I am considering switching from being an independent contractor to be a salaried pediatrician (employee). I am pretty sure my potential employer will not be providing a tail coverage for me if I choose to leave the practice in the future and will not be providing health coverage for my family. Am I able to deduct the cost of tail coverage or the cost of health insurance premiums for my family? Also, am I allow to set up a FSA or HSA to help with the health insurance premiums/out of pocket costs? Lastly, there is no option for a 401K for the first year. What else can I do to put money towards retirement besides an IRA?

Zip Code: 85383

Let's start with the easier questions first:

For your retirement savings, you say that you don't have access to your new employer's 401(k) plan, but you will have self-employment income for the first part of the year. Based on that info, you should be able to contribute money into a SEP IRA or Solo 401k for 2009. You can make tax deductible contributions of 20% of your net self-employment earnings into a SEP or ,500 plus 20% of your self-employment earnings into a Solo 401k. (For more info on retirement plans for self-employed individuals, check out http://www.mdtaxes.com/news0706.html.)

With respect to your health insurance, your employer may offer an FSA, which allows you to elect to pay your out of pocket healthcare costs with pre-tax dollars. If the group is a small group, however, they may not offer an FSA.

If they offer you the option of a high-deductible health insurance plan, then you can personally pay into a Health Savings Account. The money you contribute is tax deductible, and any money that comes out of your HSA used for healthcare expenses is tax-free. (For more info on HSA's, check out http://www.mdtaxes.com/news0209.html.)

And with respect to the tail, this could be a big tax headache. If you pay off the tail down the road when you are working as an employee, you should probably claim the money you spend as a Miscellaneous Itemized Deduction. The problem is that those deductions are not allowed when calculating the Alternative Minimum Tax. So if nothing is done to eliminate the AMT, there's a good chance that you won't save any taxes down the road when you pay the tail.

For that reason, consider talking to the insurance company to see whether you might be able to make a payment towards your tail this year that you could deduct against your self-employment income. Or see if you can negotiate with your new employer to have them pay the tail in exchange for income they may owe you when you leave their practice.

You have enough different things going on with your taxes that it probably makes sense to schedule a meeting with one of the MDTAXES CPAs. Or, feel free to contact my office and we can schedule a time to talk on the phone.

Zip Code: 01801