Still don't understand deductability of medical specialty board exam fees

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EricaInvestPink
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Still don't understand deductability of medical specialty board exam fees

Post by EricaInvestPink » Sat Nov 16, 2019 11:10 am

Hello -

We are trying to figure out whether our medical specialty board exam fees (over $2300 ! for one stupid test!! Not to mention prep materials which are $1000+!!!) are tax deductible. Our primary jobs are W2 but we do have side 1099 income. The reason it is important for me is that we will make more from our 1099 income next year, so have to decide whether to just pay the board exam fees now vs wait for January 1 2020 and pay the fees then. I'm getting mixed messages doing my own research.

IRS suggests you can't:
https://www.irs.gov/publications/p529#e ... k100026944
Professional Accreditation Fees
You can't deduct professional accreditation fees such as the following.

Accounting certificate fees paid for the initial right to practice accounting.
Bar exam fees and incidental expenses in securing initial admission to the bar.
Medical and dental license fees paid to get initial licensing.
However, this is a little unclear. I'm unsure if specialty board exams (internal medicine, if it matters) would count as "initial licensing". Technically, initial licensing occurs after you pay a set of fees, have passed several exams (STEP exams), and complete a year of residency (typically an intern year). After this, you are "licensed" to practice medicine. At least this is how California works.

WhiteCoatInvestor says you can:
https://www.whitecoatinvestor.com/forum ... eductible/
My opinion is steps 1, 2, and 3 are not deductible but your board exams and future licenses and DEA registrations are.
Obviously, I like his opinion but want to make sure it is correct before making decisions on when to pay for the board exam.

Thanks!!

-E

O2sats
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Re: Still don't understand deductability of medical specialty board exam fees

Post by O2sats » Sat Nov 16, 2019 11:19 am

I believe that they are, especially if your side gig is related to medicine.

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Tamarind
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Re: Still don't understand deductability of medical specialty board exam fees

Post by Tamarind » Sat Nov 16, 2019 11:26 am

If I recall, zooming out a little from medicine, training and exams required to enter or continue working in a field are not deductible, but those which increase your skills or income in a field you already operate in are.

So if you didn't take the exam at all, would you be able to continue your side hustle? If not, you cannot deduct.
Last edited by Tamarind on Sat Nov 16, 2019 6:48 pm, edited 1 time in total.

mhalley
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Re: Still don't understand deductability of medical specialty board exam fees

Post by mhalley » Sat Nov 16, 2019 1:34 pm

Intuit says you can. The main thing is that they have to be over 2% of your income.
https://ttlc.intuit.com/community/tax-c ... /00/648412
Yes, you can deduct the cost of an exam if the expense was for education that either maintains or improves your job skills, or is required by your employer or by law to keep your salary, status or job. Expenses to learn a new trade or job aren't deductible.
Federal Taxes
Deductions & Credits
Employment Expenses, select Job-Related Expenses
Note: The deduction is subject to two rules:
2% rule - only amount over 2% of our Adjusted Gross Income will count, AND
It is part of your itemized deductions; if you are not claiming mortgage interest, real estate tax, charitable donations, etc., the deduction is not going to affect your tax bill/refund.

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EricaInvestPink
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Re: Still don't understand deductability of medical specialty board exam fees

Post by EricaInvestPink » Sat Nov 16, 2019 2:19 pm

O2sats wrote:
Sat Nov 16, 2019 11:19 am
I believe that they are, especially if your side gig is related to medicine.
It is.
Tamarind wrote:
Sat Nov 16, 2019 11:26 am
If I recall, zooming out a little from medicine, training and exams required to enter or continue working in a field are not deductible, but those which increase your skills or income in a field you already operate in are.

So if you didn't take the exam at all, would you be able to continue your side hustle? If so, you cannot deduct.
This is unfortunately what I was hoping not to hear. The side gig is at an urgent care, which we are allowed to work at with the general medical license (Medical Board of California) we obtained after our 1st year of residency. The board exam I would be taking after finishing residency, and the source of my question in this thread, would be the ABIM (American Board of Internal Medicine) exam. If I pass, I would become a board certified internal medicine physician. I wonder if it matters if, as a result of passing the board exam and becoming board certified, I will be eligible for a new job title at the same urgent care with a different payscale than a non-board certified position.
mhalley wrote:
Sat Nov 16, 2019 1:34 pm
Intuit says you can. The main thing is that they have to be over 2% of your income.
https://ttlc.intuit.com/community/tax-c ... /00/648412
Yes, you can deduct the cost of an exam if the expense was for education that either maintains or improves your job skills, or is required by your employer or by law to keep your salary, status or job. Expenses to learn a new trade or job aren't deductible.
Federal Taxes
Deductions & Credits
Employment Expenses, select Job-Related Expenses
Note: The deduction is subject to two rules:
2% rule - only amount over 2% of our Adjusted Gross Income will count, AND
It is part of your itemized deductions; if you are not claiming mortgage interest, real estate tax, charitable donations, etc., the deduction is not going to affect your tax bill/refund.
I guess I'm confused - we are almost definitely taking the standard deduction (since we don't have mortgage, real estate etc). I was thinking the board exam fee would go under schedule C for our 1099 income. I thought that wasn't subject to the 2% floor.

