The Physician Tax CPA
Featured on The White Coat Investor

Most residents don't realize that the filing decisions they make right now directly impact their student loan payments for the next decade. If you're on an income-driven repayment plan, the choice between Married Filing Jointly and Married Filing Separately is not a minor footnote. It can mean a five-figure difference in what you pay on your loans. Your CPA needs to understand this, model both scenarios, and file accordingly.

This is also the window where Roth contributions and conversions are most powerful. Your marginal tax rate during residency (22-24% for most) will likely never be this low again. Every dollar you convert from a traditional IRA or old 401(k) into a Roth account now will compound tax-free for 30+ years. If you have an old employer plan sitting in a traditional account from a pre-med job, residency is the optimal time to convert it.

If you're moonlighting, and many residents do, that 1099 income opens up a separate set of deductions (home office, mileage, CME, equipment) that your W-2 residency income doesn't. But it also creates self-employment tax liability that needs to be managed with quarterly estimated payments. Getting this wrong means underpayment penalties; getting it right means maximizing deductions while staying compliant.

Finally, if your spouse works (or if you're married to another resident or fellow), spousal Backdoor Roth IRA contributions should be happening every single year. The process requires proper Form 8606 filing and attention to the pro-rata rule, details that are easy to get wrong and expensive to fix later.

Most new attendings overpay self-employment tax by $15,000 to $25,000 in their first year simply because nobody told them to elect S-Corp status before they started earning. If you have any 1099 income, locum tenens, independent contractor work, telemedicine, medical directorships, you are paying 15.3% self-employment tax on every dollar of net earnings above the Social Security wage base, plus 2.9% Medicare tax on everything. An S-Corp election allows you to pay yourself a reasonable salary and take the remainder as distributions, which are not subject to self-employment tax.

But S-Corp is only the beginning. Your first attending year is also when retirement plan stacking becomes possible. With a Solo 401(k) or SEP-IRA attached to your S-Corp, you can shelter $72,000+ per year in tax-deferred space through employee deferrals plus profit-sharing contributions. Add a Backdoor Roth IRA for you and your spouse, and you're looking at $87,000+ per year being funneled into tax-advantaged accounts.

If you're doing locum tenens work across state lines, which is increasingly common for new attendings building their practice, multi-state tax filing becomes critical. Each state where you earn income may require a separate return, and the tax credits between your home state and work states must be properly allocated. This is not something TurboTax handles well, and it's not something most generalist CPAs have deep experience with. Incorrect allocation means you either overpay (most common) or underpay (which triggers notices and penalties).

Your contract structure also matters more than you think. The difference between a W-2 position with a signing bonus and a 1099 arrangement with the same gross pay can be $30,000+ in tax liability depending on how the entity is structured. Before you sign your first attending contract, you should understand the tax implications of each option.

The biggest mistake 1099 physicians make is operating as a Sole Proprietor for too long. If you're netting over $250k in 1099 income, an S-Corp election is virtually mandatory. It stops the bleeding on self-employment tax, allowing you to split your income between distinct salary and profit distributions. We often see this save $15,000 to $20,000 annually, instantly paying for our fees multiple times over.

Retirement accounts are your next massive lever. Unlike a W-2 employee limited to their hospital's 401(k), you control the plan. A Solo 401(k) allows significantly higher contribution limits (employee + employer side), and often faster vesting. If your income is high enough, we can layer a Defined Benefit plan on top.

Travel expenses for locums are audit bait if done wrong, but a goldmine if done right. The key is your 'Tax Home'. If you don't establish one correctly, all your travel stipends become taxable income. We ensure your contracts and travel patterns meet IRS scrutiny so your housing, meals, and flights remain tax-free business expenses.

Finally, multi-state filing is inevitable for locums. Credits must be allocated perfectly between your resident state and non-resident work states to avoid double taxation. Most software (and many generalist CPAs) get this wrong.

