Key Tax Changes Affecting Physicians When Filing Taxes for 2024

The past tax year brought a good number of key updates that are likely to impact high-earners such as physicians. Some of these include higher standard deductions, higher retirement plan limits, and significant AMT reforms. There’s also the looming sunset of the Tax Cuts and Jobs Act (TCJA) in 2025. Here are the highlights.

Standard Deduction Increases

The 2024 standard deduction has risen to $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household.

These amounts reflect a $750 increase for singles and $1,500 for joint filers compared to 2023. For those over 65, an additional $1,550 (joint) or $1,950 (single) applies.

What It Means

The higher standard deduction may lead more people to itemize deductions. But for many physicians, itemizing will still be beneficial, especially when adding in other deductions like property taxes and state/local taxes (SALT), which are capped at $10,000 combined.

Take a married couple with $25,000 in mortgage interest, $5,000 in charitable donations, and $10,000 in property taxes, for a total of $40,000 in deductions. This would mean $10,800 in additional deductions from the standard deduction, saving $3,456–$3,780 in federal taxes (assuming a 32–35% marginal rate).

Strategies to Consider

• Donate two years’ worth of charitable gifts in one year to exceed the standard deduction, then skip the next year. This can be paired with a donor-advised fund (DAF) for flexibility.
• Make sure you account for all eligible deductions, including mortgage interest, property taxes, and medical expenses.

Retirement Plan Changes

Retirement accounts can be a physician’s best friend when it comes to tax deferral and wealth building. In 2024, the IRS gives individuals a boost with these contribution limit increases:

Strategies to Consider

• Backdoor Roth IRA: For high-income earners who earn above the Roth IRA phaseout ($161,000 for single and $240,000 for joint filers) can contribute to a traditional IRA and convert it tax-free.
• If your employer allows after-tax contributions, the “Mega Backdoor Roth” strategy lets you convert up to $69,000 (minus your contributions and employer match) into a Roth IRA, where it can grow tax-free forever.

You can read more about the Mega Backdoor Roth in article I previously wrote.

Secure Act 2.0 Updates

The Secure Act 2.0 was passed in late 2022 but still has some changes taking effect in 2024. Here are the key highlights to be aware of.

1. No RMDs for Roth 401(k) Accounts

Prior to 2024, Roth 401(k) accounts had a major drawback: Unlike Roth IRAs, they were subject to required minimum distributions (RMDs) starting at age 73.

Previously, people would often roll Roth 401(k)s into Roth IRAs to avoid RMDs and forced retirees to withdraw funds they might not need, which limited their long-term tax-free growth.

Now, you can skip the paperwork and keep funds in your employer plan (if you like the investment options available).

Starting in 2024, Roth 401(k)s no longer require RMDs during the account owner’s lifetime. This aligns them with Roth IRAs, and lets these funds compound tax-free indefinitely.

Note that Roth accounts passed to beneficiaries remain tax-free (though they’ll need to take RMDs). So, if you don’t need the money, you can leave it untouched for heirs.

2. RMD Age Jumps to 73

The starting age for RMDs from traditional IRAs, 401(k)s, and other tax-deferred accounts has increased. Prior to 2023, RMDs began at age 72.

• 2023 onward: For those born in 1951–1959, RMDs start at age 73.
• 2033 onward: For those born in 1960 or later, RMDs start at age 75.

If you turn 72 in 2024, you can delay your first RMD until April 1, 2025 (the year you turn 73). And subsequent RMDs remain due by December 31 each year.

This change allows for an extra year of growth in the additional year before RMDs kick in.

But keep in mind that if you turn 73 in 2024 and delay your first RMD to April 1, 2025, you’ll need to take two RMDs in 2025, so be sure to plan for the taxes:

• The RMD for 2024 (by April 1, 2025).
• The RMD for 2025 (by December 31, 2025).

Health Savings Accounts (HSAs)

Many people overlook a great tax tool available, which is the Health Savings Account (HSA). If you’re enrolled in a High-Deductible Health Plan (HDHP), HSAs offer triple tax advantages which can lower your tax liability while preparing for future medical expenses.

HSAs offer:

• Pre-tax contributions (reducing taxable income).
• Tax-free growth on investments.
• Tax-free withdrawals for qualified medical expenses (e.g., prescriptions, doctor visits).

2024 HSA Contribution Limits

Keep in mind that contributions for 2024 can be made until April 15, 2025.

Strategies to Consider

• Contributions made through your employer are deducted pre-tax, which reduce your FICA taxes (Social Security and Medicare). This translates to lower income taxes and lower payroll taxes.
• Use HSAs as a stealth retirement account by paying current medical costs out-of-pocket and reinvesting HSA funds. After age 65, withdrawals for non-medical expenses are taxed like a traditional IRA.
• Even if your spouse has an HSA through their employer, you can contribute to your own HSA if you’re on a family HDHP. This doubles your tax-free savings potential.
• Remember to record all unreimbursed medical expenses, even from prior years.

