Physician Tax Planning Strategies to Reduce Taxes and Build Long-Term Wealth

Key Takeaways

• Physicians face unique tax complexity, and strategic planning can reduce taxes over time. The most effective physician tax planning strategies are those tailored to a physician’s career stage, family situation, and long-term goals.
• Retirement planning is a powerful tax tool. Maximizing tax-advantaged retirement contributions remains one of the most effective ways for physicians to manage taxable income, particularly during peak earning years.
• Business structure matters for practice owners. Choosing the right entity can impact self-employment taxes, benefits, and long-term flexibility.
• Multiple income sources require coordination. Physicians earning W-2 and 1099 income must pay close attention to deductions, estimated tax payments, and recordkeeping.
• State taxes should not be overlooked. Practicing in multiple states or relocating can introduce complex state and local tax considerations that affect overall tax exposure.
• Tax laws evolve. Ongoing changes to retirement rules, deductions, and income thresholds make regular review essential.

Physicians face unique financial challenges due to their high-income potential, complex compensation structures, and significant tax liabilities. Thoughtful physician tax planning, coordinated with an experienced financial advisor and accountant, can meaningfully reduce both near-term and long-term tax exposure. Below are several common tax strategies physicians should consider as part of a comprehensive financial plan.

1. Choosing the Right Business Entity for Physician Practices

Physicians who own their practices should carefully choose a business structure that aligns with their financial and tax goals. An S-Corporation (S-Corp) can help reduce self-employment taxes by allowing a portion of income to be classified as distributions rather than salary, provided the physician-owner pays themselves a “reasonable salary” to avoid IRS scrutiny.

A C-Corporation (C-Corp) may be beneficial for physicians who plan to reinvest profits into the practice or who value certain fringe benefits, such as employer-sponsored health and life insurance. However, C-Corps are subject to double taxation—corporate tax at the entity level and income tax on dividends paid to shareholders.

Alternatively, a Limited Liability Company (LLC) or sole proprietorship offers simplicity but generally requires physicians to pay self-employment taxes on all earnings. An LLC may elect S-Corp taxation to potentially capture tax savings while maintaining operational flexibility.

2. Maximizing Retirement Contributions as a Core Tax Planning Strategy

Maximizing contributions to tax-advantaged retirement accounts remains one of the most effective physician tax planning tools. For 2026, contribution limits have increased, allowing physicians to defer more income into retirement plans.

Physicians should aim to maximize contributions to 401(k), 403(b), or 457(b) plans when available, and always take full advantage of employer matching contributions. High-earning physicians may also benefit from a defined benefit pension plan, which can allow for substantially higher pre-tax contributions than a traditional 401(k), particularly during peak earning years.

Because many physicians exceed the income limits for direct Roth IRA contributions, the backdoor Roth IRA strategy—contributing to a traditional IRA and converting it to a Roth—continues to be a valuable planning tool. Physicians should remain mindful of the IRS pro-rata rule, especially if they hold existing pre-tax IRA balances.

Additionally, beginning in 2026, certain high-income physicians may be required to make catch-up contributions on a Roth basis rather than pre-tax, depending on prior-year wages and employer plan rules. This change makes proactive retirement and tax coordination even more important.

3. Tax-Efficient Investment Strategies for Physicians

Tax-efficient investing plays a critical role in long-term wealth accumulation. Municipal bonds generate federally tax-free interest income and can be particularly attractive for physicians in higher tax brackets seeking stable, tax-efficient cash flow.

Tax-loss harvesting remains an effective strategy for managing investment-related taxes. By realizing capital losses, physicians can offset capital gains and reduce taxable income. Losses may offset up to $3,000 of ordinary income annually, with unused losses carried forward indefinitely.

Passive real estate investments may also offer attractive tax benefits. Depreciation deductions can reduce taxable income, and 1031 exchanges allow physicians to defer capital gains taxes when reinvesting in like-kind properties. When structured appropriately, rental real estate can enhance both cash flow and tax efficiency.

4. Leveraging Deductions and Credits Available to Physicians

Physicians can further reduce taxable income by taking advantage of relevant deductions and credits, including:

• Student Loan Interest Deduction: Eligible physicians may deduct up to $2,500 annually, which can be particularly helpful for residents and early-career doctors.
• Continuing Education and Licensing Fees: Expenses for medical certifications, CME courses, and professional association memberships are generally deductible with proper documentation.
• Medical Equipment and Office Expenses: Practice owners may deduct expenses related to equipment, rent, and professional development. Section 179 may allow immediate expensing of qualifying business assets.
• Home Office Deduction: Physicians who use part of their home exclusively and regularly for business purposes may deduct a portion of rent or mortgage interest, utilities, and internet expenses.

