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

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.

How do physicians minimize their tax burden?

Which physician practice expenses need a closer look?

If you own your practice through an S-Corp as a 2% shareholder, you can deduct health insurance premiums for yourself, your spouse and dependents as self-employed health insurance when the plan is set up through the S-Corp, with your S-Corp wages as the earned income limit. It isn’t allowed for any month you’re eligible for a subsidized plan through your own or a spouse’s employer, which matters if your spouse works at a hospital.

Medical license renewals and other regulatory fees are deductible, and so is malpractice insurance, though a policy prepaid for several years is deducted one year at a time. AMA and specialty society dues aren’t treated as club dues. CME that maintains or improves your skills is deductible for the owner, while a physician employed on a W-2 can’t deduct CME or dues paid personally.

What entity structure works best for a business with multiple owners?

A multi-member LLC taxed as a partnership is the most flexible default. It files Form 1065 and issues K-1s to each member, with the operating agreement controlling profit allocation, voting rights, and buyout terms. An S-Corp works if all owners are US individuals (no entity or foreign owners), the business has no more than 100 shareholders, and everyone agrees on equal-class stock. A C-Corp is necessary if you want venture capital (preferred stock classes), have foreign owners, or plan to retain significant earnings at the 21% corporate rate. LLCs offer the most flexibility for unequal profit splits, special allocations, and varying capital contributions.

Related guides:

• Tax Planning for Medical and Dental Practices: Entity Structure, Equipment, and Retirement Strategies

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