son just received his medical license. no job yet but each potential offer includes demand he has malpractise insurance on his own. is the cost deductible?
is it if he does not find job this year but works temp jobs just to pay his bills?
for now, I also assume his state board test fees (over 2k) are not deductible.
Yes. However, if he is an employee than the deduction is subject to the 2% rule, which means that only the amount above 2% of your AGI is deductible. In addition, the deduction is not allowed under AMT, and if he makes as much as a doctor he might be in AMT. On the other hand, if he is paid as a contractor then the deduction is allowed in full, and the deduction is allowed under AMT as well.
It seems the expense should be deductible because the expense was incurred with the intention of making a profit. Of course, when your Schedule C business loses money, the IRS may view the business as a hobby, in which case the deduction would not be allowed. So you have to keep records to prove that this is a business intending to make a profit. Of course, shouldn't be buy malpractice insurance only once he has secured a job offer?
Right. The tuition fees your pay to enter a new career are not deductible. Crazy rule, but that's the way it is. However, the annual tuition fees he pays thereafter to maintain his education/ skills is deductible.
The state boards are not an educational expense but a qualifying exam. Do accountants who take the CPA exam in a state that requires it to be called a CPA, get to deduct it?
Speaking as a retired physician who used to teach residents about malpractice insurance, your son should NOT take a job that requires him to have his own separate malpractice insurance (unless, of course, he is going to open his own practice). If sued, he might end up in a situation with competing malpractice insurance companies (his and the job's)...NEVER a good thing.
If he works temp jobs, he will presumably be a 'contractor'. As such, expenses, such as malpractoice insurance are deductible business expenses.
n.b.: Malpractice insurance is complicated, with 'claims made' and 'occurrence' types of policies, with diffrerenT ramifications, such as purschasing Either a 'nose' or a 'tail' when switching companies with the much commoner 'claims made' policies. He should talk to an experienced malpractice insurance broker...probably more than one.
HTH
I believe all 54 CPA Boards now require passing the CPA Exam for the initial license.
That is a fairly broad question. In the case of myself and others I know who had professional Accounting Certifications upon entering graduate school, we deducted as much of our educational expenses as we could as Continuing Professional Education. Of course University Professors can write off almost all of their post-employment educational expenses.
As for CPA exam fees, possibly a Tax Attorney or an Enrolled Agent who is already representing clients at audits and in Tax Court could safely deduct them.
As always, the answer is "IT DEPENDS." The solution is to lay out all of your facts and circumstances to a tax professional who can assst in tax planning.
Dick
The course you take to study in order to pass the state board exam may itself may have quizzes within it, but at the end there is one big quiz. And that quiz is the board exam. So if you need to pass this exam before you can enter the field, then it is not deductible. That's my reasoning. I'm happy to be proved wrong!
But think of this strange scenario: Perhaps you can practice in another country where they don't require these board exams. So now you've already entered the field and are a practicing doctor, though you can only practice in another country. Then you return to the US and take a course and a board exam. It's certainly looks like continuing education now because you are already in the field.
Even tax preparers in California have to take a 60 hour exam and pay an application fee of $25. I suppose the $25 fee is deductible because there is nothing educational about it.
The regulation, §1.162-5(b)(2) and (3), only talk about education expenses, not the expenses of a qualifying exam. It would be silly if you could not deduct these expenses if you studied for the exam, but you could if you didn't need to study for it.
On the other hand the reasoning behind the rule is that you can't deduct something as a business expense if you aren't actually in business. From that standpoint it appears you may be right.
On the other hand if OP's son can work temp jobs, perhaps under the supervision of other physicians, without having passed the exam, he may qualify.
Yup, that's the argument.
Again it's not about whether it's educational. It's about whether or not you are actively in business when the expense is made.
| On the other hand the reasoning behind the rule is that you can't | deduct something as a business expense if you aren't actually in | business.
I wonder why these types of expenses are particularly disadvantaged. Most other pre-business startup costs can be amortized over 60 months, right? [Or with recent changes even deducted immediately up to $5000 but with some downside if there is much left over.]
Dan Lanciani ddl@danlan.*com
the problem is that any part-time fill-in temporary jobs, he has been offered, come with a demand he has MP insurance. thus it's a given that he must get one on his own. the minimum quoted was for 1 million and had a premium payment of close to 2000.00 - which he can ill afford, especially before being paid. thus, it's a case of coming up with the premium but not wanting to pay if before he is assured of having some sort of income.
he was also exploring the possibility of forming a LLC or S-Corp. my suggestion was to chose the simplest form for now (LLC), with the understanding that once he has a steady source of income, he can always amend or modify it to another form.
we approached a broker who represents multiple companies and got basically same sort of answer no matter who insures the risk.
it appears likely it would be paid as a contractor, so forming his own LLC might also be a wise course ahead of time.
one problem we still don't understand is the situation where he would work some *other* field work, just to pay bills and to be able to pay for the MP insurance. suppose for example, he does take the offered MP policy for 1 million and works as a shoe shiner for 1 month while waiting for medical field job(s). is he able to deduct the MP expense which all potential interviewers demand, prior to making a job offer, from the shoe shine income?
that is what I meant by "..is it if he does not find job this year but works temp jobs just to pay his bills?.."
Wise, but not necessarily possible; in California, licensed professionals cannot operate as LLC's.
Steve
He does not need malpractice insurance until he actually starts practising medicine. There is no need to get malpractice insurance while still loooking for and at jobs. Besides, the insurance is tailored to the kind of job and location, just as car insurance depends upopn what kind of car and where it is driven. An ER job has a different malpractice insurance from an office locum tenens job. A job in Miami has much different malpractrice insurance cost from a job in West Virginia. Furthermore, most insurers will let physicians pay over time, not just a lump sum up front. Also, understand that $2,000 is just the first year premium. Premiums go up yearly until about year five of practice, independent of inflation, etc.
With Claims Made insurance, the insurance only covers malpractice Claims Made while the policy is in effect. If he changes malpractice insurance companies in a year, the old insurance company and policy no longer covers him for any alleged malpractice that occurred during the first year unless a claim had been made already. In other words, if he changed insurance companies after a year, and after that someone sued him for alleged malpractice that occurred in the first year, he is not covered by ANY isurance...UNLESS he has purchased additional 'tail' coverage from the first insurance company, or additional 'nose' coverage from the new insurance company.
I am a little puzzled about his trouble finding a job he wants. Usually these things are decided during the last year of residency training, where 'head-hunters' are coming out of the woodwork trying to hire young physicians for their clients. I have been retired for 5 years, and still get ads almost weekly about practice opportunities, some of which would sound promising were I just starting out.
Specified professionals in CA are required to LLP's (limited liability partnerships) instead - presumably that means there must be at least two partners.
Instead the professional can create a C-corporation. The costs and tax effects will normallly be similar if not the same.
If he is offered a position working as an independent contractor, it is not unreasonable to ask that he have his own policy.
There's not a kind of general purpose policy to cover different areas in this kind of situation? I've seen those kinds of policies for lawyers.
Just because you get ads doesn't mean you could easily get one of those jobs.
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