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Discover appropriate way to handle moving expenses.
Q: I am moving to a different state for a job. I am paying my own tail coverage. Can I deduct it as a moving expense (I would not need to buy tail coverage if I weren't moving) or a job-related expense? For tax purposes, is it better to list it one way versus another?
A: Neither the federal tax code, regulations, or any Internal Revenue Service rulings contain any provisions allowing malpractice tail coverage to be deducted as a moving expense.
Self-employed doctors are allowed to deduct (on Schedule C) malpractice tail coverage as an expense against their ordinary income, even if moving or retiring. Corporations also can deduct tail coverage as an ordinary and necessary expense against practice income.
Unreimbursed employee expenses (such as malpractice premiums) are further limited and are deductible only to the extent that they exceed 2% of your adjusted gross income (AGI). So if your AGI for the year is $300,000 and your tail coverage is $50,000 you can deduct $44,000 [$50,000-$6,000 ($300,000 x .02)] as an unreimbursed employee expense.
Your benefit might be reduced further or eliminated if you are subject to the alternative minimum tax (AMT), as many doctors are. Unreimbursed employee expenses are not deductible for AMT purposes.
If you find yourself in the AMT conundrum, see whether your employer will pay the insurance costs, even if they are deducted from your salary. Doing so will allow the cost to be fully deductible.
Send your money management questions to firstname.lastname@example.orgAnswer provided by Medical Economics editorial consultant Barry Oliver, CPA, PFS, Thomas, Wirig, Doll & Co. Capital Performance Advisors, Walnut Creek, California.