Nursing Tax Benefits: What Can You Claim as an RN

Tax season is a time dreaded by many, including nurses. But did you know that nurses and healthcare workers have numerous opportunities for tax returns? In today's challenging economy, where the cost of living seems to rise exponentially, saving money and maximizing your tax return is more important than ever—especially for healthcare professionals like nurses.

Tax Deductions for Nurses 

When filing your taxes, one of your first decisions is to take the standard deduction or itemize your deductions. Let's explore each option.

Standardized Deduction

Set by the Internal Revenue Service (IRS), a standard tax deduction is a fixed amount subtracted from your income before calculating your taxable income. This amount varies depending on your filing status (single, married filing jointly, head of household, etc.) and is adjusted annually for inflation.

2023 tax year standard deduction amounts:

• Single or Married Filing Separately: $13,850
• Head of Household: $20,800
• Married Filing Jointly or Qualifying Widow(er): $27,700

2024 tax year standard deduction amounts:

• Single or Married Filing Separately: $14,600
• Head of Household: $21,900
• Married Filing Jointly or Qualifying Widow(er): $29,200

Choosing the standard deduction means you cannot itemize deductions for specific job or nursing-related expenses, nor can you claim other beneficial tax write-offs. The standardized deduction is commonly chosen because it simplifies the tax-filing process—you don't have to keep track of individual expenses, making it the easiest way to claim taxes.

Above-the-Line Deductions for Nurses

Deductions "above the line" are subtracted from your total income to calculate your adjusted gross income (AGI).

For example, let's say your total income is $50,000, and you have $5,000 in "above the line" deductions. If you choose the standard deduction of $12,950 for single filers, your taxable income would be $50,000 - $5,000 - $12,950 = $32,050.

In this scenario, the above-the-line deductions reduce your adjusted gross income, significantly impacting your overall tax liability. 

Why is this important for nurses?

Taking advantage of these tax benefits is crucial for nurses, as it can help maximize tax deductions and contribute to overall financial wellness by increasing tax refunds or reducing taxes owed.

Above-the-line deductions Nurses may qualify for include: 

• Student loan interest: You may be able to deduct up to $2,500 of interest paid on student loans, subject to specific criteria and income limits.
• Contributions to qualified retirement plans and IRAs: Contributions to traditional IRAs and certain retirement accounts are tax deductible.
• Health Savings Account (HSA) contributions: Contributions made to your HSA can be deducted, reducing your taxable income.
• Educator expenses: Eligible educators can deduct up to $250 for unreimbursed classroom supplies and professional development expenses.
• Employer-equivalent portion of self-employment taxes: If you're self-employed, you can deduct the portion equivalent to what an employer would pay for you.

While the standard deduction is often the easiest and most beneficial option for many nurses, especially those with relatively simple tax situations and no assets, it's essential to consider all available deductions, including above-the-line deductions to maximize your tax savings. 

Itemized Deductions 

Itemized deductions are specific expenses that you can deduct from your taxable income, such as state and local taxes, medical expenses, mortgage interest, and charitable contributions. Unlike the standard deduction, a fixed amount set by the IRS, itemized deductions allow you to deduct the actual amount of qualifying expenses you incurred throughout the tax year.

Common Itemized Deductions for Nurses:

Essential Living Expenses

• Medical Expenses: You can deduct medical expenses not reimbursed by insurance and exceed 7.5% of your adjusted gross income (AGI). This can include costs like doctor's visits, prescriptions, and medical supplies.
• Mortgage Interest: If you have a mortgage on your home, you can deduct interest paid on the loan, subject to certain limits.
• State and Local Taxes: You can deduct state and local income taxes or sales taxes, but not both. This deduction is subject to a limit.
• Charitable Contributions: Donations to eligible charitable organizations are tax deductible. Keep records of your contributions, including receipts or bank statements.

Work-Related Expenses

• Job-related Expenses: Certain job-related expenses not reimbursed by your employer may be deductible. This can include uniforms, tools, and travel expenses necessary for your job.
• Home Office Expenses: If you use a portion of your home regularly and exclusively for work, you may be able to deduct expenses such as utilities, rent, or mortgage interest for that space.
• Miscellaneous Deductions: This category includes various expenses such as tax preparation fees, investment expenses, and certain legal fees, subject to limitations.

To claim itemized deductions, you must list each qualifying expense on Schedule A of your tax return. Itemizing deductions can potentially result in a larger deduction than the standard deduction, but gathering and documenting your expenses requires more time and effort.

Choosing Standardized or Itemized Deductions

The choice between taking the standard deduction and itemizing deductions depends on your personal finances and circumstances. Using both methods, you should calculate your potential deductions to determine which option provides the most significant tax benefit.

