Tax-Efficient Planning Strategies for Nurse Practitioners (PART 1)

You have established yourself in your field, commanding a certain income level for your expertise. However, that same income level requires careful tax-planning considerations due to the associated restrictions and phase-out limits set by the IRS.

You wouldn't expect your patients to read their own X-rays. Similarly, we wouldn't expect you to prepare your own tax return.

1 - Maximize Plan Contributions

Because you are a high-income earner, it is essential to take advantage of the pre-tax contribution benefit, which can potentially reduce your taxable income. In addition, since you can save the maximum allowed within your employer's retirement plan, maximizing your pre-tax contributions can be one of the best ways to pay less tax in the current year and keep more of the money you earn.

Retirement Plan Contribution Limits for 401(k), 403(b) and most 457 plans¹
- $22,500 (under age 50)
- $30,000 (age 50 and older)
- Employers can make a matching contribution or profit-sharing contribution up to 25% of compensation up to a maximum of $66,000.
- Total employer/employee contributions cannot exceed $66,000; $73,500 if age 50 or older.
IRA Contribution Limits (Traditional and Roth)²
- $6,500 (under age 50)
- $7,500 (age 50 and older)
Income Eligibility Requirements for a Roth IRA³

2 - Contribute to a Health Savings Account (HSA)

No other profession realizes the health benefit of quality healthcare better than Nurse Practitioners, so allocating dollars toward future medical expenses certainly hits a vein. Now add that HSAs qualify for a triple-tax benefit; you've got a prescription for tax-saving success.

Here is how it works:

- Contributions are tax-deductible
- Investments grow tax-free
- Withdrawals are tax-free for qualified medical expenses

Employee and Employer Maximum Contributions⁴

$3,850 for individuals (health insurance policy must have a deductible of at least $1,500)
$7,750 for families (health insurance policy must have a deductible of at least $3,000)
Individuals 55 and older can contribute an additional $1,000.

About 68% of people turning 65 will need some form of Long-Term Care during their lifetime.⁵

We all know that the cost of healthcare is rising. By funding an HSA, you can create a nest egg dedicated to paying for medical expenses in retirement.

📌PRO TIP - Be sure to deduct your contributions when you file your taxes if they are not payroll-deducted.

3 - Explore Tax-Focused Gifting

Smart moves can help you manage your taxable income and taxable estate. For instance, if you’re making a charitable gift, giving appreciated securities you have held for at least a year is one choice to consider. In addition to a potential tax deduction for the asset's fair market value in the year of the donation, the charity may be able to sell the stock later without triggering capital gains.

This discussion of tax-focused giving is for informational purposes only and is not a replacement for real-life advice. Please consult your financial, tax, and legal professionals before you modify your gifting strategy.

The annual gift tax exclusion allows you to remove assets from your taxable estate. You may give up to $17,000 ($34,000 if you are married) to as many individuals as you wish without paying federal gift tax, so long as your total gifts keep you within the lifetime estate and gift tax exemption of $12.92 million for 2023.⁶ Managing through the annual gift tax exclusion can involve a complex set of tax rules and regulations. Before adjusting your strategy, consider working with a professional familiar with the rules and regulations.

4 - Consider Tax-Loss Harvesting

Tax-loss harvesting refers to taking capital losses (you sell securities worth less than what you first paid for them) to help offset the capital gains you may have realized. Remember that securities' return and principal value will fluctuate as market conditions change, and past performance does not guarantee future returns. While this doesn’t eliminate your losses, it can be an approach to managing your tax liability.

Up to $3,000 of capital losses in excess of capital gains can be deducted annually. Any remaining capital losses above that can be carried forward to potentially offset capital gains next year.⁷ But remember, tax rules are constantly changing, and there is no guarantee that the treatment of capital gains and losses will remain the same in the coming years.

By taking losses this year and carrying over the excess losses into the next, you can offset some (or all) of your capital gains next year. However, before moving ahead with a trade, it’s important to understand the role each investment plays in your portfolio.

If you’re looking into this strategy, familiarize yourself with the IRS’s “wash-sale rule.” This rule indicates that investors can’t claim a loss on a security if you buy the same or a “substantially identical” security within 30 days before or after the sale.⁷

5 - Coordinate With Your Team of Advisors

Having your team of advisors working together to implement any of the strategies mentioned above is important. There are things you may be able to do now to address your current tax obligation and those you may be required to handle further down the road.

You know better than anyone that your financials are unique - and your needs can differ significantly from those of friends and family working outside the healthcare industry. As a result, your financial plan deserves the dedication of a financial advisor who knows how to position practitioners for long-term success.

An advisor who can accommodate your busy schedule, address your student loan debt, assess your risk coverage options and help prepare a legacy for your family. Additionally, you may want to work with someone who can help you establish a practice and transfer it to new ownership when you’re ready to retire. Finding a well-suited financial advisor can be one of the most impactful decisions you make regarding your financial plan.

If you need a professional advocate or want a second opinion, please see the calendar link below to schedule a convenient time to chat.

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This content is developed from sources believed to provide accurate information and provided by My NP Advisor. It may not be used to avoid any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.