CPA for Physicians

Posted Monday, December 8, 2025

Table Of Contents

Key Takeaways

  • Not all physician income is taxed the same. W-2, 1099, and K-1 income require different strategies.
  • Self-employment tax quietly erodes 1099 profits if not structured correctly.
  • S Corp elections can reduce tax exposure, but only when reasonable salary is defensible and income is stable.
  • Multi-state locums work creates real filing obligations that must be tracked proactively.
  • Retirement strategy at physician income levels is a structural decision, not a box to check.
  • Entity choice should align with student loan planning, ownership goals, and long-term cash flow — not internet advice.

You Handle Life-or-Death Decisions. Your Tax Strategy Shouldn’t Be a “We’ll See in April” Situation.

You spend your days making decisions with real consequences. Lab values, imaging, risk profiles, outcomes. You don’t get to “wing it” and hope the numbers behave.

And yet… a lot of physicians run their own finances like a pre-rounding mess: income coming in from multiple places, taxes handled reactively, and an entity structure that’s basically “whatever my buddy’s cousin set up in 2017.”

Most CPAs don’t help, because they treat physicians like high-income W-2 employees with a few extra deductions.

That’s not you. Not anymore.

Between RVU bonuses, locums shifts, call pay, 1099 side work, partnership buy-ins, K-1 distributions, multi-state income, and retirement options that actually matter at your income level, “generic tax prep” is how doctors end up paying surgeon money for intern-level planning.

The Physician Financial Stress Index

The W-2 / 1099 Split Personality Problem

A lot of physicians aren’t purely employed or purely independent. You might have a hospital salary that’s W-2, plus locums income on a 1099, plus a little consulting, plus an ownership stake somewhere that spits out a K-1 when it feels like it.

Those buckets don’t get taxed the same way, and they shouldn’t be managed the same way either. If your CPA just dumps it all into a return and calls it a day, you’re not getting strategy. You’re getting a receipt.

If you’ve got meaningful 1099 income, this is usually where entity structure becomes a real lever, not a paperwork exercise.

RVUs, Bonuses, and the “I Make Good Money So Why Am I Always Behind?” Feeling

Production comp is great until it’s not.

Your contract says $X per RVU. You hit your threshold. A productivity bonus shows up three months later. Then maybe a quality incentive kicker. Maybe a call differential.

The problem isn’t the income. It’s the timing.

RVU-based comp creates income spikes that don’t align cleanly with withholding. If you’re hospital-employed, your base salary is withheld properly — but those large productivity checks often aren’t adjusted precisely enough to cover the real tax exposure.

Without quarterly modeling, those bonuses create predictable underpayment penalties.

We don’t guess. We project your expected RVU production, bonus timing, and withholding gaps during the year so April isn’t a surprise audit of your cash flow.

Locums and Multi-State Income

Working in multiple states is common. Filing correctly in multiple states is… less common.

The issue isn’t just paperwork. It’s the domino effect: where you owe, what gets credited, what gets withheld (usually not enough), and how quickly a “simple side gig” becomes a compliance problem. Multi-state physicians get dinged for this all the time, mostly because nobody is tracking it proactively.

This is another place where proactive planning matters more than tax prep.

The Practice Owner “Cash Rich, Tax Broke” Trap

If you own a practice (or you’re buying in), the story changes fast. Now you’re not just a clinician, you’re running payroll, covering benefits, paying rent, funding equipment, absorbing chargebacks, and wondering why cash is moving but net profit looks weird.

And if you’re still operating as a default LLC with no real plan for compensation, distributions, and payroll mechanics, self-employment tax is quietly chewing through your margins like it’s on salary.

This is where evaluating S Corp status can become worth real money, but only if it’s structured correctly. 

Retirement Planning That’s Too Small for Your Income

Physicians get pitched retirement options constantly, usually in the same lazy tier: “Max your 401(k), do a backdoor Roth, call it good.”

That’s cute. It’s also how high earners leave six figures of tax sheltering on the table over a few years.

At physician income levels, the conversation gets bigger: Solo 401(k)s for independent work, and Cash Balance / Defined Benefit plans for high earners and practice owners.

Why Physicians Are a Unique Tax Puzzle

This is where most planning falls apart.

Not because physicians are complicated people. Because your income mechanics are structurally different from almost every other profession.

W-2 vs. 1099 vs. K-1 Is Not a Cosmetic Difference

W-2 hospital salary? Taxes are withheld. Payroll taxes are handled. It’s clean.

1099 locums income? No withholding. Full exposure to self-employment tax. You’re responsible for quarterly estimates whether you like it or not.

K-1 distributions from a surgery center or practice entity? Now we’re talking pass-through income, potential QBI interplay, basis tracking, and whether you’re active or passive.

If your tax return treats all three like one big pile of money, you’re leaving strategy on the table.

They behave differently. They should be managed differently.

Self-Employment Tax Is the Silent Margin Killer

That 1099 income feels great when it hits your account.

