Tax Deductions

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Apr 1, 2012 - 6:57PM

Malpractice tail coverage

Hi - I was employeed from 1/2011-7/2011 in a private practice as an employee and when I left had to purchase my own malpractice tail insurance. I was unemployeed from 7/2011 until 10/31/2011. Is the malpractice tail that I am paying in 8 installments deductible? I paid the first 2 installments in 2011 and was going to list them as a deduction as an unreimbursed business expense. However, is it subject to 2% of the adjusted gross income (only the part that is over this amount is deductible)? Since I was not working for the previous employer any longer, I was not sure if it was included under this section or could be directly deducted. I also worked reviewing a medical-legal case and received compensation for this. I also was trying to figure out where to claim this income (on 1040 line 21) or complete a schedule C? If I complete a schedule C can the malpractice tail insurance be included in this as a deduction or does it depend on when I conducted the medical review?

Thank you for your advice,
Geriatric MD

Zip Code: 22942

Andrew Schwartz CPA

May 7, 2012 - 9:51AM

Re: Malpractice tail coverage

You would definitely get a bigger bang for your buck by claiming the amount paid for your malpractice insurance tail as a deduction on your Schedule C instead of as a Miscellaneous Itemized Deduction on the Schedule A. Remember, while professional expenses claimed on the Schdule C are fully deductible, expenses claimed as a Miscellaneous Itemized Deduction are only deductible to the extent they exceed 2% of your income, and then are capped if you are subject to the Alt Min tax.

You have two dynamics in place. Since the tail applies to the income you earned as an employee, it seems like it should be claimed as a Miscellaneous Itemixed Deduction. However, while you are paying the premium, you have no W-2 income, but only independent contractor income. That seems to suggest you might be able to claim this expense on your Schedule C.

So which way should you go with this deduction? It depends on a number of variables, including how aggressive or conservative you want to be with your taxes.

Zip Code: 01801