Tax Planning for Physicians and Medical Practices: S-Corp Structure, Retirement Plans, and SSTB Considerations

By Yarik Yarosh, CPA ·September 5, 2026 ·5 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Physicians are among the highest-taxed professionals in the country, not because of their tax rates (which are the same as any other taxpayer at the same income level), but because their income level pushes them into the highest brackets while their SSTB classification under IRC 199A eliminates one of the most valuable deductions available to other business owners. Under IRC 199A(d)(2), “health care” is explicitly listed as a specified service trade or business, which means the 20% QBI deduction phases out completely for physicians with taxable income above $266,950 (single) or $533,900 (MFJ) under the OBBBA thresholds. For a physician earning $500,000, the lost QBI deduction represents $100,000 x 20% = a $37,000 tax increase compared to a non-SSTB business at the same income level. This makes the S-Corp election and retirement plan maximization the two most critical tax planning strategies for physician-owners, because these are the tools that actually reduce taxable income rather than trying to work around the SSTB classification.

✓Key takeaway

Physician tax planning priorities:

Strategy	Annual Tax Savings	Complexity
S-Corp election (salary vs. distribution split)	$15,000-$40,000	Low
401(k) + profit sharing	$17,400-$25,900	Low
Cash balance plan (age-dependent)	$55,500-$148,000	Medium
HSA contributions ($8,550 family)	$3,164	Low
Cost segregation on medical office	One-time: $30,000-$100,000+	Medium
Equipment depreciation (Section 179/bonus)	Varies by purchase	Low
Hiring family members	$5,000-$15,000	Low
PTET election (high-tax state)	$10,000-$40,000	Low

SSTB impact on physicians:

Income Level (MFJ)	QBI Deduction Available?	QBI Deduction Lost
Below $366,950	Full 20% QBI deduction	$0
$366,951-$533,900	Partial (phasing out)	Partial
Above $533,900	$0	Full (e.g., $100,000 on $500K QBI)

How do physicians minimize their tax burden?

Hypothetical example

Round numbers. A physician earns $600,000 in net practice income through an S-Corp.

S-Corp salary optimization:

Salary Level	Distribution	Payroll Tax	Income Tax	Total Tax
$600,000 (no S-Corp, all SE)	$0	$45,000	$222,000	$267,000
$250,000 salary	$350,000	$27,000	$222,000	$250,000
$200,000 salary	$400,000	$24,000	$222,000	$246,000
Savings (S-Corp at $200K salary)				$21,000

Reasonable salary for a physician depends on specialty, hours, and geographic market. A $200,000-$300,000 salary for a physician generating $600,000 in practice revenue is generally defensible.

Retirement plan stacking (physician age 50):

Plan	Annual Contribution	Tax Savings (37%)
401(k) employee deferral	$23,500	$8,695
401(k) catch-up (age 50+)	$7,500	$2,775
Profit sharing (25% of $200K salary)	$39,000	$14,430
401(k) subtotal	$70,000	$25,900
Cash balance plan (age 50, designed for ~$200K/year)	$200,000	$74,000
Total retirement contribution	$270,000	$99,900

After retirement plan contributions:

Item	Amount
Practice net income	$600,000
Retirement contributions	($270,000)
Salary (net of retirement)	$200,000 - $70,000 = $130,000 (take-home salary)
S-Corp distributions	$400,000 - $200,000 = $200,000
Taxable income (before other deductions)	$330,000
Tax on $330,000 (37% marginal, effective ~25%)	~$82,500
Payroll tax on $200K salary (minus retirement)	~$18,000
Total tax	~$100,500
Effective rate on $600,000	16.75%

Without planning ($600K all as SE income, no retirement):

Item	Amount
Total tax	~$267,000
Effective rate	44.5%
Tax savings from S-Corp + retirement stacking	~$166,500

Medical equipment depreciation:

Equipment	Cost	Recovery	Year 1 Deduction
X-ray / imaging equipment	$150,000	5-year	$150,000 (100% bonus)
Dental chairs and instruments	$80,000	5-year	$80,000
EMR system (hardware + software)	$50,000	5-year	$50,000
Office furniture	$20,000	7-year	$20,000
Medical office buildout (QIP)	$200,000	15-year	$200,000 (100% bonus)
Total	$500,000		$500,000
Tax savings (37%)			$185,000

Multi-physician group planning:

Strategy	Details
Each physician as S-Corp shareholder	Each physician controls their own salary/distribution split
Separate cash balance allocations	Higher-earning or older physicians can receive larger contributions
Ancillary business entities	Lab, imaging, or surgery center as a separate non-SSTB entity (may qualify for QBI deduction if not “health care” per se)
Real estate entity	Own the medical office in a separate LLC; charge fair market rent to the practice; rental entity is not an SSTB

PTET for physicians in high-tax states:

State	Practice Income	PTET Paid	Federal Tax Savings
California	$600,000	$55,800 (9.3%)	~$20,000
New York	$600,000	$51,000 (8.5%)	~$18,000
New Jersey	$600,000	$58,500 (9.75%)	~$21,000

Hiring family members:

Family Member	Role	Salary	Tax Benefit
Spouse (office manager)	Scheduling, billing, compliance	$40,000-$60,000	Shifts income to lower bracket; additional retirement plan contributions
Child (age 18+, part-time)	Filing, data entry, cleaning	$15,000	Standard deduction covers tax; funds Roth IRA
Child (under 18, sole proprietorship only)	Same	$15,000	No FICA (under 18, parent’s sole prop); standard deduction covers tax

Illustrative numbers only, not a real client and not advice for your facts.

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Cite this page

Yarik Yarosh, CPA. "Tax Planning for Physicians and Medical Practices: S-Corp Structure, Retirement Plans, and SSTB Considerations." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-tax-planning-healthcare-medical-practice-physicians

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.