During the holiday season, it is common to become preoccupied with various activities, and the task of tax planning may be overlooked. However, dedicating some time to contemplating your taxes and implementing some financial modifications before the beginning of the new year can significantly impact the amount you owe or receive from the government in April.
Many individuals are unaware of their degree of flexibility regarding their taxes. It is not a zero-sum game; you can take intelligent and practical steps to aid yourself.
This is particularly important following a year of high inflation and economic uncertainty. “The higher your income, the more volatile your refund or balance-due disappointment can be.” Therefore, making projections regarding your taxes before the end of the year can be crucial.
Outlined below are several tax maneuvers that you can execute to potentially decrease your tax bill for 2023 or reduce the amount you owe in the future:
- Max out your workplace retirement accounts
Physicians should review their retirement contributions before the year-end to ensure they take maximum advantage of the tax benefits. Contributing to tax-advantaged accounts such as 401(k)s, Individual Retirement Accounts (IRAs), or country-specific plans like Personal Equity and Retirement Account (PERA) for the Philippines, Private Retirement Scheme (PRS) for Malaysia, and National Pension System (NPS) in Thailand is a wise decision as it helps secure financial futures and also reduces the taxable income.
By contributing to such plans, physicians can improve their financial well-being by taking advantage of tax deferrals and potential employer contributions. For instance, in the United States, 401(k) contributions are tax-deferred, which means that the contributions made today will not be taxed until they are withdrawn during retirement. Additionally, many employers offer matching contributions, which can further increase the money in the physician’s retirement account.
Similarly, in countries like the Philippines, Malaysia, and Thailand, tax-advantaged accounts such as PERA, PRS, and NPS offer retirement benefits that can help reduce the burden of retirement expenses. Physicians can use these accounts to save for their future and lower their taxable income simultaneously.
Therefore, it is highly recommended that physicians take advantage of these tax-advantaged accounts and review their contributions before the year-end to ensure they are on track to secure their financial future.
- Leverage Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)
One important financial consideration for physicians is their health-related expenses. It is highly recommended that they assess their healthcare costs and explore options for managing them, such as contributing to HSAs and FSAs. These accounts offer several tax advantages, which can help physicians save money on their healthcare expenses. An HSA or FSA can provide a helpful financial cushion for unexpected medical costs, such as emergency room visits or unforeseen medical procedures. Physicians should carefully evaluate their healthcare costs and consider leveraging these accounts to optimize their financial situation while ensuring access to quality medical care.
- Monitor Investment Portfolios
Investors in Malaysia, the Philippines, and Thailand have various investment options, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs). The respective stock exchanges in each country provide exposure to multiple industries. Government-backed investment schemes are also available to encourage investment. Regularly reviewing investment portfolios to ensure they align with financial goals and risk tolerance, diversifying investments, and consulting with a financial advisor to explore tax-saving options are all important considerations for investors.
- Stay Informed on Global Tax Changes
In 2023, there are several global tax changes that international physicians should be aware of. For instance, the OECD is working on a global minimum tax rate for corporations, which could impact cross-border tax planning. Additionally, some countries are implementing digital services taxes on tech companies, which could also affect the tax landscape. Physicians must stay informed about these changes and work with their tax advisors to adjust their financial strategies accordingly.
- Explore Tax Credits and Deductions
Exploring available tax credits and deductions can provide significant benefits to physicians. They can take advantage of various deductions, from business expenses to education-related deductions, which can contribute to substantial tax savings. By staying up-to-date on the latest tax laws and regulations, physicians can ensure they maximize their income and take full advantage of the available credits and deductions. It is essential to consult with a tax professional to ensure compliance with the tax laws and regulations.
- Consider Charitable Contributions
Charitable contributions not only support worthy causes but also provide tax benefits for physicians. By donating to charitable organizations that align with their values, physicians can qualify for tax deductions. These deductions help reduce their taxable income, which ultimately means they will owe less in taxes at the end of the year. Additionally, physicians can positively impact their communities by supporting charitable organizations while benefiting from potential tax savings.
During the holiday season, there is an increase in charitable giving, and if you itemize your taxes, donations to qualified charitable organizations can be deducted from your bill. One way to make your philanthropic donations even more tax efficient is by giving highly appreciated assets to charity instead of cash. If you have held the asset for more than a year, you can deduct the donation’s fair market value from your taxes, and you do not have to pay taxes on the gains. This approach also reduces the value of your estate, which helps minimize estate taxes.
You can deduct up to 30% of your adjusted gross income if you contribute non-cash assets to charity.
- Review Entity Structure
For physicians with private practices or locum doctors, reviewing the entity structure is pivotal. Evaluating the tax implications of sole proprietorship, partnership, or incorporation ensures alignment with financial objectives and regulatory compliance.
- Plan for Education Expenses
Medical practitioners who invest their time and resources in continuing education can receive tax credits and deductions. Tax incentives for pursuing professional development help physicians improve their knowledge and skills and aid in strategic financial planning. By understanding the available incentives for continuing education, healthcare professionals can make informed decisions about the courses they take and the resources they invest in and can effectively manage their finances. These incentives could come in tax credits, deductions, or other benefits that can significantly reduce the overall cost of pursuing professional development. Overall, investing in continuing education is a smart choice for physicians, and knowing about the available tax incentives can make it an even more rewarding experience.
- Address Outstanding Debts
Physicians should assess outstanding debts and consider paying them off before year-end. Interest payments on certain loans may be tax-deductible, providing an additional avenue for tax savings.
- Collaborate with Tax Professionals
Engaging with tax professionals ensures physicians receive personalized advice tailored to their unique circumstances. Professionals can offer insights into tax code changes, helping physicians make informed decisions for optimal financial outcomes.
Conclusion
As physicians approach the end of the year, proactive tax planning becomes a powerful tool for securing financial well-being. By strategically considering personal equity, tracking expenses, optimizing retirement accounts, and staying informed about tax regulations, physicians can position themselves for a more financially sound future. Remember, each physician’s financial situation is unique, so consulting with a financial expert ensures a tailored approach that aligns with individual goals and circumstances.
This guide aims to empower physicians with the knowledge to make informed decisions, fostering financial stability and peace of mind as they embark on a new fiscal year.
Reference
- Best End-of-Year Tax Tips for Physicians [Internet]. Medscape. [cited 2023 Dec 8]. Available from: https://www.medscape.com/viewarticle/996547?src=mbl_msp_android&ref=share#vp_2
- Insurance Commission | Personal Equity and Retirement Account (PERA) [Internet]. Insurance Commission. Available from: https://www.insurance.gov.ph/PERA/
- Private Retirement Scheme [Internet]. www.publicmutual.com.my. Available from: https://www.publicmutual.com.my/Our-Products/Private-Retirement-Scheme
- GRRR.nl. Government Pension Fund (Thailand) [Internet]. World Benchmarking Alliance. [cited 2023 Dec 8]. Available from: https://www.worldbenchmarkingalliance.org/wba-allies/government-pension-fund-thailand/
