There are many reasons a physician may decide to pursue a side hustle. They may use it to pay off debt, accelerate their retirement savings, reduce their clinical hours to help burnout or just to add some variety to their week. The government clearly wants you to become self-employed as well. Here are just a few of the ways the Uncle Sam loves side hustlers.
Self-Employed Retirement Accounts
As I discussed in Stash Your Cash in a Solo 401(k), the government allows self-employed side hustlers to open a solo 401(k) and stash as much at $55,000/year in tax-deductible retirement savings. This is on top of whatever 401(k) you have through your main job. You could consider opening a SEP-IRA instead, but that will create problems for you down the road if you are interested in making backdoor Roth contributions.
If you really wanted to boost your retirement savings and you had significant steady side income you could even look into creating a defined benefit/cash balance plan and sock away another 50-100k/year. We’ll discuss this more in-depth in later posts.
Home Office Deduction
Do you have a room in your house dedicated to your side business? If so, your side hustle just bought you a new tax deduction. You can use the simplified method ($5/square foot for up to 300 square feet) for a $1500 deduction or you can use the more complicated method of calculating what percentage of your mortgage payments and utilities went to the square footage of your office. Either way your side hustle is shaving money off your tax bill.
Continuing Medical Education
Thinking about traveling for some CME related to your side hustle? It turns out that education is a business related expense. Whether your CME is at a ski resort, a sunny beach or even Disney World, the cost of registration, hotel and flight may all be tax-deductible.
Memberships, Certifications and Licenses
Being a doctor ain’t cheap. Between professional memberships, board certifications, state medical licenses and DEA licenses a physician could spend thousands of dollars before they make their first buck. While W2 employees can only cross their fingers and hope their employer will help reimburse them for these expenses, a side hustling physician can deduct all these costs from their income.
Travel & Lodging
Do you travel for work? Maybe you go out of town once a month to work a locums job out of state. Maybe you work remotely from home but twice a year you have to fly out of town for a face to face meeting. Your hotel and travel costs may also be tax-deductible as they are a necessary expense for conducting your business.
Accountants and Attorneys
As you start combining various side hustles your taxes get more complicated. You may have one W2 job, 3 independent contractor jobs and countless tax forms for real estate investments. I enjoy doing my taxes but I’m also an unapologetic finance nerd. If you would rather pay an accountant to help you sort it out, those expenses may be tax-deductible as well.
If you hire an attorney to review a contract or form a LLC (you must not have read You Don’t Need a LLC) Uncle Sam doesn’t want you to pay taxes on those expenses either. What a nice uncle!
Does your side hustle require you have a computer? Does it require you to have a cell phone so you can be accessible remotely? Do you need high-speed internet for web-based meetings or to review charts from home? Your computer, cell phone, internet and any other office supplies may be tax-deductible too.
Are your old scrubs looking worn out? Is your stethoscope one crack away from being completely useless? Replacing them sure sounds like ordinary and necessary business expenses to me.
There are many reasons to pursue a side hustle. Your motivations may be different than mine. Regardless of what got you interested in alternative income streams, its nice to know that Uncle Sam loves the self-employed.
Want To Learn More?
If you want to read more in depth about tax deductions for the self-employed you can check out the IRS’s website Schedule C: Profit or Loss From Business.
What do you think? Can you think of other incentives the govenerment provides to pursue a side gig? Have you taken advantage of these self-employed deductions? Share your thoughts and comments below.