Tax Return: What can I claim?

[bulgethetwine]

I am going to resort to professional help this year, but I have to admit, it is not easy finding a tax attorney +/- accountant with experience filing taxes SPECIFICALLY for doctors (and even more specifically, 1st year residents).

Here is what I have heard from various sources is tax deductible, along with a few comments. Some of these are obvious, indisputable deductions. Others, well, I'm not so sure. Anyone got any input?

1. Housing: Mortgage interest. If you bought a house like I did, I know we can deduct the interest on the mortgage. I have also heard that if you paid an origination fee on your mortgage, it is tax deductible, too. Perhaps other closing costs are as well?

2. Tuition. That's right -- if you finished med school in May 2005, I heard that the pro-rated portion of your last year of medical school corresponding to Jan-April 2005 is a write-off.

3. Office space. If you own your own home and one room is a dedicated office space, I have heard from various sources (and I stress, none of them definitive!) that we can write this off in some way, shape or form. Comments anyone?

4. Licensing costs: Did you pay for your medical license? Is this a professional deduction? The same argument could, perhaps, be made for several other ancillary fees e.g. fees for ERAS, fees for the USMLE steps...

5. Other items that you can prove are used mostly for your professional life, e.g. that sporty new laptop you bought, or your digital camera that is used to collect images for your presentations. Anyway have any experience with this? Once again, I emphasize I am not sure this is possible...

6. I have heard that interest paid on student loans is deductible. Even if you have deferred your loans for, say, 6 months, your loans are still getting capitalized and some of that should be deductible.

7. Moving expenses. I wish. But I have heard that the only way this is legal is if you were already a doctor before you started residency, i.e. the moving expenses deduction only applies when you are going from one JOB to another, not from being a medical student to working.

8. Travel costs for interviews -- rental cars or mileage, gas costs, hotels and accomodation, air fares, meal costs... I have YET to hear a definitive opinion on this from any of my lawyer/accountant friends...


Like I said, a lot of these questions are, admittedly, best handled by a tax professional, but I've yet to find one. I'd be interested in hearing any input from anyone here as well as maybe an indication of your sources so I (we all) can guage if it is something that we can take to the bank (so to speak) or if it is merely hearsay. Also, if anyone can recommend a good tax specialist, let me know!

---

Members don't see this ad.

 

[southerndoc]

2. Tuition. That's right -- if you finished med school in May 2005, I heard that the pro-rated portion of your last year of medical school corresponding to Jan-April 2005 is a write-off.

Only if that tuition was paid or applied in 2005. If the tuition was paid and applied in December, then it doesn't count. If it was paid in December but applied in January, then it counts. You'll have to check with your financial aid office for when it is applied (i.e., some universities bill and apply tuition in December even for terms that begin in January).

3. Office space. If you own your own home and one room is a dedicated office space, I have heard from various sources (and I stress, none of them definitive!) that we can write this off in some way, shape or form. Comments anyone?

Dangerous territory, and often results in audits. You have to prove that you operate a business from your home. If you use a phone for business, you'll have to show that you are paying commercial rates. This can be very tricky, and unless the tax writeoff is substantial and you can justify it well, it is probably best left untouched.

4. Licensing costs: Did you pay for your medical license? Is this a professional deduction? The same argument could, perhaps, be made for several other ancillary fees e.g. fees for ERAS, fees for the USMLE steps...

USMLE steps, no except possibly when you are paid as a resident. Most programs will pay for Step 3 and your licensing fee, or at least give you partial reimbursement for it. I think you can deduct your licensure fee though.

[quote5. Other items that you can prove are used mostly for your professional life, e.g. that sporty new laptop you bought, or your digital camera that is used to collect images for your presentations. Anyway have any experience with this? Once again, I emphasize I am not sure this is possible...[/quote]

Again, risky move. Your camera must be dedicated to a functional business. If you use it at all for personal use, you can't claim it. Another high-risk audit flag.

6. I have heard that interest paid on student loans is deductible. Even if you have deferred your loans for, say, 6 months, your loans are still getting capitalized and some of that should be deductible.

Only if you make below a certain amount. I think it's $45,000 where the cutoff begins. Pay your loans as a resident, and yes, you can claim interest deductions if you do not make more than the cutoff. Pay your loans as an attending, and it's highly unlikely you can claim interest since your salary will be a lot more than the cutoff.

7. Moving expenses. I wish. But I have heard that the only way this is legal is if you were already a doctor before you started residency, i.e. the moving expenses deduction only applies when you are going from one JOB to another, not from being a medical student to working.

Correct. There are more stipulations, but this probably is enough to disqualify you from counting it.

8. Travel costs for interviews -- rental cars or mileage, gas costs, hotels and accomodation, air fares, meal costs... I have YET to hear a definitive opinion on this from any of my lawyer/accountant friends...

Only if you already hold a position in that field. If you're an attending physician interviewing for another position, you can claim the deductions. If you're a student interviewing for residency, you cannot. There is one former resident whom I know who was audited and had to pay back taxes and fines/interest for claiming a deduction for travel expenses while interviewing for an attending-level position. The IRS stated that his residency was a training program, and he was technically a trainee (they used the word "apprentice") and could not claim the deduction.

