First, there was medical school, where you spent endless nights buried in textbooks while your peers in other fields enjoyed their early twenties with far less pressure. Then came residency, where 80-hour weeks became the norm, your social life took a backseat, and sleep felt like a luxury.
And after all that—after gaining experience, perfecting your craft, and finally deciding to build something of your own, you took the bold step of opening a private practice. You poured your time, money, and energy into treating patients and managing staff, handling payroll, keeping up with regulations, and ensuring your practice survives and thrives.
There’s no doubt that you provide a noble and essential service to your community. You heal, you save lives, and you give people hope.
Yet, despite all this, the IRS takes an enormous cut of your hard-earned money every year. And unlike salaried employees, your tax burden isn’t straightforward—it’s layered with complexities that, if not appropriately managed, can cost you hundreds of thousands of dollars more than necessary.
The truth is, you deserve better. You deserve to keep more of what you’ve worked so hard for. And the good news? You can—legally, strategically, and without raising IRS red flags.
Below are the top tax strategies for private practice doctors. These strategies aren’t shady tricks—they’re 100% IRS-approved ways to reduce your tax burden and take control of your financial future.
Choose the Right Business Structure
Most doctors start as sole proprietors or LLCs simply because it’s the default option. But that choice could cost you hundreds of thousands of dollars annually in unnecessary taxes.
An S Corporation (S-Corp) is often the best structure for high-earning private practice doctors.
Here’s why:
You can split your income into salary and distributions when you operate as an S-Corp. The IRS requires you to pay taxes on the salary portion (Social Security and Medicare), but the distributions are tax-free. That alone can help you claim substantial tax savings annually.
The key is to set a reasonable salary—low enough to maximize tax savings but high enough to avoid IRS scrutiny. If your salary is too low, the IRS could come knocking, demanding back taxes and penalties.
A C Corporation (C-Corp) might sometimes make sense, especially if you plan to reinvest most of your earnings into the business. But remember that C-Corps face double taxation—once at the corporate level and again when you take profits as dividends—so it’s not always the best fit for private practice doctors.
Maximize Retirement Contributions
If you’re not taking full advantage of retirement accounts, you’re missing one of the best tax breaks available.
A traditional 401(k) or IRA is a good start, but for high-income doctors, they don’t go far enough. That’s where cash balance pension plans and defined benefit plans come in.
These plans allow you to shelter hundreds of thousands of dollars yearly from taxes while building long-term wealth. A well-structured cash balance plan could let you contribute over $200,000 per year, depending on your age and income. That’s money that lowers your taxable income today and grows tax-deferred for retirement.
Think of it this way—would you rather give an extra $200,000 to the IRS or invest it in your future while cutting your tax bill?
Deduct Medical Equipment & Supply Purchases
Medical equipment is expensive, but the U.S. tax code allows you to deduct the costs.
Under Section 179, you can deduct a maximum of $1,250,000 worth of medical equipment in the year you purchase it. That includes X-ray machines, ultrasound equipment, dental chairs, exam tables, and even practice management software.
If your practice is growing and you’re planning to invest in new equipment, timing your purchases can significantly lower your taxable income.
Don’t forget about medical supplies, office furniture, and other tools necessary to run your practice—those are also deductible as ordinary business expenses. Always remember to keep detailed records of every purchase in case the IRS asks for documentation.
Hire Family Members to Reduce Taxable Income
If you have a spouse or children who can legally work for your practice, including them on your payroll can lower your tax burden.
Paying your spouse a salary means you can increase your household’s retirement contributions, since they’ll be eligible for their own 401(k) or IRA.
Hiring your children comes with an even bigger tax perk. The tax code permits children under 18 to earn wages without paying Social Security and Medicare taxes. This is possible if you operate as a sole proprietorship or partnership. Plus, their wages are taxed at their lower tax rate, not yours. If structured correctly, you can shift income from your high tax bracket to their much lower one, while teaching them responsibility and work ethic at the same time.
The IRS requires that their roles be legitimate and their wages reasonable, so they need to actually work in the business, handling admin tasks, social media, filing paperwork, or even helping with marketing.
Use the Augusta Rule to Pay Yourself Tax-Free
The Augusta Rule is an IRS-approved way for business owners to legally rent their personal residence to their business for up to 14 days per year—completely tax-free.
Here’s how it works for doctors:
If you use your home for business purposes—whether it’s staff meetings, strategy sessions, or retreats—your practice can pay you rent for those days. You deduct that rent as a business expense, and as long as you don’t rent it out for more than 14 days, you don’t have to report it as personal income.
The Augusta Rule is one of the easiest ways to pull money from your practice without paying taxes.
To stay compliant, ensure the rental rate is fair market value and document the reason for the meetings.
Take Advantage of SALT Deduction Workarounds
If you live in a high-tax state, you’ve probably felt the pain of the $10,000 cap on state and local tax (SALT) deductions. That cap means you can’t deduct much of what you pay in state income and property taxes—unless you use a workaround.
Many states now allow pass-through entity (PTE) tax elections, which let businesses pay state taxes at the entity level instead of the personal level. That means your practice gets a full federal deduction for state taxes instead of being stuck with the $10,000 cap.
Not every state offers this workaround, so check with your tax professional to see if it’s an option for you.
Final Thoughts
You didn’t go through years of training and take on the challenges of running a private practice just to hand over an excessive amount of your income to the IRS.
Strategic tax planning isn’t about finding loopholes or taking risks—it’s about understanding and using the tax code to your advantage.
With the right strategies, you can keep more of your hard-earned money, reinvest in your practice, and build lasting wealth—all while staying entirely within the law.
The key is acting now. Tax planning isn’t something you do at the last minute—it’s a year-round process. If you’re serious about cutting your tax bill, talk to a tax strategist who understands the unique challenges of high-income private practice doctors.
Lower Your Taxes With Tax Goddess
We have helped business owners like you claim more than $1.93 BILLION in tax savings. Through Strategic Tax Coaching (STC), our clients pay an average tax rate of 6.92% yearly. If you are ready to stop overpaying the IRS and start keeping more money in your pocket, it’s time to invest in an STC plan.
