Five Ways CRNAs Can Minimize Their Tax Burden
by Jeremy L. Stanley, CFP®, AIF®
One of the great things about being a CRNA is the lucrative salary. What’s not so great are the high taxes that accompany it. A 2015 Gallup poll showed that 63% of Americans are dissatisfied with the amount they pay in taxes, and many CRNAs fall into this category1. With an average salary of $160,2502, CRNAs can pay between 28% and 35% just in federal taxes (depending on their filing status and spouse’s income)3. On top of that, CRNAs receiving a W-2 face limited tax deduction options, as they often can’t take advantage of deductions for business, travel, and other expenses.
Beyond income taxes, many CRNAs are bumping up against the Alternative Minimum Tax (AMT). The AMT is a supplemental income tax required in addition to the baseline income tax for select taxpayers who have deductions and exemptions that allow for lower payments of standard income tax. This means that some taxpayers must calculate their liability twice (first under income tax rules and second under AMT rules) then pay the higher amount. While this tax was initially designed to keep wealthy taxpayers from using loopholes to avoid paying taxes, it now impacts more than 5 million filers. The AMT exemption is similar to the standard deduction for calculating your alternative minimum tax. For single taxpayers, the 2017 exemption amounts start at $54,300 and phase out at $120,700, and for married couples filing jointly, the amounts range between $84,500 and $160,900.4
Working with a tax professional throughout the year can help you legally minimize your overall tax liability and chances for owing the AMT, including CRNAs who receive a W-2. Here are a few strategies for minimizing your taxes.
Understanding W-2 versus 1099 Tax Planning
Before diving into tax strategies, it’s essential for CRNAs to understand the differences between W-2 tax planning and 1099 tax planning.
As a CRNA receiving a 1099, whether full or part-time, you can take tax deductions that a W-2 employee cannot take, including deductions for travel expenses, insurance, office and medical supplies, and other business-related expenses (as well as saving significantly more money each year in tax-advantaged retirement accounts). Depending on your job status and goals, you may consider working as a business owner or freelancer and using a 1099, which gives a wider array of options for tax deductions. A tax professional may also help you take advantage of deductions you weren’t aware you were eligible for.
Use the Correct Filing Status
Your filing status determines your filing requirements, standard deduction amount, eligibility for a variety of tax deductions, and the amount of tax owed annually. When it comes time to file, make sure you determine which filing status is most appropriate for you.
Currently, there are five IRS filing statuses:
Single
Married filing Jointly
Married filing Separately
Head of Household
Qualifying Widow with Dependent Child(ren).
It is important that you select the correct filing status for your given situation. The IRS provides a few basic tips to help you determine which filing status is most appropriate for you:
Your status on the last day of the year determines your status for the entire year. For example, if you were married on December 27th, even though you spent the majority of the year working as a single professional, you must file your return as married.
If your spouse died during the tax year, and you didn’t remarry, you may choose to file a joint return for that respective tax year.
Married couples can choose to file separate returns, but depending upon their state of residence, a financial benefit may not result.
The term ‘head of household’ applies to filers who are not currently married. In order to claim this filing status, the individual must be financially responsible for at least 50% of all costs resulting from maintaining a household, including those costs of another qualifying person.
If more than one of the available filing statuses is applicable, choose the one that results in the least amount of tax owed.5
Use Tax-Favored Retirement Accounts
If you are an employee of a hospital, you may not have as much room to strategize regarding your tax-favored retirement savings. However, if you are a freelancer or business owner, you can employ a variety of strategies to lower your total tax bill. As highly compensated professionals, pre-tax contributions into qualified retirement plans can reduce your adjusted gross income. The most common employer-provided qualified plans are 401(k) and 403(b) plans.
