How may a doctor reduce his/her tax liability?

Question

I have a friend who's husband is a doctor. He makes about 300k per a year. However, he owes more than 100k in tax liability every year. As a result, he usually has to borrow money in order to pay his taxes. He donates a couple of thousand dollars to charity every year and contributes the maximum allowed amount to his pension and retirement accounts. He practices under a sole proprietorship. Is there anything he can do to reduce his high tax bill?

His accountant does not give him any tax advice that may reduce his taxes significantly and charges him a lot of money for doing his taxes.

He is a very honest and decent person. In fact, he provides free medical service for underprivileged people and tries his best to make the world a better place. So, please answer this question with good and practical advice.

Answer 1

Ask him to start an S Corp. That will help him to write off more expenses than a sole proprietorship. Also all the medical help that he gives for free can be written off as charity, he needs to get letters signed by all the patients who got free medical care from him saying that he did not charge them anything. Then charge the appropriate amount that would be reasonable and write them off as chairty. Also deduct all his travelling expenses to and from these free medical clinics as well as meals and expenses. Contribute more to charity every year and keep meticulous records for the IRS.
Your welcome.

Answer 2

Maybe he should look for a different accountant. A doctor has many expenses that would be deductible - office staff and expenses, equipment, malpractice insurance, just for starters. If he's still paying off student loans, then interest on those - OK, it might not be much, but is something.

And while the value of his time in providing the free medical services for those in need isn't deductible, he could deduct any out-or-pocket expenses he has in doing this - supplies, medications if he pays for them....

Answer 3

He's got a very poor business structure, which is why he is paying more tax than he has to. He should start a company/corp for his private practise because while running his private practice as a sole proprietorship he is paying taxes as a employee.

Employees tend to pay the highest tax percentage compared to companies or corps esp people like doctors who are at the highest tax bracket. If he forms a company for his private practice, he will be able to get some of his private practice expenses as a tax write off and reduce his tax liability.

Employees/sole proprietors tend to pay taxes first and then obtain deductons/write offs, which are limited by the tax office. A company/corp gets more write off/deductions for a lot of the business expenses and then pays tax. At the end of it all, the company pays a lower percentage of tax than an employee/sole proprietor would. If I were him, I'd fire that accountant and get one who knows how to help me reduce tax liabilites. Also, this doctor should consult a tax lawyer to help him set up an appropriate legal, business, tax structure that will help him protect his assets and minimize any legal risks that could involve his private practice.

I'm a small business owner and this guy's business structure as a sole proprietor also exposes his personal assets to risks esp. because doctors get sued all the time. If he runs his private practice as a company, if someone sues his practice, they would not be able to touch his personal assets like his home, shares/stocks under his name. They would only be able to get financial settlements from his private practice's assets.

Running his private practice as a sole-proprietor exposes him to a lot of risks because if he gets sues as a sole-proprietor, the financial settlements will not only involve those of his practice. His personal assets will be liquidated by the court in order to complete financial settlement for the patient/plaintiff that sues him.

In other words, one law suit, even if he wins it and is cleared of charges could easily make him bankrupt because malpractice law firms would also be able to liquidate his personal assets to clear his legal bill. Malpractice lawyers are one of the highest paid lawyers and they earn millions of dollars in income per year, so hiring a malpractice lawyer can easily bankrupt a private practice even the doctor is cleared of charges.

If he run the practice under the legal structure of a company, they would only be able to get the company's assets and his private assets would still be legally protected from the lawyers, courts or plaintiffs.

Answer 4

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Answer 5

WELL here's what i know theres so many people who are able and willing to help rich guys. they are called professionals for a reason-they charge for their services rendered. tell ur friend to get good professional help-he can afford it. if the current cpa is a dodo he's not getting any more biz from me i don't care he is my brother-in-law, friend even parent. he's fired.