Attention All New PGY-1's

[southerndoc]

Make sure you guys take the Lifetime Learning Credit for 2004 tax year. It's highly unlikely that anyone will make more than 40k this year (since we'll only work 6 months out of the year), so we should all qualify.

We can deduct 20% of tuition paid up to $10,000.

If you took out loans, then you are still eligible. The Lifetime Learning Credit applies for the year the tuition was paid, not for the year the loan was repaid! So if you miss it this year, you'll miss it forever. Your school should send you a 1098T form at the beginning of next year.

Consult with your tax attorney or accountant for how to file for this. Paying them $200 to save you $2000 on your taxes is money well spent in my opinion!

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[WaitingForJuly]

The Lifetime Learning Credit applies for the year the tuition was paid, not for the year the loan was repaid! So if you miss it this year, you'll miss it forever. Your school should send you a 1098T form at the beginning of next year.

I was planning on taking it this year (my PGY1 year). Unfortunately, my med school credited the tuition payment on December 30, 2002. I missed out by 2 days. That really ticked me off.

 

[Fabio]

Thanks for the reminder!

 

[Tom345]

Thanks a lot for this useful info. Appreciate it.

 

[edmadison]

I would also add that you should try to pay up to $2500 in accrued interest on your loans each year while in residency. You can deduct this even if you don't itemize. It will be like the government paying 20% of the loan for you. There is a phase out of this deduction/credit at a fairly low number so you will likely not qualify once you have completed residency.

Ed

 

[ortho2003]

The learning credit is only on the first $5000, which will land you an extra grand. However, you do not need to pay $200 on a tax attorney. Get turbotax for $40...it will print off all the forms for you and after you have used it for a year, you can do it all electronically. I didn't sign a single pice of paper for my taxes this year. I just spend 30 minutes in front of my computer and hit submit.

As for trying to pay the $2500 in interest, this is foolish unless you have a boatload of extra cash coming in. You would be much better off puting the money in savings or your 403B. If you pay the $2500, you will end up getting a $500 refud next spring. So you are paying $2500 to get $500 back when you least can afford it. If you actually have the extra money sitting around, start putting it away pretax in your 403B. You will be putting about $3000 away then and enjoy the benefits of early compounding interest. The interest on your 403B will also be much higher than the 2-3% interest on your loans. In the long run, you will be much better off in the long run to let the interest acrue and save for your future rather than paying $2500 to get $500 in tax refund...that is an instant 80% loss your investment vs the 5-10% compounding gaine you will get per year with yoru retirement.

 

[southerndoc]

The learning credit is only on the first $5000, which will land you an extra grand. However, you do not need to pay $200 on a tax attorney. Get turbotax for $40...it will print off all the forms for you and after you have used it for a year, you can do it all electronically. I didn't sign a single pice of paper for my taxes this year. I just spend 30 minutes in front of my computer and hit submit.

http://www.irs.gov/individuals/article/0,,id=96273,00.html

Beginning on July 1, 1998, taxpayers may be eligible to claim a nonrefundable Lifetime Learning Credit against their federal income taxes. The Lifetime Learning Credit may be claimed for the qualified tuition and related expenses of the students in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent) who are enrolled in eligible educational institutions. Through 2002, the amount that may be claimed as a credit is equal to 20 percent of the taxpayer's first $5,000 of out-of-pocket qualified tuition and related expenses for all the students in the family. After 2002, the credit amount is equal to 20 percent of the taxpayer's first $10,000 of out-of-pocket qualified tuition and related expenses. Thus, the maximum credit a taxpayer may claim for a taxable year is $1,000 through 2002 and $2,000 thereafter. These amounts are not indexed for inflation.

 

[Pilot Doc]

As for trying to pay the $2500 in interest, this is foolish unless you have a boatload of extra cash coming in. You would be much better off puting the money in savings or your ....

Fortunately, you don't have to pay the interest to take the deduction. From the IRS. Capitalized interest is deductible too!

Capitalized interest: This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan.

 

[zoolander]

Along those lines, anyone know exactly which tax credits are available to the average graduating med student?

The ones I've found so far:

-Tuition credit for 4th year fees

-Deducting moving expenses to residency if moving over XX miles

-Cost of interview travel for Jan-Feb part of residency apps

-Student loan interest

Is there anything else commonly available for the average med student/resident?