But if you’re not structured properly, self-employment tax can take an unnecessary bite. For physicians with consistent 1099 income or practice ownership, this is where S Corp status becomes part of the conversation. Not as a magic trick. As math. 

Handled correctly, separating reasonable salary from distributions can materially reduce self-employment tax. Handled incorrectly, it creates audit risk and compliance headaches.

This isn’t a “Reddit strategy.” It’s a structured decision.

Reasonable Salary Actually Has to Be Reasonable

If you own part of a practice and elect S Corp treatment, you don’t get to pay yourself $30,000 and call the rest “distributions.”

You are a highly compensated medical professional. The IRS knows this.

Reasonable salary needs to reflect market compensation for the clinical services you perform. The remaining profit can flow differently. Get this wrong and you’ve just built an audit invitation.

If you want to do S Corp correctly, you need to understand reasonable shareholder salary rules and document the logic.

Get it right and you’ve built a defensible tax position.

QBI: Yes, It Applies. No, It’s Not Automatic.

Physicians fall under “Specified Service Trade or Business” rules. That means the Qualified Business Income deduction phases out at certain income levels.

Translation: high-income physicians often assume they don’t qualify.

Sometimes that’s true. Sometimes it’s not. It depends on:

  • Filing status
  • Taxable income thresholds
  • How income is structured
  • Whether there are multiple entities involved

This is not a box-checking exercise. It’s modeling.

If you have a dedicated QBI explainer, this is where it belongs.

Multi-State Work Creates Real Compliance Exposure

Locums in three states?
Telemedicine across state lines?
Own a share of an out-of-state surgery center?

You may have filing obligations you didn’t realize. And the states don’t coordinate with each other out of kindness.

Credits, apportionment, withholding mismatches — these are solvable, but only if someone is tracking them during the year instead of discovering them in March.

Student Loans and Income Strategy Actually Interact

If you’re pursuing PSLF or on an income-driven repayment plan, entity elections and compensation structure can affect reported income.

Blindly electing S Corp without considering student loan strategy is shortsighted.

This is what real planning looks like: tax structure that aligns with loan strategy, retirement goals, and long-term cash flow.

This is why we don’t do “one-size-fits-all” S Corp advice. Structure has to align with the whole plan. 

Real-World Scenarios (Do You Recognize Yourself?)

Scenario 1 — The Hospitalist With a Side Gig

You’re W-2 at the hospital. You pick up locums shifts twice a month. You haven’t made quarterly estimates because “it’s not that much.”

April shows up. It was that much.

We build a quarterly tax plan around the 1099 income, evaluate whether an entity makes sense, and stop the underpayment penalty cycle.

Scenario 2 — The Private Practice Owner

Your practice nets strong profit. You’re still operating as a default LLC because that’s what your attorney set up years ago.

You’re paying full self-employment tax on everything.

We analyze S Corp election, structure payroll correctly, determine reasonable salary, and coordinate retirement contributions.

Scenario 3 — The Surgery Center Investor

You receive a K-1 from an ambulatory surgery center. Some years the distributions are steady. Other years they spike because case volume shifted or ownership percentages changed.

You’re not sure:

  • Whether that income is active or passive
  • How your basis is being tracked
  • Why taxable income doesn’t always match cash distributions
  • Whether QBI even applies

ASC distributions can create phantom income or uneven tax exposure if participation status isn’t analyzed correctly.

We clarify participation, track basis properly, coordinate estimated payments, and make sure your tax bill reflects reality — not guesswork.

Scenario 4 — The Scaling Multi-Partner Group

Compensation formulas are messy. Buy-ins are negotiated informally. No one really understands what net profit per physician actually is.

We implement financial clarity: compensation modeling, structured payroll, profit tracking, and tax planning that doesn’t rely on hope.

Entity Structure for Physicians

When It Actually Makes Sense — And When It Doesn’t

Let’s say this upfront.

If you are 100% W-2, employed by a hospital with no outside income, forming an LLC because “someone on a forum said doctors should” is pointless. You don’t fix tax problems that don’t exist.

But most physicians aren’t that simple.

Once 1099 income, ownership, or real net profit enters the picture, entity structure stops being theoretical and starts being math.

When an S Corp Makes Sense

An S Corp isn’t a badge of sophistication. If someone told you “every doctor needs an S Corp,” they’re oversimplifying medicine and tax at the same time. It’s a payroll mechanism wrapped in tax strategy.

It generally starts to make sense when you have consistent 1099 income or practice ownership, net profit north of roughly $50,000, and a defensible reasonable salary.

Here’s the win:

You pay yourself a reasonable salary for the clinical work you perform. That salary is subject to payroll taxes. The remaining net profit flows as distributions, not subject to self-employment tax. That’s the lever.

For physicians with steady profits, this can mean real savings. Not theoretical savings. Real cash retained.

But it only works when it’s structured correctly.

When an S Corp Does Not Make Sense

We see this mistake a lot.

  • Pure W-2 income.
  • Highly volatile 1099 income that disappears next year.
  • PSLF or income-driven repayment strategy where lowering payroll wages could complicate reporting.
  • States where entity-level taxes offset most of the benefit.