As of 2017, CRNA employees with a 401(k) or 403(b) can defer up to $18,000 of their annual earned income on a pre-tax or after-tax basis. Participants over the age of 50 can also take advantage of the catch-up provision and contribute an additional $6,000 (These amounts can change annually).6
One of the many benefits of being a business owner or freelancer is that you can lower your total taxable income even further. Solo 401(k)s and SEP IRAs are the two primary qualified plan types available. With a SEP IRA, you as an ‘employer’ can contribute up to 25% of your compensation or up to $54,000.7 For solo 401(k)s, the annual employee contribution limit is the same as the traditional 401(k) plan ($18,000 for the 2017 tax year, or $24,000 for those over the age of 50). In addition, ‘your company’ can also contribute a profit sharing contribution of up to 25% of your income allowing total combined contributions to the plan of up to $54,000 (or $60,000 including the catch-up contribution if you’re over the age of 50).6 Some solo 401(k) plans also offer a Roth provision which will allow you to designate some of your elective salary deferrals as Roth contributions. This means that you can put post-tax dollars into a retirement plan which will grow (including the earnings) generally tax free.8 Because of their high salaries, many CRNAs are not eligible to contribute to a traditional Roth IRA, so this may be a good option to diversify funds for retirement.9
Search for Eligible Tax Deductions
The amount you are taxed is based on your taxable income. The lower your taxable income, the less you’re taxed. Tax deductions can help you reduce your taxable income; two-thirds of all tax returns use the standard deduction because many taxpayers aren’t familiar with this strategy.10 Don’t overpay your taxes by not taking full advantage of available tax deductions. You may be eligible to take advantage of one or more of the following tax credits, exemptions or deductions:
Earned Income Tax Credit: For CRNA employees who earned less than $49,078 from wages or self-employment, a tax credit up to $5,751 may be available.
Child and Dependent Care Tax Credit: If you have paid ongoing expenses for the care of qualifying children under age 13, a disabled spouse or other dependent, including a parent, you may be eligible to take advantage of this credit.
Child Tax Credit: If you have qualifying children, depending on your income, you may be eligible to take a deduction up to $1,000 per child in addition to the above mentioned child care credit.
Education Credits: These education credits are available to help offset higher education costs for yourself or eligible dependents. There are two primary education credits currently available, which include:
Lifetime Learning Credit: Up to 20% of the tuition costs, limited to $10,000 of expenses, may be deducted for each eligible student for higher education expenses such as tuition, fees and books required to complete courses. The credit is eligible for married couples filing a joint return with a modified adjusted gross income of $120,000 or less.
The American Opportunity Credit: Up to $2,500 per eligible student may be deducted for up to 4 years of postsecondary education. Each eligible student must be pursuing either an undergraduate degree or approved credential. Full credit is available to married couples filing a joint return with a modified adjusted gross income of $160,000 or less.
Sales Tax Deduction: While this tax offers benefits for all U.S. residents, it offers the greatest benefit for residents of states not currently imposing state taxes. Why? Filers can deduct the greater of their state and local income taxes or state and local sales taxes. If you completed large retail purchases within the most recent tax year (car, boat, furniture, etc.), then this deduction could result in significant federal income tax savings. Additionally, if you live in a state with income tax, the sales tax deduction can limit the federal tax-ability of your state refund.
Real Estate Deductions. If you own a home, you can deduct expenses by itemizing deductions on a Schedule A. You may be eligible to deduct mortgage interest on up to two properties as well as real estate taxes all properties, if not listed elsewhere on your return. Note, mortgage interest in excess of $1 million in acquisition debt, or for home equity debt that is not used to buy, build or improve your main home is subject to AMT calculations.
Rental Property Deductions & Income. Keep track of rental property deductions on a regular basis. If you or your spouse are a qualified real estate professional, you may be able to include potential losses on your annual tax return.
Other common tax deductions CRNAs may be eligible for include:
Interest paid on a first mortgage for your main home, as well as a second home for up to $1 million in loans.
Interest paid on second mortgages or home equity loans for your main home, as well as a second home for up to $100,000 in loans.
Interest paid on student loans (depending on whether or not your income is within allowable limits-many CRNAs may not qualify).
Investment losses.
Medical expenses (including health insurance premiums)
Professional fees exceeding 2% of your adjusted gross income (e.g. investment, financial planning, accounting, and some legal fees).
Deduct Eligible Charitable Contributions
Annual gifts to qualified charitable organizations may be deemed an eligible itemized deduction. Each gift must be noted on Schedule A of your 1040. If your annual non-cash gifts are in excess of $500, you must also complete IRS form 8283, which must be attached to your completed return. If you received benefits as a result of your charitable donation, only the amount in excess of the benefit received may be deducted. Non-cash property as well as investment donations can be deducted at their fair market value. If you donate clothing or other household items, consider using available online value calculators to determine the total value of your contribution, saving these records in the event of a tax audit. Records for all donations must be maintained, including bank records, payroll deduction notices, charitable donation receipts from the qualified organization, or phone records for text message donations.
Deduct Eligible Business Expenses
There are a number of benefits of being a 1099 CRNA (or business owner), and one of those is
tax deduction availability. Business owners, freelancers, and sole practitioners may be eligible
to deduct qualified business expenses on their annual tax returns. In order to qualify for these
business expenses as an employee, you must be itemizing using Schedule A.
