Tax Planning for Medical Practices and Physicians: Entity Structure, Equipment Depreciation, and Locum Tenens Income

Physicians and medical practice owners sit in an unusual tax position: their income is high enough to trigger the maximum tax rates and phase-outs, their profession is classified as an SSTB (eliminating the QBI deduction for most), their practices are capital-intensive (requiring significant equipment investment), and their compensation structures range from employed (W-2 at a hospital) to self-employed (solo practice or locum tenens) to multi-physician groups (partnerships or professional corporations). Under IRC 199A, the “health care” SSTB category includes “physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar professionals providing medical services” (Treas. Reg. 1.199A-5(b)(2)(ii)). This classification means that physician-owners with taxable income above the phase-out threshold receive zero QBI deduction, making the S-Corp payroll tax strategy and retirement plan contributions the two most valuable planning tools available.

How should physicians and medical practices minimize taxes?

What can locum tenens physicians deduct on the road?

Travel away from your tax home for an assignment is deductible, including lodging and meals, as long as the assignment is temporary. An assignment that runs more than a year isn’t treated as temporary, so its travel costs aren’t deductible. Meals are generally 50% deductible, and the 80% rate is limited to people working under DOT hours-of-service rules.

• License fees in each state where you work are deductible regulatory fees, and so is malpractice coverage.
• CME that maintains or improves your skills is deductible. If an agency pays you on a W-2, you can’t deduct CME, dues or travel you pay yourself.
• A home office used exclusively and regularly for admin work can count as your principal place of business when you have no other fixed location for that work.

How do medical practice equipment purchases affect taxes?

Medical equipment (imaging machines, dental chairs, surgical instruments) is depreciable property. Most equipment falls into the 5-year or 7-year MACRS recovery period. Section 179 allows immediate expensing up to $2,500,000 for 2025 ($2,560,000 for 2026), limited to taxable income from your active trades or businesses, and bonus depreciation (100% for property acquired after January 19, 2025) applies to any remaining cost and can create a loss. Leasing versus purchasing has different tax treatment: operating lease payments are fully deductible as rent expense, while a capital lease is treated as a purchase for depreciation purposes. For high-value equipment financed through loans, the interest is deductible separately from the depreciation on the equipment itself.

What are the tax advantages of a Health Savings Account for medical practice owners?

HSA contributions are tax-deductible (or pre-tax through payroll), grow tax-free through investments, and withdrawals for qualified medical expenses are tax-free, creating a triple tax advantage unavailable with any other account type. For 2025, self-only HSA contribution limits are $4,300 and family limits are $8,550, with an additional $1,000 catch-up contribution for those 55 and older. You must be enrolled in a high-deductible health plan (HDHP) with a minimum deductible of $1,650 for self-only or $3,300 for family coverage in 2025 to contribute to an HSA. Medical practice owners can offer HSAs alongside a group HDHP, making employer contributions that are deductible as a business expense and excluded from employees’ taxable income, while also funding their own HSA for personal tax savings.

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