Like I said, a lot of these questions are, admittedly, best handled by a tax professional, but I've yet to find one.

A good CPA is worth his or her weight in gold.

 

[alison_in_oh]

7. Moving expenses. I wish. But I have heard that the only way this is legal is if you were already a doctor before you started residency, i.e. the moving expenses deduction only applies when you are going from one JOB to another, not from being a medical student to working.

Actually, at least one program's website stated that moving expenses should be deductible. The IRS site's language also seems to confirm this. (Namely, they refer explicitly to conditions that apply to "First job or return to full-time work", indicating that those who weren't employed before can still deduct expenses if they start work after the move.) Maybe you should ask a tax professional.

 

[EctopicFetus]

It might make sense to get someone to help you. As far as housing dont forget you can write off your property taxes. The smart thing to do is keep at the silly little forms like 1099's etc that you will get between jan 1 and usually jan 30. That will let you know most of the "easy" stuff. As far as school stuff. There is the Education Credit but like mentioned above you need to have paid that this yr.

 

[Mary Jane Watson]

My uncle is an accountant - he is checking on the travel expenses thing for me. He actually said he thought it might be partially deductible - even as a student. Another friend of mine checked on it with her cousin who is a CPA as well, who pulled out the actual tax code. He said it IS deductible. We even called the IRS "help line" about this, but those guys were clueless. So much for help. Still doing research on this, as there are various opinions. Will keep you posted with info from a CPA.

MJ

 

[corpsmanUP]

My uncle is an accountant - he is checking on the travel expenses thing for me. He actually said he thought it might be partially deductible - even as a student. Another friend of mine checked on it with her cousin who is a CPA as well, who pulled out the actual tax code. He said it IS deductible. We even called the IRS "help line" about this, but those guys were clueless. So much for help. Still doing research on this, as there are various opinions. Will keep you posted with info from a CPA.

MJ

There are tons of loopholes in the rules that govern these situations, and even the auditors would have a difficult time proving you wrong. My guess is that they don't really care too much anyway because no resident is in too high of a tax bracket unless they married money. Plus, the worst the government stands to get screwed from most people only reduces their gain by about 2-3 K overall. Because making 40K without kids or dependents still only pays Uncle Sam a few grand after you utilize even just your standard deduction and excemptions. Its not like you can reduce the tax burdern all that much no matter how many thousands of dollars you spend on travel, moving and such. The best anyone stands to gain in one tax year anyway is to be able to keep their entire 40K salary and pay no tax at all because of all the deductions. But trust me, I have 2 kids, own a home, and work making around the same salary as a resident and I have pretty much never paid more than a grand or so in tax total per year after I get my refund. So even if I had claimed all these extra deductions, I will never make back the thousands I am spending on airfare alone!

 

[Snoopy]

I don't know the specifics of your situation, but in your first 6 months as a resident you will likely owe $0 in taxes with only minimal deductions. Remember that the Lifetime Learning Credit (if you can take it) reduces the amount of tax you pay DOLLAR FOR DOLLAR. It is a credit not a deduction. After I deducted my mortgage interest, my property taxes, and my state income tax and took the credit, I had no more tax burden. I got every penny refunded. Remember your first year of salary is only HALF a salary.

 

[alison_in_oh]

Here is a "conclusive" result from Kiplinger Personal Finance: first-job-seekers can deduct moving expenses but not job search expenses. The column refers specifically to new medical residents.

http://www.kiplinger.com/personalfinance/columns/ask/archive/2004/q1021.htm

 

[beriberi]

Most residents do NOT need CPAs, attorneys, etc. to fill out their tax returns. You are simply not that special. (Unless you have a trust fund, investment property--other than the home that you live in, independent business, very extenuating circumstances). Having to move, interview for jobs, pay back student loans, etc. are all very common experiences AND are handled by most tax software easily.

As another poster said, it is virtually unheard of for first year residents to pay any federal or state income tax. If you have children, you may even get back more than what you paid in. This is due to the fact that you have an annual income of $20K, which puts you in a very low tax bracket.

Having said this: moving expenses are deductible, interview expenses are not. (www.irs.gov). You cannot deduct expenses for starting a job in a new field that you have never worked in before. You can for moving for a new job in a field that you have never worked in before. The publications are quite clear on this. Of note, moving expenses are above the line deductions, job interview expenses are below the line deductions.

(Above the line means that you can take them even if you are taking the standard deduction. Below the line means that you can only take them if you are itemizing your deductions. So your choices are:
standard deduction +above the line deductions--of which there are few,
or
itemized deduction +above the line deductions +below the line deductions

few people can make an itemized deduction > the standard deduction unless they are paying a lot of interest on their home mortgage. Moral: above the line deductions matter for residents, below the line deductions don't--much of the time. Again, a good tax program will tell you where you fall on this.)

Student loan interest is deductible (and is above the line).

Work expenses, charity giving, etc are below the line. Even if they are justified (home office for a resident? no,no,no) they probably will not effect your bottom line. Which is 0. Which turbotax will tell you. For free (if you link from the irs website to use it).

You can now send me a couple hundred bucks instead.