This year should be great tax-wise as only working 6 months... trying to plan for the next few years is more complicated.

 

[southerndoc]

-Cost of interview travel for Jan-Feb part of residency apps

I've been told by an accountant that you can only deduct interest if you are interviewing for a job that you are currently employed in. Like if you work as a physician in NY, travel to MI to interview, then you can deduct taxes from that.

Interviewing for residency is considering part of training (there we go, the training v. employee debate again), and most residency interviewees aren't already employed as physicians or current residents.

Make sure you do a LOT of research before you try to use that deduction. You're right though, it's worth keeping in mind to at least see if you can do it.

 

[beriberi]

I second southerndoc. I did the research, and they make it pretty clear that your first job after education does not have tax deductible interview.

Also, moving expenses and student loan can be deducted by anyone (vitually). You do not have to itemize deductions to qualify for these. Same thing with the tuition credit. There is a whole mess of other things you can deduct, if you itemize (and DON'T take the standard deduction.) Those things will be home loan interest, medical expense, all that crap you donated to goodwill.

 

[Kalel]

Are you guys planning on going to someplace like H+R block to figure out how to do all of this stuff, or are you guys hiring your own accountants? All of this tax lingo with itemization/deductions/credits confuses me; I had enough trouble filing my taxes back when I was part-time and only making a few thousand per year. Should I meet with an accountant early this year, or should I wait until tax time to sort all of this stuff out?

 

[zoolander]

Yeah, I'm meeting with my parents' accountant next month... b/c a few questions- student loan forebearance for one- have to be decided before starting work.

Re: student loan interest deduction, when can we take this? When interest is accruing, or when we're paying interest off? Have to look into this one especially.

Re: interviewing costs, I was a post-grad fellow this year so may be more similar to residency, though unsure how/who makes the call on this one.

I hope it will be worth it.

 

[southerndoc]

Interest deduction is when you repay the loan (unlike the lifetime learning credit, which is when you pay the tuition irregardless if you used a loan to pay it).

Try to get an economic hardship deferral before you get forbearance. Economic hardship deferrals have the same interest rate as in school and grace periods, whereas forbearance interest rates go up by .6% (the same rate as if you were in repayment).

If you don't qualify for economic hardship, then try to consolidate your loans before your grace period ends. Consolidation locks in the rate plus 1/8th of a percent. So if you lock in during your grace period, you'll keep from getting the .6% bump when you go into forbearance.

Check out MEDLOANS at the AAMC website at www.aamc.org/medloans They have a lot of info there.

 

[edmadison]

You can deduct the interest when you pay it or as an earlier poster noted (sorry guys I should have said that too) when you capitalize your interest. You do not need to itemize to receive the deduction. At the end of the year, your lender will send you a 1098 for your taxes.

Regarding Ortho's comments, you should definately put money in a retirement account as well. If your institution does not match the 403(b) it is likely better to place the first $3000 in a Roth IRA. There have been numerous discussions on this before.

Ed

 

[beriberi]

We do everything on Turbotax. So far, it handles all of our expenses/deduction easily and tells us what receipts to save for the next year. At 29.95 it beats the crap out of any accountant.

 

[southerndoc]

We do everything on Turbotax. So far, it handles all of our expenses/deduction easily and tells us what receipts to save for the next year. At 29.95 it beats the crap out of any accountant.

I'm still afraid that with all my stocks and deductions that I'd get screwed with a tax program like that. Maybe I'll give it a try next year (for this year's taxes). We'll see...

 

[Apollyon]

I'm still afraid that with all my stocks and deductions that I'd get screwed with a tax program like that. Maybe I'll give it a try next year (for this year's taxes). We'll see...

See, I have an interest-bearing savings account, paying me dismal interest. If I had my way, I would stuff my money in my mattress (until I have piles and piles of cash, which I will then invest; I'm still intractably pissed that I didn't invest in palladium last fall, at $180/oz - which is now at $236/oz (down $6)).

 

[edmadison]

I'm still afraid that with all my stocks and deductions that I'd get screwed with a tax program like that. Maybe I'll give it a try next year (for this year's taxes). We'll see...