Consider standardized tax deductions for:

1. Simplicity: The standard deduction is straightforward and requires minimal effort to claim. You don't need to keep track of individual expenses or gather receipts.
2. No Documentation Needed: Unlike itemizing, you don't need to provide Documentation for your deductions when taking the standard deduction.
3. No Minimum Expenses: No minimum threshold of expenses is required to claim the standard deduction, making it accessible for all taxpayers.
4. Fixed Amount: The standard deduction is a fixed amount set by the IRS, providing predictability in your tax planning.
5. No Need to Itemize: If your itemized deductions are less than the standard deduction amount, you're better off taking the standard deduction to maximize your tax benefit.

Consider itemized tax deductions for:

1. Potential for Higher Deductions: Itemizing allows you to deduct the actual amount of qualifying expenses, which can sometimes exceed the standard deduction amount.
2. Specific Deductions: Itemized deductions allow you to claim specific deductions that may not be available with the standard deduction, such as medical expenses, mortgage interest, and charitable contributions.
3. More Documentation Required: Itemizing deductions requires you to keep detailed records of your expenses and provide Documentation for each deduction claimed.
4. Time-Consuming: Itemizing deductions can be more time-consuming than taking the standard deduction, as you need to gather and organize your expenses.
5. Job-related Expenses: Certain job-related expenses not reimbursed by your employer can be deducted when itemizing, potentially reducing your taxable income.

The standardized deduction is often the easiest and most beneficial option for many taxpayers, especially those with relatively simple tax situations and no significant deductions to itemize. However, if you have substantial deductible expenses such as medical costs, mortgage interest, or charitable contributions, itemizing deductions may result in a larger tax benefit.

Calculating your potential deductions using both methods is crucial to determine which option is best for you, and consulting with a tax professional can help you make an informed decision based on your specific circumstances.

Should I Get An Accountant?

As nurses, taxes may not be our forte. For those with significant financial goals or seeking to maximize their returns, seeking expert advice is wise.

Accountants are incredibly helpful when it comes to taxes, ensuring you receive all the deductions you're entitled to. While tools like H&R Block or TurboTax are useful, especially for those with straightforward finances, they may not uncover all the potential savings that an accountant can.

Accountants can assist nurses in various ways, including:

• Navigating Complex Tax Laws: Healthcare expenses, retirement contributions, and other tax laws specific to nursing can be complex. An accountant can help you navigate these laws to ensure you maximize your deductions.
• Maximizing Deductions: Accountants are skilled at identifying deductions that you may overlook. They can help you maximize your deductions, potentially increasing your tax refund.
• Tax Planning: Accountants can help you with tax planning tactics to minimize your tax liability in future years. They can advise you on the best ways to structure your finances to reduce taxes.
• Audit Assistance: If the IRS ever audits you, an accountant can provide valuable assistance. They can help you gather the necessary documentation and represent you in dealings with the IRS.
• Peace of Mind: Perhaps most importantly, an accountant can provide you with peace of mind. Knowing that a professional handles your taxes can alleviate stress and ensure your taxes are done correctly.

While automated tools have benefits, they may not provide the same level of personalized advice and expertise that an accountant can offer. Consulting with an accountant may be the best choice for nurses with complex financial situations or those seeking to maximize their returns.

8 Tips to Lower Your Taxes

1. Max out your retirement contributions

Contributing to retirement accounts like a 401(k), 403(b), or IRA can lower your taxable income. For the 2023. Tax year, you can contribute up to $22,500 to a 401(k) or 403(b) and up to $6,500 to an IRA, with an additional catch-up contribution of $7,500 for anyone 50 or older.

2. Utilize Health Savings or Medical Savings Accounts 

Consider contributing to these accounts if your employer offers a Health Savings Account (HSA) or Medical Savings Account (MSA). Contributions are made on a pre-tax basis and can be used to pay for authorized medical expenses, lowering your taxable income.

3. Buy a home if you don't own one already

Homeownership can provide several tax benefits, including mortgage interest and property tax deductions. These deductions can drastically reduce your taxable income, especially in the early years of your mortgage when interest payments are highest.

4. Take advantage of education tax credits

If you're pursuing further education to advance your nursing career, you may be eligible for education tax credits. Examples of educational tax credits include the Lifetime Learning Credit or the American Opportunity Credit, helping to offset the cost of tuition and fees, reducing your tax liability.

5. Consider charitable contributions

Donating to qualified charitable organizations can benefit those in need and lower your tax bill. Keep a record of your donations, as charitable contributions are tax-deductible if you itemize.

6. Utilize tax-efficient investment strategies

Investing in tax-efficient investment vehicles like index funds or ETFs can help minimize capital gains taxes. These investments typically have lower turnover, resulting in fewer taxable events.

7. Take advantage of tax credits for home improvements

Making energy-efficient improvements to your home, such as energy-efficient windows or solar panels, can qualify you for tax credits that can lower your tax bill.

8. Review your tax withholding

Make sure your tax withholding is appropriate for your situation. If you have too much tax withheld from your paycheck, you give the government an interest-free loan. Adjusting your withholding can increase your take-home pay.

Disclaimer: The information presented in this article by Allnurses is for informational purposes only and should not be considered tax advice. Use this information to inform your research and discussions with your accountant or tax agency.