Turn your medical practice into a tax-advantaged investment

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Most doctors find themselves battling burnout on two fronts: the relentless pace of seeing patients back-to-back and the financial pressure that comes with every quarterly tax estimate. When I started working with physicians, I assumed this financial juggling act was unavoidable in a high-paying career. But after spending years inside the financial trenches with doctors, I started to see a pattern. With the proper business structure, thoughtful compensation planning and a strategy for reinvestment, physicians can flip the script and transform their work from a source of stress into one of long-term financial leverage.

How your practice’s legal structure impacts your tax bill

Tal Binder
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It’s common for many physicians to form a professional limited liability company and then never really look at the paperwork again. They often don’t realize that the type of entity they choose dictates whether they get to keep or hand over five, and sometimes six, figures of their annual “earnings.” For example, if you elect S corporation status, your practice can pay you a reasonable W-2 salary, and the rest can be passed through as a distribution that avoids Medicare and sometimes even Social Security tax.

Recent analysis from a national firm, WCG CPAs & Advisors, shows that once a physician practice opts for S corporation status and the owner takes a “reasonable” W-2 salary, this change typically shaves 8% to 10% of net practice income off Social Security and Medicare taxes. That’s about $8,000 for every $100,000 in profit and even more as earnings climb.

A larger obstacle can now be the20% qualified business income (QBI) deduction. Since medicine is considered a specified service trade, this valuable tax break begins to phase out when your taxable income exceeds $383,900 for joint filers (or $191,950 for single physicians).

To potentially preserve this deduction, doctors might consider several strategies:

• Max out pretax retirement plans to bring their income back below the threshold.
• Spin off services like medical education programs or self-rental activities into a separate company, not classified as a specified service trade or business.

C corporations might tempt some owners with their flat 21% rate, but the issue of double taxation usually outweighs this benefit unless you plan to reinvest profits endlessly. Unlike C corporations, pass-through entities like S corporations or properly structured spin-offs don’t pay corporate tax at the entity level. Instead, profits flow through to the owner’s individual return, avoiding the double taxation that C corps face when distributing earnings. Most physicians discover that a pass-through status, combined with carefully planned retirement contributions, offers a cleaner, more flexible result.

Maximizing tax-advantaged growth inside your practice

Your salary covers your immediate bills, but actual ownership fuels your long-term goals. Physicians can build this ownership by moving extra cash into accounts that grow tax-deferred and even help reopen that 20% QBI deduction. Start with a 401(k) that combines elective deferrals with an employer profit-sharing component; for 2025, the total cap is $70,000 per physician. Once your income hits $500,000, consider adding a cash-balance pension. This fully deductible contribution can jump beyond $230,000 a year, significantly cutting your taxable income while supercharging your compounding for later years.

Another engine for equity growth sits in the back office. You can spin billing, imaging or other services into a separate entity, effectively transforming routine organizations, meaning that when physicians eventually exit and sell, the proceeds are taxed at long-term capital gains rates. At the same time, you keep control over clinical decisions.

Why physicians often turn to real estate investing

After securing their student loans, many physicians invest in real estate for its control, leverage and tax benefits. For example, buying the building you already lease turns rent into equity and lets you deduct both mortgage interest and annual depreciation. When the property’s value goes up, a 1031 exchange allows you to swap it for a larger asset without triggering capital gains tax, so your equity keeps compounding instead of going to the IRS.

The real magic, though, often comes from accelerated depreciation. A cost-segregation study can reclassify components like cabinetry, wiring and parking lots into assets that depreciate over five, seven or 15 years. Business Insider recently highlighted a physician-landlord who used this tactic to shave roughly$1.8 million off taxable income by front-loading deductions into the first few years of ownership. Today, that same approach is more attractive than ever: the 2025 updated 179D energy-efficiency incentive offers up to $5.80 per square foot for HVAC, lighting and envelope upgrades, potentially reducing a clinic’s tax bill with a single remodel.

These “paper losses” are even more potent if you or a spouse qualify as a real estate professional or meet the short-term rental rules. In that scenario, depreciation from the property can directly offset W-2 or 1099 income from the practice itself, potentially reducing (or even eliminating) taxes you’d otherwise owe on things like call pay and production bonuses.

Tax planning isn’t just some minor obligation you outsource. It’s often the very foundation beneath the business of medicine. When you methodically get everything right, especially with a team that genuinely understands health care and real estate, you turn your practice into a portfolio that funds whatever comes after the white coat.

Tal Binder is the CEO of Gelt, a modern tax company specializing in providing tailored tax solutions for high-income earners, investment-savvy individuals and business professionals.