Tax Tips For Doctors

As a doctor, you are probably well aware of your tax responsibilities. But even if you're confident in your knowledge of the tax code, there may be some aspects of taxation that are specific to doctors that you're not familiar with. This blog post will provide you with some tips to help ensure that you are minimising your taxes and keeping as much money as possible in your pocket.

As a doctor, you are probably well aware of your profession's tax laws. However, there may be a few things you are not aware of, and it is important to stay informed so you can maximise your tax savings. This blog post will provide some tips that can help you save money on your taxes. So if you are looking for ways to reduce your tax bill, read on!

As a doctor, you are likely well-acquainted with tax laws and how they may affect your income. However, there are likely some aspects of the tax code that you still don't understand. This blog post will provide you with some helpful tax tips specifically for doctors. In addition, we'll cover topics such as self-employment taxes, business deductions, and more.

Reduce Your Taxes

Use these pointers from the pros to help you shave some money off of your tax bill.

When compared to members in other professions, doctors have a tendency to be more preoccupied with taxation. There is no doubt that a significant amount of money can be deposited into the treasury; but, due to the fact that this type of transaction frequently triggers the highest possible marginal tax rate, a large portion is promptly withdrawn once more.

Spending decisions that are made based on gross earnings can result in a financial over-commitment once the BAS (business activity statement) is received. This dynamic has the potential to surprise those who are not adequately prepared for it.

But this is not the only drawback associated with being a doctor: people who practise medicine independently and produce money from "personal services" are not eligible for the reduced rate of corporation tax of 30%.

According to the opinions of several tax specialists, medical practitioners need to be creative in order to make the most of the tax-advantaged opportunities available to them, such as self-managed retirement savings accounts and trust arrangements.

Superannuation

No matter how they are employed, doctors have the option to minimise their overall tax burden by making pre-tax contributions to their superannuation accounts. This makes superannuation the most tax-efficient vehicle accessible to them.

It is referred to as "salary sacrificing," and it is the process wherein pre-tax income is utilised to make a contribution to a superannuation fund, which attracts a tax rate of 15% as opposed to the doctor's marginal tax rate, which may be as high as 46.5%. Beginning on July 1st, individuals with an annual income of more than $300,000 will be subject to a tax rate of 30% for these donations. However, tax experts point out that there are other tax-effective ways that relate to super.

If they are over the age of sixty, physicians should give some thought to starting a transition to retirement (TTR) pension with the money that is in their super fund.

You are permitted to withdraw up to 10% of your superannuation account on an annual basis under the TTR pension, even if you are still actively employed. Additionally, for people over the age of sixty, withdrawals from their superannuation account are exempt from taxation. As a result, doctors can withdraw money from their superannuation account while simultaneously salary sacrificing a portion of their employment income into their superannuation account and paying only 15% tax on that amount (or 30% tax for people earning over $300,000).

You might potentially reduce your taxable income by making use of your retirement savings as a down payment on a loan that will enable you to buy investment property through your superannuation fund. The physician can make a salary sacrifice into superannuation, which will again result in a lower tax rate, and then use the money from that to pay down the mortgage on the property that was purchased with the loan.

In layman's terms, 85 cents out of every dollar would be used to repay the loan from the superannuation fund, in contrast to as low as 53.5 cents out of every dollar if the property was purchased personally by the doctor, who was subject to a tax rate of 46.5%. As a result, an investment loan taken out within a super can be repaid a great deal more quickly.

Those who are the sole proprietors of their medical practise have the ability to transfer ownership of that property into their retirement savings account. It is possible to accomplish this without having to pay stamp duty and with a modest amount of capital gains tax.

Any rent paid into the super fund is taxed at only 15 cents in the dollar for the majority of doctors. This is because once anything is in super, it is taxed on a concessional basis.