TCJA Sunset in 2025

The Tax Cuts and Jobs Act (TCJA) of 2017 brought tax relief for high earners, but its clock is running out. Unless Congress extends it, most provisions will expire after December 31, 2025, reverting to pre-2018 tax rules.

Here are a few areas around the TCJA sunset for high earners to be aware of.

1. Top Marginal Tax Rate:

Current: at 37% rate which applies to single filers earning more than $609,350 and joint filers earning more than $731,200.

Post 2025: Reverts to 39.6%, which is a 7% hike for top earners. For example, a physician couple earning $800,000 could owe $10,000+ more annually in federal taxes alone.

2. QBI Deduction Phase-Out:

Current 2024 Rules

The Qualified Business Income (QBI) deduction allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities (e.g., S-Corps, partnerships). However, the deduction phases out for higher-income taxpayers:

• Single filers: Phase-out begins at $191,951 and ends at $241,950
• Married filing jointly: Phase-out begins at $383,901 and ends at $483,900

3. Standard Deduction and SALT Cap:

Current:

• The standard deduction nearly doubled since the TCJA, reaching $14,600 for single filers and $29,200 for married couples filing jointly in 2024.
• $10,000 SALT cap.

Post 2025:

• The standard deduction would indeed return to pre-TCJA levels if not extended.
• The $10,000 cap would expire after December 31, 2025, if not extended

Also, 31 states allow pass-through entity taxes (PTETs), letting practice owners deduct state taxes above the $10,000 SALT cap.

Strategies to Consider

• Accelerate income to lock in today’s lower rates before the 39.6% bracket returns:
• Negotiate to receive 2026 bonuses in 2025.
• Exercise non-qualified options or sell appreciated shares.
• Harvest gains in 2024–2025 (rates stay at 0%/15%/20%).
• For practice owners, pull forward billings or delay expenses to boost taxable income.
• Convert traditional IRA and 401(k) plan funds to Roth accounts while rates are lower. You’ll pay taxes today at 37% instead of 39.6% (or higher) later.
• Consider accelerating PTET payments before 2026.

Estate Rules and Gift Tax Updates

Estate and gift tax rules in 2024 give an opportunity to transfer wealth tax-free, but time is running out. The Tax Cuts and Jobs Act (TCJA) doubled estate and gift tax exemptions in 2018, but these higher limits are set to halve in 2026.

2024 Estate Tax Exemption:

• $13.61 million per individual (up $690,000 from 2023).
• Married couples can combine exemptions for $27.22 million.
• If you have substantial assets (e.g., practice ownership, investments, or real estate) you can transfer nearly twice as much wealth tax-free in 2024 compared to post 2026.

Current Annual Gift Tax Exclusion:

•    $18,000 per recipient (up from $17,000 in 2023).
•    You and your spouse can gift $36,000 annually to each child or grandchild tax-free.

Strategies to Consider

• Use gifting strategies now to lock in the higher 2024 exemptions.
• Maximize 529 plans for grandchildren’s education. Contributions count as completed gifts and grow tax-free.

Alternative Minimum Tax (AMT) Changes

The AMT is a parallel tax system designed to ensure high-income individuals pay a minimum level of tax, even with deductions and credits. Taxpayers calculate their tax liability under both the regular tax system and the AMT, then pay whichever is higher.

Key AMT Features in 2024

1. AMT rate at 26% on taxable income up to $232,600 for all taxpayers (and $116,300 for married couples filing separate returns).
2. 28% rate on AMT income above these thresholds
3. Exemption Amounts:

– Single filers: $85,700 (phase-out begins at $609,350)

– Married filing jointly: $133,300 (phase-out begins at $1,218,700)

3. Key AMT Calculations:

– Capital gains and qualified dividends are fully included in AMT taxable income (no special rates apply under AMT)

– Incentive stock options (ISOs) may trigger AMT liability when exercised

– Certain itemized deductions (like state and local taxes) are limited or not allowed

Strategies to Consider:

1. Time the exercise of ISOs to minimize AMT impact
2. Consider your AMT implications when selling investments or real estate
3. Keep an eye on income levels near phase-out thresholds and defer income when possible
4. Structure large transactions to spread income over multiple tax years

1099-K Reporting Threshold

Lastly, in 2024, the 1099-K reporting threshold is reduced to $5,000 (from $20,000). For those with side hustles (e.g., telehealth consulting, rental income) you’ll need to report transactions exceeding this threshold.

Final Thoughts

With all the key tax changes for 2024, you’ll want to understand these areas so you can optimize your tax strategy before filing taxes before April 15.

Keep in mind that certain strategies like maxing out employer retirement contributions or executing Roth conversions, have year-end deadlines. Finally, the TCJA’s 2025 sunset means today’s favorable rates and exemptions could be coming to an end.

Overall, you might not want to wait too long since no one knows when Congress might make unexpected changes.

This article is meant for informational purposes only and is not professional tax advice. Consult a qualified tax professional for personalized guidance.