7 Tax Planning Tips for Medical Practice Owners in 2026
Jump to topic:
Choosing the Correct Business Structure | Max Out Retirement Contributions Before Year-End | The QBI Deduction | Section 179 and Bonus Depreciation | Track and Deduct Professional Expenses | Elect Into the Pass-Through Entity Tax If Your State Allows It | Periodic Planning
Owning a medical practice means playing two roles at once: caring for patients and running a business. Unfortunately, if you spend more time focusing on patients than on your entity structure or other financial aspects, it might be costing you tens of thousands of dollars a year.
Tax planning isn’t about finding loopholes. It’s about understanding what the law allows and using it before your filing window closes.
Here are seven tax strategies that every medical practice owner needs to know in 2026.
1. Choosing the Correct Business Structure
The way your practice is legally structured has a direct effect on your tax bill, and many physicians haven’t even thought about it since they opened.
If your practice operates as an S-Corporation, income gets split between W-2 wages (which are subject to payroll taxes) and profit distributions (which aren’t). For example, a practice netting $600,000 might pay a physician-owner $300,000 as a salary and take the other $300,000 as distributions. That split alone can save roughly $45,900 per year in self-employment taxes and about 15.3% on the distribution part that was otherwise going to payroll taxes.
Here, the word “reasonable” matters. The IRS requires that S-Corp owners pay themselves a reasonable salary comparable to what the market would pay for the same work. Too low and you may get flagged. Too high, and you’re losing an unnecessary amount in payroll taxes, which is why consulting with your CPA when deciding this number is important.
2. Max Out Retirement Contributions Before Year-End
This is one of the most reliable ways to reduce taxable income that a lot of practice owners still don’t use to the fullest.
Solo 401(k)s, SEP-IRAs, defined benefit plans, and cash balance plans each have different contribution ceilings. The right choice depends on your:
- Income level
- Age
- How many employees you have
A practice owner earning $600,000 who contributes $150,000 to a cash balance plan lowers their taxable income to $450,000 and may also regain partial eligibility for the Qualified Business Income (QBI) deduction, which phases out at higher income levels.
Starting in 2026, some 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 design. If you’re over 50 and think your catch-up contributions will reduce your taxable income this year, it’s worth double-checking.
3. The QBI Deduction
The Qualified Business Income deduction allows eligible practice owners to deduct up to 20% of their business income. The catch is that medical practices are classified as Specified Service Trades or Businesses (SSTBs), which means this deduction phases out after your income exceeds a certain threshold.
Recently, those thresholds have been noticeably raised. If, in the last couple of years, you found yourself just over the limit, you may now qualify for at least a partial deduction.
- Single filers: Raised $75,000 higher than in previous years.
- Married couples filing jointly: $150,000 higher than in previous years.
The deduction also interacts with retirement contributions. Reducing your taxable income through a retirement plan contribution can push you back below the phase-out threshold, allowing you to claim QBI savings you couldn’t before.
4. Section 179 and Bonus Depreciation
Most physicians treat equipment purchases just as an expense rather than a tax tool.
Under Section 179, medical practices can deduct up to $2,560,000 in qualifying purchases placed in service in 2026. Also, 100% bonus depreciation is available for new equipment placed in service this year. This covers most things you’d buy to run your practice:
- Diagnostic equipment
- Imaging systems
- Exam room technology
- Computers
- Servers
The equipment needs to be operational before year-end, not just ordered or delivered. If you’re planning to buy any kind of equipment, timing the purchase to fall during this tax year can make the cost significantly cheaper. With equipment deductions, the best time to plan with your CPA is as soon as you think about buying.
5. Track and Deduct Professional Expenses
A survey of physicians found that only 11% claimed deductions for continuing medical education, licensing fees, and work-related expenses. These are all unclaimed deductions that were never claimed on a return.
Qualifying deductions for medical practice owners include:
- CME courses and associated travel
- State and DEA license renewals
- Professional association memberships
- Clinical journals and subscriptions
- Malpractice insurance premiums
- Office supplies
- Furniture
- Equipment
- Advertising costs (digital or traditional)
It’s not that physicians don’t have these expenses, it’s that documentation and categorization get pushed to the side due to busy schedules. Consistent and accurate bookkeeping throughout the year can make tracking deductions and actually claiming them much easier.
6. Elect Into the Pass-Through Entity Tax If Your State Allows It
This is frequently overlooked, especially in states where it has only recently become available.
If your practice is structured as an S-Corporation or partnership, many states allow the entity to pay state income taxes at the business level rather than passing that liability to your personal finances. This matters because the federal SALT deduction cap ($10,000 for individuals) doesn’t apply at the entity level. By electing into the Pass-Through Entity Tax (PTET), the full amount of state income tax paid by the practice becomes a federal business deduction, regardless of whether you itemize personally.
The benefit varies by state and income level, but for high-income practice owners in states with hefty income taxes this can make a meaningful impact. Not every state offers this election and deadlines vary. Check with your CPA before the filing deadline.
7. Periodic Planning
This might be the most practical piece of advice on this list. Medical practice owners who pay the least in taxes over time aren’t necessarily using more aggressive strategies. They’re just planning earlier.
Quarterly estimated tax payments are required for most practice owners. Underpaying throughout the year can cause penalties that stack on top of your owed balance. Quarterly check-ins with your CPA can help:
- Catch income shifts
- Adjust retirement contributions
- Plan for upcoming equipment purchases
- Review payroll classifications
Physicians who lose money to taxes aren’t usually doing anything wrong, they’re just reacting instead of planning. Tax improvements start with a proactive versus reactive approach. The difference between a reactive tax strategy and a proactive one can result in thousands of tax savings per year.
Sources:
IRS – 2026 contribution limits (401k, IRA)