When the physician reaches retirement age and moves the super fund into pension phase, the income that is generated from that property will no longer be subject to taxation. This is the brilliance of that plan. Additionally, the increase in value of his investment that results from the sale of the property in the future will not be taken into account.

Structures of Businesses

These legal corporate structures have been present for years and continue to be a lawful and tax-effective strategy, despite the fact that the government has plans to modify the method in which trusts are taxed.

In certain circumstances, we believe that trusts should be utilised by doctors so long as they adhere to the established criteria for accounting.

Service trusts offer medical professionals a structure for their practises that enables a suitable amount of income to be distributed to family members at marginal tax rates that are lower. By utilising this structure, for instance, a partner who manages a doctor's appointment calendar and handles some of the administrative tasks in the office may be eligible for a pay that is rather middle of the road.

This building is suitable for medical professionals as it contains rooms and staff. In addition, the trust is permitted to earn a "make-up" profit of 10% of its total value, which can be doled out to surviving family members. When putting together a structure of this kind, it is important to think about your reasons for doing so in order to avoid getting in trouble with the Australian Taxation Office (ATO).

An investment trust is a different kind of trust that can provide tax savings for its beneficiaries. It is possible to set it up so that doctors do not have to purchase their assets in their own name. Instead, they can divide their income and capital to beneficiaries, such as members of their family who have a low or no income. If the assets are sold before the doctor is permanently unable to work, this results in a lower capital gains tax.

The most tax-efficient investment vehicle that you can get is a super fund; however, an investment trust is the next best thing, and it's a more flexible arrangement. Super funds are the greatest.

Having a corporate beneficiary set up can be beneficial for medical professionals who run their practises through trusts and have several streams of revenue coming in.

This company's one and only function is to act as a "holder" for the revenue that is produced by the doctor's practise (excluding personal services income earned specifically by the doctor). It would be taxed at a rate of 30% due to the fact that it is a company rather than the maximum rate of 46.5% that would apply if it were received by the doctor individually.

Other potential sources of revenue include earnings from service trusts as well as other revenue-generating services provided by the practise itself. Some examples of these services are physiotherapy and speciality nurse services.

Income from supplemental services provided within the surgery should be recorded separately to ensure that it is accounted for in the appropriate manner for tax purposes. Practicing physicians are increasingly shifting away from traditional business models.

Investments that are Easy on the Taxman

Tax specialists believe that because doctors have substantial tax burdens, they are more likely to pursue assets that provide a favourable tax situation in the near term, even if this comes at the expense of their long-term investment objectives.

On the other hand, as a result of the global financial crisis (GFC), individuals are once again centring their attention on assets that are beneficial over the long term.

Even though negative gearing makes sense from a tax perspective (and the higher your marginal tax rate, the more advantage you can harvest from it), in order for it to be profitable, you will need to see an increase in the value of your investment.

Negative gearing into property and shares hasn't really worked the way it has in the past, and a lot of [people] have lost trust in it as a result of the lack of capital growth that has occurred since the GFC.

Because of this, you need to be more selective when choosing an asset before you start taking advantage of negative gearing because it will have an immediate impact on your cash flow.

Because of the unpredictability in Europe, investors are becoming increasingly anxious about the markets.

When economic conditions become unstable, investors typically withdraw their money from volatile markets like the stock market and the real estate market.

In the current environment, investors should place their primary emphasis on more conservative assets that produce income, such as term deposits and other options with fixed rates of interest.

However, he emphasises the importance of consulting your accountant about the potential tax repercussions before putting into action any new investment strategy that involve borrowing money or using gearing.

Because every person is unique and every person's situation is unique, it is important that advice be given on an individual basis and based on personal circumstances. However, you should make sure that you talk to people who understand this environment, specifically people who use structures such as trusts and superannuation funds for themselves.

Avoidance Versus Minimisation

The legality of certain tax-minimization tactics is in dispute due to the fact that, despite the fact that they do not violate the letter of the law, some people believe that they violate the spirit of the law and engage in tax avoidance because of this. How then can you determine whether a potential investment or business idea lies on the safe or risky side of the line?

