Anonymous Question: Filing taxes in 4th year of Med School?

[mshheaddoc]

I am a 4th year medical student, and I will be graduating this year. My question is whether it is important to file a federal tax return during your MS4 year. I understand there may be an advantage in terms of deferrment, but are there any other advantages or disadvantages?

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[Bobblehead]

I am a 4th year medical student, and I will be graduating this year. My question is whether it is important to file a federal tax return during your MS4 year. I understand there may be an advantage in terms of deferrment, but are there any other advantages or disadvantages?

Do you have income to report? Will any of your banks or investment accounts issue 1099 forms? Will anyone else issue you a 1099 or W-2? Certain states will not issue you a licence to practice medicine if you are delinquent on your taxes or have failed to file state tax forms. That could be an issue when you apply for a limited license via your residency program. You do not want to be "that intern" who needs coverage pulled the first month because your papers aren't in order.

 

[AndyFromMDTAXES]

Hi,

We get this question a lot. The IRS has a pretty easy tool for you, which is available at: http://www.irs.gov/individuals/students/index.html. On that page, click on the first link for: Do You Need to File a Federal Income Tax Return?

Generally, the IRS doesn't want you to file a tax return if you have no income to report. And there is no reason to file a tax return, unless you have losses to report that you want to carry over to next year, or meet one of the other criteria which will be reflected on their tool. However, if filing a tax return will help minimize your student loan burden, that's a great reason to file one.

I hope this helps you out.

 

[mookie1]

If we do have an income to report, do you know whether our travel expenses for residency interviews, applications, and step 2 are tax-deductible?

 

[AndyFromMDTAXES]

Each year you file a tax return, you need to decide between itemizing your deductions, or claiming the standard deduction. For 2007, the standard deduction if $5,350 for single individuals and $10,700 for married couples.

You generally only itemize if your total itemized deductions exceed the allowable standard deduction. Itemized deductions include state income taxes, real estate taxes, mortgage interest, charities, and certain other items known in the aggregate as miscellaneous itemized deductions.

Your unreimbursed job costs are included as part of your miscellaneous itemized deductions, which are only deductible to the extent they exceed 2% of your income.

You asked about whether you can claim certain expenses this year. Unfortunately, job seach expenses to find your first job in a new profession aren't deductible.

What about the cost to take your exams? Any time you incur costs that qualify you for a new trade or business, they are not deductible. That's why med school isn't deductible. Costs that improve your skills in your current trade or business are deductible. I've had many clients tell me that they could work as a physician in certain settings even if they don't pass the board exams. I'm not sure if that's true, but assuming it is, then the cost of taking your board exams would not qualify you for a new trade or business, so would be tax deductible.

 

[edmadison]

What about the cost to take your exams? Any time you incur costs that qualify you for a new trade or business, they are not deductible. That's why med school isn't deductible. Costs that improve your skills in your current trade or business are deductible. I've had many clients tell me that they could work as a physician in certain settings even if they don't pass the board exams. I'm not sure if that's true, but assuming it is, then the cost of taking your board exams would not qualify you for a new trade or business, so would be tax deductible.

Per IRS publication 17:

You cannot deduct professional accreditation fees such as the following.

*Accounting certificate fees paid for the initial right to practice accounting.
*Bar exam fees and incidental expenses in securing initial admission to the bar.
*Medical and dental license fees paid to get initial licensing.

You can, however, deduct specialty board examinations because you don't need to be board certified to practice.

Ed

 

[michaelrack]

Per IRS publication 17:

bar.
*Medical and dental license fees paid to get initial licensing.

Ed

If you are licensed in state a and you decide to get a license in neighboring state b, is the initial license fee for state b dedcutible?

 

[AndyFromMDTAXES]

Once you have your initial license in one state, the costs associated with maintaining all your license renewals in that state, as well as the cost of obtaining any licenses in other states, are fully deductible.

 

[mrustici]

If you claim the standard deduction and it is more than you paid in taxes are you able to pull the deduction forward to next year. (ie; if you are a 4th year that made $0 can you use a standard deduction to help out in taxes paid on intern year?)

 

[AndyFromMDTAXES]

In certain situations, if your deductions exceed your income, you have what's called a Net Operating Loss (NOL), and can carry that loss forward to future years to reduce your taxable income. You can also carry that loss back two years to get back taxes you paid two years ago or last year.

Unfortunately, if your standard deduction exceeds your income, that does not create an NOL. If your allowable professional expenses exceeds your income one year, that does create an NOL.