Along with business owners, CRNAs working in traditional hospital settings may be eligible to
deduct the following non-reimbursed business expenses:
● Business travel (airline tickets, car rentals, taxi cab fees, business meals and
entertainment)
● Use of your vehicle for business purposes
● Business meals and entertainment (Be sure to note who you dined with, how long it
lasted and what was discussed on the receipt for verification purposes when it comes
time to claim the deduction)
● Continuing education (particularly that which is required to maintain professional
licensing requirements)
● Supplies and tools required for your position
In order to deduct qualified business expenses, you must maintain records to serve as proof
(bank statements, receipts, mileage logs), and the expenses claimed on your tax return must
not be part of a reimbursement plan at work.
In addition to taking advantage of each of the credits and exemptions, be sure to spend a few
minutes annually reviewing your tax withholding status. If you receive either a sizable tax bill or
refund annually, it may be wise to adjust your paycheck’s withholdings. If you owe, you need to
increase the amount taken from your paycheck in order to balance out your payments. If you
receive a refund, you are essentially providing the government with an interest free loan by
providing your hard earned capital over the course of the tax year. Instead, adjust your
withholdings so that you receive these funds over the course of the year. Additional
discretionary cash flow can be utilized for a variety of purposes, including debt repayment, cash
reserve accumulation, or retirement investments.
Business owners may also be eligible to establish material participation for tax purposes. In
terms of income taxes, tax law distinguishes between types of income, including income from
passive investments and active businesses in which a taxpayer “materially participates.” Many
sole proprietors are qualified to claim material participation because they often spend a
significant amount of time handling the day-to- day management of their business.
While there are a myriad of opportunities for reducing your taxes, CRNA business owners and
1099 filers have even more opportunities to minimize their tax liability. However you decide to
invest and plan for your financial future, it’s important to work with both an accountant, as well
as a CERTIFIED FINANCIAL PLANNER™ practitioner who specialize in serving the unique
needs and circumstances of CRNA business owners. CRNA Tax Associates ® specializes in
working with CRNAs to make the most of their earnings and collaborates with CRNA Financial
Planning® to keep your strategies aligned. Do you have questions about how we can help you?
To learn more about CRNA Tax Associates®, visit www.crnataxassociates.com or to schedule
an appointment, call 336.793.2264 or email jstanley@crnataxassociates.com.
1. http://www.gallup.com/poll/181241/americans-satisfaction- federal-taxes- low-side.aspx
2. http://www.bls.gov/oes/current/oes291151.htm
3. https://www.irs.com/articles/2015-federal- tax-rates- personal-exemptions- and-standard-
deductions
4. http://www.taxpolicycenter.org/briefing-book/what- amt
5. https://www.irs.gov/uac/newsroom/determining-your- correct-filing- status
6. https://www.irs.gov/retirement-plans/plan- participant-employee/retirement- topics-401k-
and-profit- sharing-plan- contribution-limits
7. https://www.irs.gov/retirement-plans/plan- participant-employee/sep- contribution-limits-
including-grandfathered- sarseps
8. https://www.irs.gov/retirement-plans/retirement- plans-faqs- on-designated- roth-
accounts#general
9. https://www.irs.gov/retirement-plans/plan- participant-employee/amount- of-roth- ira-
contributions-that- you-can- make-for- 2016
10. http://www.usatoday.com/story/money/personalfinance/2015/03/14/irs-taxes-
itemize/22869373/
11. https://www.irs.gov/publications/p527/ch03.html
The opinions voiced in this material are for general information only and are not intended to
provide specific advice or recommendations for any individual. This information is not intended
to be a substitute for specific individualized tax advice. We suggest that you discuss your
specific tax issues with a qualified tax advisor.
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning ® as well as CRNA Tax Associates ® .
He has been providing advice and guidance for Certified Registered Nurse Anesthetists
(CRNAs) for over two decades. As a CERTIFIED FINANCIAL PLANNER™, Jeremy has met
rigorous certification and professional standards set by the CFP Board. He is committed to
adhering to the principles of integrity, objectivity, competence, fairness, confidentiality,
professionalism and diligence when dealing with clients.
Jeremy is also the author of The Wealthy CRNA and A CRNA’s Life After Anesthesia. The
Wealthy CRNA features insights into becoming a financially successful CRNA and how to start
planning for your financial future, and has been prior approved for up to 4 Class A CE credits by
the AANA. A CRNA’s Life After Anesthesia serves as your financial roadmap for a smooth
emergence into retirement. It reviews recent changes in the CRNA industry along with the new
rules of retirement and the final steps of legacy planning. This book has been prior approved by
the AANA for up to 2 Class A CE credits.
