Taxable Income - net capital gain
How Independent Contractor Physicians can potentially save an additional 20% through a Qualified Business Income Deduction
Being an independent contractor physician (ICP) can be GREAT because as a business owner, it allows multiple ways to lower your taxable income via deductions. For example: 50% of social security & Medicare tax, health insurance premiums, purchasing a car, home office expenses (including cellphones and computers), and most importantly, retirement contributions ($57k/year in 2020, $63.5k/year if 50+). More if you add your spouse as an employee or participate in a defined benefit plan). With the sweeping tax reform of 2018, ICPs can potentially save an additional 20% via the Qualified Business Income (QBI) deduction.
Case Study: Emergency Medicine Physician
In order for most personal services professionals to utilize the QBI, a married couple has to keep their taxable income under $326.6k (phased out from $326.6k-$426.6k). The rule states that the deduction is equal to or lesser of 20% of the taxpayer’s QBI or 20% of the taxpayer’s net capital gain. By utilizing the QBI, this ICP saved about $10.6k (assuming a 25% effective tax rate).
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