Tax Planning is the strategic planning to pay your taxes in an effective way so that it is legal as well as not overburdening. It basically concerns two major metrics:
- Reduce the taxable amount of your income.
- Strategise how to deduct taxes.
Reducing The Amount of Taxable Income
It is easier for doctors to reduce their taxable income as there is a scope for private practice here. The amount taxable is calculated on the total profits. Thus the profits if not strategized and documented properly can cause a doctor to pay more taxes than he or she should. There are few deductions in tax that are liable for practicing doctors. These tax deductions are discussed below in details.
Tax Deductions For A Doctor
The perks in tax deductions that a doctor can enjoy are as follows:
- If a contribution is made to a charity.
- If the fee earned through practice exceed your basic income by 2%
- If a practicing doctor has incurred losses on investments made.
- Financial Requirements for further education.
- All expenses related to health care and medical support including insurances.
Reducing Taxes Through Charitable Treatment And Investments
One of the major tax reducing factors for a practicing doctor is charity. If a part of the income is shown dedicated to charity or charitable treatment, the taxes are calculated on the remaining income. Another way to reduce taxes is to open an investment account that is completely exempt from taxes. In some cases, an investment can be made in the name of a charity instead of direct cash. In such cases there are certain perks that follow as stated below:
- A complete deduction of taxes on the amount spent on the investment made to the charitable organization.
- Since investments are being made in charity they are sold in a tax-free manner. Thus the margin of profit is very high.
- Finally, when cash is withdrawn on basis of the investment made, the amount is completely exempted from taxes.
The Taxation Profits Applicable To Doctors
Sometimes when certain expenses are made, profits can be made on taxes. This means that a part of the tax that you have paid is returned. There are certain conditions in which that is possible. They are as follows:
- Expenses in case doctors want to pursue higher education for a potential degree.
- Any improvements made in their domestic residence.
- In the case of child adoption.
- A amount credited for the total number of children a doctor has
- Healthcare for the family.
Earning a profit through taxes is actually possible only for doctors of the higher income groups. For general cases, it is better to look at more ways to deduct taxes than to gain these profits. The key here is to plan your taxes so that you can avail the important deductions mentioned previously in this article.