October 29, 2026
According to a 2025 report from the American Medical Association, about one-third of physicians have an ownership stake in a medical practice or clinic. These physicians are part medical doctor and part business owner. They need to be skilled in both caring for patients and managing the financial side of the practice. That includes proactive tax planning. By identifying opportunities to reduce tax liability, physician-owners can improve cash flow and keep more of what they earn to reinvest into the practice or to support personal goals. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.
Business Entity and Tax Classification — One of the most important tax decisions a physician makes as a business owner is how to structure the practice. Sole proprietorships, partnerships, and S corporations are taxed differently, and the choice can affect how much of the practice’s income goes toward taxes.
S corporations deserve particular attention. Physician-owners who work in the practice generally receive reasonable W-2 wages and may also take shareholder distributions. Wages are subject to employment taxes, while distributions generally are not.
Entity choice first depends on practice income and current ownership arrangements. Future plans should also be considered. A structure that worked when the practice opened may not offer the same advantages several years later.
Retirement Plan Contributions — A retirement plan can do more than help physician-owners save for the future. It can also lower taxable income and provide a valuable benefit for practice employees. Owners should review contribution limits annually and maximize tax-advantaged contributions when financially feasible.
Common options include 401(k) plans, which allow employee contributions and optional employer contributions; SEP IRAs, which are funded by employers; and SIMPLE IRAs, which allow employee and require employer contributions. Each has different limits and administrative requirements.
There may be some additional tax savings on the table, too. Eligible small practices can claim a retirement plan startup credit of up to $5,000 annually for three years. A separate credit can offset qualifying employer contributions by up to $1,000 per employee during a new plan’s first five years. Practices that add qualifying automatic enrollment may also be eligible for a $500 annual credit for three years. These tax credits are subject to eligibility requirements, but they can be useful to review when establishing or updating a plan.
Equipment Purchases and Depreciation — Medical practices invest heavily in equipment. Under current rules, bonus depreciation allows practices to deduct 100% of the cost of many qualifying assets acquired after January 19, 2025. This generally includes imaging systems, diagnostic tools, and other necessary medical equipment.
Section 179 is another option. For 2026, practices can deduct up to $2.56 million in qualifying purchases, with the deduction beginning to phase out at $4.09 million. Certain building improvements may qualify, too, including HVAC upgrades and eligible interior renovations.
Of course, getting a tax deduction isn’t a reason to buy equipment the practice doesn’t need. And even when a purchase makes business sense, taking the full deduction immediately may not be the best tax strategy. Physician-owners are encouraged to model different outcomes with a tax advisor before making a major purchasing decision.
Practice Operating Expenses — Routine operating costs also provide opportunities to reduce taxable income. These expenses may include malpractice insurance premiums, professional licensing fees, continuing medical education, professional association dues, and small purchases like office supplies. Technology expenses, such as EHR systems, accounting software, and cybersecurity services, may also qualify. Depending on the purchase, certain technology costs may need to be capitalized under MACRS rather than deducted immediately. Owners should maintain documentation, including receipts and placed-in-service dates, to support deductions.
Business Vehicle Expenses — There are two potential opportunities for physician-owners, depending on how the vehicle is used. Importantly, buying a vehicle through the practice doesn’t automatically make it deductible. To qualify for Section 179 or bonus depreciation, a vehicle generally must be used more than 50% for qualified business purposes. Other restrictions may apply, so it’s worth reviewing a potential purchase with a tax advisor before making the investment.
Physician-owners can also deduct qualifying vehicle expenses for business travel, such as driving between practice locations or attending off-site meetings. The daily commute to work doesn’t count. Depending on the circumstances, owners may use the standard mileage rate or deduct actual vehicle expenses. Accurate mileage records are an important component of claiming the tax benefit.
State Pass-Through Entity Tax Elections — Physician practices organized as partnerships or S corporations may have another saving opportunity through pass-through entity tax (PTET) elections.
In states that offer these elections, an eligible practice can pay certain state income taxes at the business level rather than leaving the entire obligation to individual owners. Those payments may be deductible federally at the entity level, potentially reducing the overall tax burden. Owners should review the potential savings before making an election.
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Effective tax planning is more than identifying credits or deductions. Because there are often many variables to consider, physician-owners generally benefit from a holistic approach to planning. It’s helpful to work with an experienced tax advisor throughout the year to model different scenarios and understand the potential impact of any financial decision. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.