CRTR
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Re: Still don't understand deductability of medical specialty board exam fees

Post by CRTR » Sat Nov 16, 2019 2:35 pm

I understand how this is confusing. There are two ways to deduct: 1) if required for employment 2) CME credits

In the event that board cert is not required for your 1099 gig: If you can get CME credits for the taking the Cert exam, you can deduct 100% of all related expenses as a business expense on your sched c.

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White Coat Investor
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Re: Still don't understand deductability of medical specialty board exam fees

Post by White Coat Investor » Sat Nov 16, 2019 2:41 pm

Tamarind wrote:
Sat Nov 16, 2019 11:26 am
If I recall, zooming out a little from medicine, training and exams required to enter or continue working in a field are not deductible, but those which increase your skills or income in a field you already operate in are.

So if you didn't take the exam at all, would you be able to continue your side hustle? If so, you cannot deduct.
What? You mean if not?

I argue that exams required for licensure (USMLE steps) are not deductible but board exams (designed to increase your skills or income) are. Basically, is the field medicine or is it ophthalmology is the question. I argue it's medicine.

At any rate, the secondary issue is whether you're an employee or not. Obviously employees can't deduct squat. Despite the old Intuit post linked to above, there is no longer an unreimbursed employee expense deduction subject to the 2% of AGI floor on Schedule A. So you must have self-employment income to get the deduction anyway.

The OP has self-employment income to deduct the expense against (technically probably can only deduct the a fraction (self-employed income/total income)) so he/she should qualify for at least some deduction for the board exams.

You can deduct reasonable and necessary business expenses even if they don't qualify for CME credit. There is nothing about CME credit in the tax code.
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ralph124cf
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Re: Still don't understand deductability of medical specialty board exam fees

Post by ralph124cf » Sat Nov 16, 2019 4:41 pm

I would take the position that this is not a deduction, but is a business expense for Schedule C 1099 income. This is much better than a deduction.

If only W-2 income, no deduction.

Ralph

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Tamarind
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Re: Still don't understand deductability of medical specialty board exam fees

Post by Tamarind » Sat Nov 16, 2019 6:48 pm

White Coat Investor wrote:
Sat Nov 16, 2019 2:41 pm
Tamarind wrote:
Sat Nov 16, 2019 11:26 am
If I recall, zooming out a little from medicine, training and exams required to enter or continue working in a field are not deductible, but those which increase your skills or income in a field you already operate in are.

So if you didn't take the exam at all, would you be able to continue your side hustle? If so, you cannot deduct.
What? You mean if not?
It was an editing error. Fixing now. Thanks!

I think WCI is the most informed advisor you are likely to find here. I was just researching this issue (business expenses on Sch. C) wrt an exam I was about to take that is not connected to a license but would increase the rate I could command.

Xrayman69
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Re: Still don't understand deductability of medical specialty board exam fees

Post by Xrayman69 » Sat Nov 16, 2019 10:41 pm

Tamarind wrote:
Sat Nov 16, 2019 6:48 pm
White Coat Investor wrote:
Sat Nov 16, 2019 2:41 pm
Tamarind wrote:
Sat Nov 16, 2019 11:26 am
If I recall, zooming out a little from medicine, training and exams required to enter or continue working in a field are not deductible, but those which increase your skills or income in a field you already operate in are.

So if you didn't take the exam at all, would you be able to continue your side hustle? If so, you cannot deduct.
What? You mean if not?
It was an editing error. Fixing now. Thanks!

I think WCI is the most informed advisor you are likely to find here. I was just researching this issue (business expenses on Sch. C) wrt an exam I was about to take that is not connected to a license but would increase the rate I could command.
Board certification is not required to practice medicine in most states. A medical license is required to practice medicine or surgery. An individual can technically and legally practice medicine in their own private office without board certification but have a valid medical license. Board certification is a “quality” screen that ostensibly provides some “validation” of competency.