I have a managed money acount and had several hundred securities transactions last year. I simply downloaded them from the brokerage firm into turbo tax. It was beautiful. The only thing I had to do was put in zero values for my expired calls. Last year I did it all manually -- OMG.

Ed

 

[docmojo]

See, I have an interest-bearing savings account, paying me dismal interest. If I had my way, I would stuff my money in my mattress (until I have piles and piles of cash, which I will then invest; I'm still intractably pissed that I didn't invest in palladium last fall, at $180/oz - which is now at $236/oz (down $6)).__________________


If that makes you mad then don't look at Yahoo! (YHOO). I bought it last year at 23. It is now in the 50's. Such is life. Sometimes you get a break, other times you get broken.
My accountant told my wife and I that he is always getting updates on Turbo Tax mistakes. He found a few on our previous returns. Turbo Tax is great (according to my accountant) if you don't have many investments or other income. Just an FYI.

 

[rajvosa]

According to the IRS website, you can deduct student loan interest ONLY if you are actually paying it off. You can deduct up to $2500 but once you start making $100,000 (combined income with your spouse) you will not be able to deduct it any more.

 

[edmadison]

According to the IRS website, you can deduct student loan interest ONLY if you are actually paying it off. You can deduct up to $2500 but once you start making $100,000 (combined income with your spouse) you will not be able to deduct it any more.

From IRS publication 970:

Include As Interest

In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest.

....

Capitalized interest. This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan.

....

Interest on refinanced student loans. This includes interest on both:

Consolidated loans ? loans used to refinance more than one student loan of the same borrower, and

Collapsed loans ? two or more loans of the same borrower that are treated by both the lender and the borrower as one loan.


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I'm pretty sure that you can deduct the interest at consolidation. I'd check with the lender to be sure.

Ed

 

[rajvosa]

Thanks man! Would you be able to explain how to do this deduction?

 

[wannabe_surgeon]

I've been told by an accountant that you can only deduct interest if you are interviewing for a job that you are currently employed in. Like if you work as a physician in NY, travel to MI to interview, then you can deduct taxes from that.

Interviewing for residency is considering part of training (there we go, the training v. employee debate again), and most residency interviewees aren't already employed as physicians or current residents.

Make sure you do a LOT of research before you try to use that deduction. You're right though, it's worth keeping in mind to at least see if you can do it.

So...I'm beginning a preliminary year in surgery this July, and planning on interviewing this winter for surgery again. Will these interviewing costs be deductible?

 

[dblakel]

My tuition was paid on 12/3/03. I'm assuming this break is only available for those that attended medical institutes kind enough to charge tuition after 12/31/03. Would have been nice to pocket an extra $1,000.

 

[edmadison]

My tuition was paid on 12/3/03. I'm assuming this break is only available for those that attended medical institutes kind enough to charge tuition after 12/31/03. Would have been nice to pocket an extra $1,000.

You could file an amended tax return to get the money back. Whether it is worth it or not really depends on how much income tax you paid in 2003. The lifetime learning credit isn't really a credit, it's an above the line deduction. If you very little income last year you may have nothing to gain by re-filing.

Ed

 

[WaitingForJuly]

From IRS publication 970:

Include As Interest

In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest.

....

Capitalized interest. This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan.

I may be reading it incorrectly but I don't think the IRS means that you can deduct the interest when it capitalizes. Rather, they mean that you can include payments that go toward the capitalized interest in your deduction.

 

[southerndoc]

So...I'm beginning a preliminary year in surgery this July, and planning on interviewing this winter for surgery again. Will these interviewing costs be deductible?

Possibly.

Definitely ask a tax attorney or accountant.

 

[nimboo]

Ok, I apologize, but I am still a little confused about the student loan interest deduction.

For example, as of today I owe about 11K in interest and 170K in loans. (I took out loans in college and never paid a cent back, so the interest accumulated).

I plan on consolidating all of my loans as soon as we find out the interest rates. When I consolidate, I believe that my interest will capitalize. So it will be a principal of 181 K. So does the interest loan deduction only apply to the interest that will accrue on new principal or does it apply as long as I make at least $2500 in payments?

Any info will be greatly appreciated.