5. Tax Planning for Moonlighting and Locum Tenens Work

Physicians earning 1099 income from moonlighting, locum tenens work, consulting, or side businesses face additional tax considerations. Business-related expenses—such as malpractice insurance, travel, licensing, and home office costs—may be deductible when properly substantiated.

Because taxes are not automatically withheld from 1099 income, physicians should make estimated quarterly tax payments to avoid penalties. Setting aside funds throughout the year is essential for effective cash flow and tax management.

6. Managing State and Local Tax (SALT) Exposure

Physicians working in multiple states may face complex state and local tax (SALT) obligations. Understanding which state has taxing authority over income earned across state lines is an important part of multi-state tax planning.

While recent changes have temporarily increased SALT deduction limits, these rules remain subject to income-based phaseouts and potential future legislative changes. Physicians considering relocation to a lower-tax state should evaluate the full picture, including state income taxes, property taxes, estate taxes, and overall cost of living before making a move.

7. Asset Protection Considerations for Physicians

Given malpractice risk and high earning potential, asset protection remains a critical component of physician financial planning. Adequate malpractice coverage, thoughtful entity structuring, and appropriate legal safeguards are essential.

Additional tools such as umbrella liability insurance and asset protection trusts may provide further protection when implemented correctly. My colleague Jason Largey shares more insights in this article on safeguarding your financial future, and Frances Cronlund explores asset protection strategies for physicians in this article.

8. Charitable Giving Strategies for Tax-Efficient Philanthropy

Charitable giving can be a powerful way for physicians to reduce taxes while supporting causes they care about. Donating cash or appreciated securities to qualified charities may generate a tax deduction, and gifting appreciated assets can allow physicians to avoid capital gains taxes while still receiving a deduction for fair market value.

Many physician clients benefit from establishing a donor-advised fund (DAF), which allows for large, tax-deductible contributions in high-income years while distributing funds to charities over time. Physicians over age 70½ may also use qualified charitable distributions (QCDs) from IRAs to satisfy required minimum distributions without increasing taxable income, though QCDs cannot be directed to donor-advised funds.

As charitable deduction rules continue to evolve, high-income physicians should coordinate charitable planning closely with their broader tax strategy.

Final Thoughts on Physician Tax Planning

Tax planning is a foundational element of financial success for physicians. By implementing strategies tailored to their personal, professional, and business circumstances—and by staying current with evolving tax laws—physicians can optimize tax efficiency and protect long-term wealth.

Working with a financial advisor or tax professional who specializes in physician tax planning can help ensure these strategies are applied thoughtfully and compliantly.

If you have questions or would like to discuss your financial situation, please reach out to a member of the Curi Capital team today.

Frequently Asked Questions About Physician Tax Planning

What makes physician tax planning different from other high-income professionals?

Physicians often face unique challenges such as complex compensation models, multiple income sources (W-2 and 1099), high marginal tax rates, malpractice risk, and delayed peak earning years due to extended training. These factors make coordinated tax planning especially important.

Do physicians really need a tax advisor who specializes in medical professionals?

While not required, working with a tax professional or financial advisor who understands physician compensation, practice structures, and regulatory issues can help identify strategies that may otherwise be missed and reduce the risk of costly mistakes.

Is an S-Corporation always the best option for physician practice owners?

Not necessarily. While S-Corps can reduce self-employment taxes in some situations, they are not appropriate for every physician or practice structure. Factors such as income level, reinvestment goals, administrative complexity, and long-term plans should be evaluated before making an election.

How can high-income physicians still benefit from Roth accounts?

Even when direct Roth IRA contributions are unavailable due to income limits, physicians may still benefit from strategies such as backdoor Roth IRAs or Roth 401(k) contributions, depending on employer plan features and evolving IRS rules.

Are tax-loss harvesting and municipal bonds appropriate for all physicians?

These strategies can be effective for physicians in higher tax brackets, but they should align with overall investment goals, risk tolerance, and time horizon. Tax efficiency should complement—not replace—sound investment principles.

What are the biggest tax mistakes physicians tend to make?

Common pitfalls include failing to make estimated tax payments on 1099 income, underutilizing retirement plans, overlooking state tax obligations, poor recordkeeping for deductions, and implementing strategies without professional guidance.

How often should physicians review their tax strategy?

At a minimum, physicians should review their tax plan annually. Major life or career changes—such as buying into a practice, changing employment, relocating, or approaching retirement—warrant a more immediate review.