Taxpayers can use a three-point test that is included in Part IVA of the Income Tax Assessment Act to help them assess this:

• Is there a plan in place?
• Was there a financial advantage to be had?
• One could draw the conclusion that getting a tax break was the primary or only motivation behind doing this.

If you are just engaging in complex schemes with the intention of obtaining a tax benefit, then you are likely to run afoul of the anti-avoidance law.

Here are two instances that illustrate the point:

It would be considered tax evasion if a general practitioner (GP) who employed one other GP decided to adopt a service trust structure in order to earn a tax benefit from it. If, on the other hand, the primary reason the doctor established the structure was to entice other general practitioners to work in the practise, it will not succeed.

or

It would be considered tax evasion if a doctor put an asset into the family trust with the intention of gaining a tax benefit from the move. However, this would not be the case if the doctor put the asset into the family trust in order to preserve that wealth in the event that the doctor was sued.

In the end, it is up to the taxpayer to verify that whatever tax methods they employ are within the bounds of the law.

Investment Warning Signs

It is easy to understand why physicians would be interested in investments that provide a tax benefit. However, one should proceed with extreme caution when dealing with schemes that advertise such benefits. Be on the lookout for the following potential red flags, as advised by financial consultants:

• methods that are advocated on the basis of their potential to reduce taxes
• investments that need a significant initial payment
• explanations that are too hazy about how everything works, or financial dealings that are way too complicated for something that you already know is straightforward
• whenever it seems that only one company or tax practitioner has an understanding of the rules, you run the risk of being the test case when the Australian Taxation Office (ATO) challenges it
• schemes that entail borrowing significant quantities of money; the impact of borrowing money, both favourable and negative, is magnified when it comes to investment returns
• strategies that involve strange accounts in offshore jurisdictions. The Australian Taxation Office has harsh penalties for tax evasion and goes after offshore schemes
• schemes connected to the agricultural industry (trees, nuts, etc)
• programs made available by businesses that are not in possession of an Australian Financial Services Licence
• "capital-guaranteed" investments have fine print that should be read carefully for hidden charges and excessive exit fees.
• businesses that encourage their customers to buy property using their retirement savings. Before you go on this journey, you need first become familiar with the phrases "business real property" and "sole purpose test."

Work-Related Self-Education

It should come as no surprise that one of the most common expenses that medical practitioners can deduct is money spent on their own work-related education because doctors are required to complete a specific amount of continuing professional development in order to keep their licences current. There may be additional costs incurred for individuals who are participating in specialised training.

Establish a method for keeping track of all of the money you spend on your education, such as on textbooks, other materials, fees, and even study-related items like computers and furnishings for your home office. Other expenses related to self-education that you can spend over the course of a year include the cost of photocopying, fees charged by student services, and travel expenses related to attending classes.

Other Costs Associated with the Job

During the process of earning your taxable income, you may be required to pay a variety of costs that fall under the category of "other work-related expenses." This may include the cost of acquiring a briefcase, purchasing a stethoscope and other pieces of equipment, as well as the cost of phone and internet service. In addition, you may be eligible to receive reimbursement for expenses such as travel and lodging incurred while attending a conference, as well as fees associated with participation in professional societies and the cost of journal subscriptions. This category also includes the costs associated with insurance and medical registration.

It is important to keep in mind that in order to deduct a work-related item from your taxable income, you must have previously paid for the charge out of your own pocket and not received any reimbursement from your employer for the cost.

Mobile Phone Bill

A usual deduction is the cost of the mobile phone, but things can get a little trickier if you use your personal phone for work-related tasks on occasion. Fixed sums are provided by the ATO for claims of incidental use that are less than $50. In any other case, you have the option of calculating the proportion of time spent working during a period of four weeks that is representative of the complete year in order to base your total deduction on.