Many hospitals will not allow privileges to function within the hospital without a board certification but again this would not preclude the individual from setting up a private practice. Potential patients may not be interested in being cared for by an individual who is not board certified but this would not be precluded. On the other hand A board certified physician without a valid medical license in a state can not practice medicine or surgery.

I would thus interpret that board certification highly likely permits the individual to make a higher compensation. Therefore not required but helpful for higher pay.

CME activities are frequently directly linked to eligibility for license renewal and thus may not be so easily interpreted as a stand-alone means to make more money. No CME, no license renewal, therefore CME is required part of job and not an enhancing activity. That being said often time CME may provide a new set of knowledge and thus open up additional revenue streams such as learning a new procedure. In this case this CME was intended to increase a new revenue source and thus could be considered added value and not a requirement.

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Re: Still don't understand deductability of medical specialty board exam fees

Post by White Coat Investor » Sun Nov 17, 2019 12:47 am

Tamarind wrote:
Sat Nov 16, 2019 6:48 pm
White Coat Investor wrote:
Sat Nov 16, 2019 2:41 pm
Tamarind wrote:
Sat Nov 16, 2019 11:26 am
If I recall, zooming out a little from medicine, training and exams required to enter or continue working in a field are not deductible, but those which increase your skills or income in a field you already operate in are.

So if you didn't take the exam at all, would you be able to continue your side hustle? If so, you cannot deduct.
What? You mean if not?
It was an editing error. Fixing now. Thanks!

I think WCI is the most informed advisor you are likely to find here. I was just researching this issue (business expenses on Sch. C) wrt an exam I was about to take that is not connected to a license but would increase the rate I could command.
While I appreciate the compliment, to be clear I am a physician and a blogger. I am not a licensed or registered financial advisor of any type in any state and do not provide personalized, formal financial advice for pay.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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EricaInvestPink
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Re: Still don't understand deductability of medical specialty board exam fees

Post by EricaInvestPink » Sun Nov 17, 2019 10:39 am

White Coat Investor wrote:
Sat Nov 16, 2019 2:41 pm
Tamarind wrote:
Sat Nov 16, 2019 11:26 am
If I recall, zooming out a little from medicine, training and exams required to enter or continue working in a field are not deductible, but those which increase your skills or income in a field you already operate in are.

So if you didn't take the exam at all, would you be able to continue your side hustle? If so, you cannot deduct.
The OP has self-employment income to deduct the expense against (technically probably can only deduct the a fraction (self-employed income/total income)) so he/she should qualify for at least some deduction for the board exams.
Wow I had no idea about this fraction! I will likely only be earning ~$5-10k next year from this side job and was hoping to fully deduct a lot of things (boards, conferences+travel, some fancy scrubs...) Our combined W2 income is ~$150k, and combined W2+1099 income for both of us is >$200K (spouse does more 1099 than I do, about $20-30k a year). So this makes it seem that we can only deduct a small percentage of these tests since our self-employed income/total income ratio is pretty low.

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Re: Still don't understand deductability of medical specialty board exam fees

Post by White Coat Investor » Sun Nov 17, 2019 6:14 pm

EricaInvestPink wrote:
Sun Nov 17, 2019 10:39 am
White Coat Investor wrote:
Sat Nov 16, 2019 2:41 pm
Tamarind wrote:
Sat Nov 16, 2019 11:26 am
If I recall, zooming out a little from medicine, training and exams required to enter or continue working in a field are not deductible, but those which increase your skills or income in a field you already operate in are.

So if you didn't take the exam at all, would you be able to continue your side hustle? If so, you cannot deduct.
The OP has self-employment income to deduct the expense against (technically probably can only deduct the a fraction (self-employed income/total income)) so he/she should qualify for at least some deduction for the board exams.
Wow I had no idea about this fraction! I will likely only be earning ~$5-10k next year from this side job and was hoping to fully deduct a lot of things (boards, conferences+travel, some fancy scrubs...) Our combined W2 income is ~$150k, and combined W2+1099 income for both of us is >$200K (spouse does more 1099 than I do, about $20-30k a year). So this makes it seem that we can only deduct a small percentage of these tests since our self-employed income/total income ratio is pretty low.
I'm not saying most people do that, but I do believe that's the technically/legally correct way to do it.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

tj
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Re: Still don't understand deductability of medical specialty board exam fees

Post by tj » Sun Nov 17, 2019 7:02 pm

If these fees are relevant for both your W2 job and your 1099 income, I don't believe that you can just arbitrarily decide which income stream to assign the expense to.

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