An S Corp is not mandatory for high earners. It’s situational.

The right answer depends on income stability, compliance burden, retirement strategy, and long-term goals.

This is why we start with planning, not internet advice.

Physicians are highly compensated professionals.

You cannot pay yourself $40,000 as a cardiologist and call the rest distributions.

Reasonable salary must reflect the clinical services you provide. It must be defensible. It must make sense in your geographic market and specialty.

If you’re going to do this, do it like an adult.

If it doesn’t, you’ve built a paper savings strategy that collapses under scrutiny.

Handled correctly, it’s efficient.
Handled casually, it’s reckless.

We don’t do reckless.

Multi-Entity Structures (Where It Gets Interesting)

If you own:

  • A medical practice entity
  • The building your practice operates in
  • A management services organization (MSO)
  • A stake in an ambulatory surgery center

Now you’re not just dealing with tax. You’re dealing with compliance overlays.

Stark law and anti-kickback rules affect how ownership and compensation can be structured. That doesn’t eliminate tax strategy — it just means structure must respect regulatory boundaries.

Many CPAs ignore this layer entirely. We don’t.

The goal becomes:

  • Clear income separation
  • Clean management agreements
  • Proper payroll mechanics
  • Preserved liability protection
  • Tax efficiency that doesn’t collide with regulatory reality

That signals maturity. You’re not pretending to practice healthcare law — you’re showing awareness.

This is where entity formation and long-term structuring strategy actually matters. 

The Buy-In Phase

When physicians buy into a practice, most focus on valuation.

Few focus on tax positioning.

Are you purchasing equity directly?
Are you buying into goodwill?
Is there inside basis adjustment?
Is the payout structured efficiently?

Your buy-in isn’t just a legal transaction. It’s a tax event that affects you for years.

Tax Strategy Framework for Physicians

How We Reduce Chaos Instead of Reacting to It

This isn’t about chasing deductions. It’s about coordinating income, structure, and timing.

Quarterly Tax Planning (No More April Ambushes)

If you have 1099 income, ownership distributions, or variable bonuses, waiting until year-end to “see what happens” is how you stay stressed.

We project your return throughout the year. April should confirm the plan, not reveal a surprise. [LINK: Tax Planning]

Not guess. Project.

This allows:

  • Proper estimated payments
  • Payroll adjustments
  • Strategic retirement contributions
  • Cash flow smoothing

Retirement Optimization at Physician Income Levels

At higher income, retirement strategy becomes one of the largest levers available.

We look at:

  • Solo 401(k)s for independent physicians
  • Defined Benefit or Cash Balance Plans for high earners
  • Coordinated contributions across multiple entities
  • Backdoor Roth strategy alignment

The mistake we see most often? Physicians contributing to retirement accounts without aligning entity structure first.

The order matters.

Solo 401(k)s and defined benefit / cash balance plans can shelter serious income — when the structure supports it.

Deduction Optimization (Without Getting Cute)

We capture legitimate industry expenses:

  • CME and licensing
  • Malpractice premiums and tail coverage
  • Board exams
  • Professional dues
  • Telemedicine infrastructure
  • Home office (when legitimate and defensible)

But deductions alone don’t solve structural inefficiency.

If you’re paying full self-employment tax unnecessarily, a few extra write-offs won’t fix that. That’s lipstick on a pig.

Cash Flow Systems for Practice Owners

If you own a practice, this isn’t just about your personal tax return.

It’s about:

  • Payroll systems
  • Associate compensation modeling
  • Owner distributions vs. salary clarity
  • Understanding true net profit per provider

Revenue is vanity.
net profit is sanity.

Without clean books and proper structuring, you’re guessing.

Ready to Stop Practicing Medicine on Your Own Finances?

You didn’t get through medical school by winging it.

Your business and tax structure deserve the same rigor.

We don’t do hype. We don’t do trendy structuring. We do defensible, modeled, coordinated strategy designed around how physicians actually earn money. 

If you’re ready to get proactive, schedule a discovery meeting.

FAQs

Should a physician form an LLC?

If you have 1099 income or practice ownership, possibly. If you’re purely W-2, probably not. The structure should solve a tax or liability issue — not exist for optics.

Should a doctor elect S Corp status?

Sometimes. It depends on income stability, net profit level, student loan strategy, and compliance discipline. It’s a math decision, not a trend.

Why do locum tenens physicians owe so much in taxes?

Because 1099 income typically has no withholding and is subject to self-employment tax. Without quarterly planning, the bill stacks up quickly.

Does QBI apply to physicians?

Yes, but physicians are considered a specified service trade or business, so income thresholds matter. Qualification depends on taxable income and structure.

Can malpractice premiums be deducted?

Yes, they are generally legitimate business expenses when properly structured and categorized.

Why does my income feel high but my cash feel tight?

Because variable income, lack of quarterly planning, self-employment tax exposure, and large retirement or loan obligations create timing mismatches. Without modeling, it feels like you’re always catching up.

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