You should be aware that in order to qualify for a deduction, you are required to have paid your bill in full and not afterwards received reimbursement from your employer for the portion of your expense that was related to employment. The costs associated with phones that are provided by an employer are not tax deductible against your own personal income that is subject to assessment.

Expenses Related to Working from Home

If you are an employee medical practitioner who occasionally works from home, you may be eligible to submit a claim for reimbursement of certain expenses, including those associated with the use of your own computer, phone, and internet for work-related reasons. In addition, expenses like as heating, cooling, lighting, the depreciation of office equipment, and the upkeep of a home professional library can all qualify as tax-deductible business expenses. However, you are only allowed to claim a deduction for the portion of the expense that is directly related to your work.

For instance, if you purchase a new computer and use it for work-related purposes at home for your employer forty percent of the time, you are only eligible to deduct forty percent of the cost of the computer. On the other hand, if you utilise thirty percent of your home internet access for work-related activities, you are eligible to deduct thirty dollars from your monthly internet payment of one hundred dollars.

Expenses Incurred While Managing Tax Matters

The fees you pay to manage your tax affairs are another typical expense that might be deducted. You are eligible to deduct the costs associated with consulting with your accountant and having them complete and file your tax return from the amount of tax that you owe. You are able to make a claim for any money spent on tax reference materials and software that you purchased in order to complete and submit your tax return.

Work-Related Garments

If your job requires you to wear uniforms, protective clothes, or any other specialised attire, you may be eligible to get reimbursement for the cost of purchasing these items. The costs of having certain articles of clothes and uniforms professionally dry cleaned are likely to fall under this category as well. Don't forget to bring along any specialised footwear and protective goods that you may have required to buy for work.

Travel and Vehicle Costs

If you were forced to travel between hospitals or medical centres as part of your job, you may be eligible to submit a claim for reimbursement of the travel expenses you incurred as a result of this requirement. However, this exception is the rule rather than the exception. Other types of travel expenditures that medical professionals are eligible to claim include those associated with travelling to remote, rural, or interstate locations to perform work and travelling to attend gatherings and events that are related to their line of business.

Participate in and give a presentation at an event such as a conference or a celebration. It's possible that you'll be able to get reimbursement for everything from travel expenses to the cost of lodging and meals, as well as the expense of having conference materials printed off.

If you travelled partially for business and partially for personal reasons, the only portion of your trip for which you can claim reimbursement is the portion that was for work. You should be aware that you are eligible to make a claim for these travel expenditures if your house serves as a base of employment. This means that you started your work at home and then travelled to a business to finish the work.

Vehicle Costs

Whether you owned the automobile, leased it, or hired it (under a hire-purchase arrangement), you may be able to claim deductions for expenses related to your motor vehicle that are associated with your place of employment. In most cases, you will be required to preserve written evidence of the costs associated with your automobile, in addition to the information from your logbook and odometer.

There are two ways to compute the costs associated with your automobile, and you are free to select either the method that results in the greatest tax deduction for you or the approach that is the most convenient for you.

• Cents per kilometre – Using this procedure, you will first calculate the total number of kilometres you drove for work during the preceding fiscal year, and then you will multiply that number by the standard rate that has been established by the ATO (which is presently 66 cents). Take into consideration that you can deduct up to 5,000 kilometres per year for each car you own.
• Logbook – Using this approach means determining what percentage of your overall car-related costs are attributable to business use. Note that your expenses include things like running costs, the cost of petrol and oil, and the value loss, but they do not include things like the purchase price, the main amount of the automobile loan, or the cost of improvements. In addition to this, you are required to keep a logbook that contains the reading from the odometer for the duration of the logbook period.

You are able to make a claim for depreciation, which is the reduction in value that occurs over time, but you can only do so if you calculate your vehicle expenses using the logbook method and either owned the car or rented it under a hire-purchase agreement.