions. You can't do both. The standard deduction is for people who don't itemize and is a ballpark estimate the IRS allows for all the miscellaneous deductible expenses the average person will have during the year. So, in your case, you will (wisely) take the standard deduction anyhow since it will probably be higher than your residency search expenses in 2015. The only possible exception would be if you are itemizing already and have other deductions that, when added in, would be higher than the standard deduction.
My sense from reading your post is that you don't really understand what a write-off is, and are probably confusing a deduction with a tax credit (and we'll save the refundable vs non-refundable credit thing for another time). Even if your expenses are deductible, you would only see some tax advantages if you actually had an income. Now, any expenses you incurred from Jan 1st onward could (assuming they are actually legally deductible for you) claimed on your taxes next year, and you will presumably have income from July 1st to Dec 31st.
What a deduction actually does is simply lower your taxable income. Lets say you may 25k from July to Dec this year; if you can deduct 5k, you will only pay taxes on 20k of income. A deduction does not mean that you get a 5k tax refund -- that's what a tax credit is. What a deduction boils down to in simplest terms is a discount equivalent to whatever your tax rate is, in your case this year probably 15-20% or so.
This gets a little more complicated though with earned income like you'll have. You have the option of taking EITHER the standard deduction ($6200 if you're single) OR your itemized deductions. You can't do both. The standard deduction is for people who don't itemize and is a ballpark estimate the IRS allows for all the miscellaneous deductible expenses the average person will have during the year. So, in your case, you will (wisely) take the standard deduction anyhow since it will probably be higher than your residency search expenses in 2015. The only possible exception would be if you are itemizing already and have other deductions that, when added in, would be higher than the standard deduction.
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To clarify, it's for expenses related to a job search in a pre-existing field. So, if you're already an engineer looking for another engineering job, then those expenses are deductible. If you're an engineer that now wants to be a chef, those expenses are not deductible. The general consensus among tax professionals seems to be that medical students are not yet employed in the profession of medicine. Therefore, residency application expenses are not deductible.
The above explanations are exactly correct. To put it another way, a tax deduction is in effect a discount on expenses equal to the taxes you paid on that amount of income. The government will give you back the tax you had to pay on that money. So, if your marginal tax rate ( look up the definition of marginal tax rate vs effective tax rate and understand the difference; it's important to know this ) is 39%, deductable expenses will give you a refund of 39% of what you spent. But it's a discount on money you spent. For example, money donated to a qualified charity is tax deductable. So if you donate $1,000 to charity, the government will refund the $390 you spent on that donation, so the $1000 donation only cost you $610. But keep in mind that you are still down $610. A tax deduction never puts you ahead, it just mitigates the expense by your marginal rate.
If you are in the 15% marginal bracket, then your refund is $150, so you are out $850.
Here's another way to look at tax deductions: It's like buying something in a store, and the sign says, "Regular price $5,000, on sale for $4,000. Buy now and save $1,000!". Realize that if you buy it, you are not saving $1,000, you are spending $4,000. Otherwise, you would buy 100 of them and end up ahead by $100,000. These is obvious, of course, but many, if not most, people don't understand this. So you will hear people say that they want a big mortgage, and don't want to pay it off, because they get a big tax deduction. They are very wrong. A tax deduction on a mortgage means that the interest that they are paying will be reduced by their marginal tax rate. So, if they are in the 33% bracket, then a 6% mortgage will be effectively a 4% mortgage, but they are still out 4%. If you have a 1 million dollar mortgage, that 4% means you are getting a $20,000 tax deduction, in the form of a refund check, but what you are really doing is spending $60,000 and getting $20,000 back. You are still out $40,000 for the year. ( Yes, I realize that some people might want to keep the mortgage and invest the money they would have used to pay it off. Of course, those people are essentially using their house as a margin account to play the stock market. The wisdom of this strategy is debatable. Regardless, that's a discussion for another day.)
However, the above is still not quite accurate, because of the Alternate Minimum Tax as well as certain limits on itemized deductions ( The deductions equal to the first 7% of your income don't count ) mean that for most people, the standard deduction that everyone can get will give you the lowest tax bill, so you never get to use the deductions, as noted by @operaman above. Also, in this case the job search isn't deductable anyway, as @colbgw02 pointed out.
If you are in the 15% marginal bracket, then your refund is $150, so you are out $850.
Here's another way to look at tax deductions: It's like buying something in a store, and the sign says, "Regular price $5,000, on sale for $4,000. Buy now and save $1,000!". Realize that if you buy it, you are not saving $1,000, you are spending $4,000. Otherwise, you would buy 100 of them and end up ahead by $100,000. These is obvious, of course, but many, if not most, people don't understand this. So you will hear people say that they want a big mortgage, and don't want to pay it off, because they get a big tax deduction. They are very wrong. A tax deduction on a mortgage means that the interest that they are paying will be reduced by their marginal tax rate. So, if they are in the 33% bracket, then a 6% mortgage will be effectively a 4% mortgage, but they are still out 4%. If you have a 1 million dollar mortgage, that 4% means you are getting a $20,000 tax deduction, in the form of a refund check, but what you are really doing is spending $60,000 and getting $20,000 back. You are still out $40,000 for the year. ( Yes, I realize that some people might want to keep the mortgage and invest the money they would have used to pay it off. Of course, those people are essentially using their house as a margin account to play the stock market. The wisdom of this strategy is debatable. Regardless, that's a discussion for another day.)
However, the above is still not quite accurate, because of the Alternate Minimum Tax as well as certain limits on itemized deductions ( The deductions equal to the first 7% of your income don't count ) mean that for most people, the standard deduction that everyone can get will give you the lowest tax bill, so you never get to use the deductions, as noted by @operaman above. Also, in this case the job search isn't deductable anyway, as @colbgw02 pointed out.
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in sum: you have no income, so you have no deductions against taxes paid (because you didn't have income on which taxes were paid).
everything else follows from this.
everything else follows from this.