This is where the tax code starts rewarding sophistication. Charitable bunching, alternating between itemizing and taking the standard deduction every other year, can create a meaningful tax benefit when paired with a Donor-Advised Fund (DAF). Instead of giving $15,000 to charity every year (and getting no deduction above the standard deduction), you bunch two years of giving into one and donate $30,000 of appreciated stock to your DAF. You get the full fair-market-value deduction, avoid capital gains on the appreciated shares, and the DAF distributes to your charities on your schedule.

Tax-loss harvesting in your taxable investment accounts is another strategy that requires coordination with your tax preparer. Selling a losing position to realize a capital loss, then buying a correlated (but not substantially identical) investment to maintain your market exposure, can offset capital gains and up to $3,000 of ordinary income each year. But the wash sale rules are strict, and your CPA needs to track these transactions alongside your overall portfolio.

For physicians with high and predictable income, a Cash Balance Plan (a type of Defined Benefit plan) can shelter $100,000 to $250,000+ per year beyond what a 401(k) allows. These plans are actuarially designed based on your age, income, and retirement timeline, and the contributions are fully tax-deductible. The catch: they require professional administration and annual actuarial certifications, which is why most generalist CPAs don't offer them.

If you're also building a real estate portfolio, the interplay between these strategies becomes complex. Cost segregation on your rental properties generates accelerated depreciation that can create paper losses, but those losses are passive unless you or your spouse qualifies for Real Estate Professional Status (REPS) or uses the Short-Term Rental Loophole. Coordinating your investment, charitable, retirement, and real estate strategies into a single coherent tax plan is exactly what we do.

Most practice owners set up their entity once, usually during the chaos of opening, and never revisit it. Five years later, they're still paying themselves 100% as W-2 salary through an S-Corp when they could be saving $25,000+ per year by properly splitting compensation between salary and distributions. Or they're operating as a C-Corp when an S-Corp (or even a multi-entity structure) would be more efficient. Entity structure is not a set-it-and-forget-it decision; it should be reviewed annually as your income, deductions, and goals change.

The retirement plan is often the single largest tax lever for practice owners. A standard 401(k) with profit sharing can shelter $72,000 per year, but if you add a Cash Balance Plan on top, you can shelter $150,000 to $300,000+ depending on your age. For a 50-year-old practice owner earning $600k, the combined deduction from a stacked 401(k) + Cash Balance Plan can reduce their taxable income by more than $250,000 annually. These plans require actuarial design and annual certification, but the tax savings are extraordinary.

The Augusta Rule (Section 280A) allows you to rent your personal home to your business for up to 14 days per year, tax-free to you personally and deductible by the business. If your practice holds quarterly board meetings, strategic planning sessions, or holiday parties at your home, this can create a $5,000-$15,000 annual deduction with proper documentation. Equipment purchases, vehicle depreciation under Section 179, and R&D tax credits (for practices involved in clinical research) are additional deductions that many practice owners miss entirely.

If you're thinking about an eventual exit, whether selling the practice, merging with a hospital system, or transitioning to an employed position, the tax implications of that transition need to be planned years in advance. Asset vs. stock sales, installment payments, non-compete allocations, and goodwill amortization all have dramatically different tax treatments. The decisions you make about entity structure today directly affect your options (and your tax bill) when you exit.

Here's the problem: rental real estate generates depreciation, and when you add a cost segregation study, that depreciation gets accelerated dramatically, sometimes creating $50,000 to $150,000+ in paper losses in year one alone. But under the passive activity rules, those losses can only offset passive income. They cannot offset the physician's W-2 or 1099 income. For most physician investors, those losses just carry forward year after year, providing no immediate tax benefit.

Real Estate Professional Status (REPS) changes everything. If one spouse qualifies, by spending 750+ hours in real estate activities and more time in real estate than in any other profession, then the couple's rental losses become non-passive. That means they can offset the physician's W-2 income directly. A physician household earning $500k with $100,000 in accelerated depreciation losses could reduce their taxable income to $400,000, saving $35,000-$40,000 in federal tax alone.

The spouse who manages the rental portfolio (handling tenant relations, maintenance coordination, property acquisitions, bookkeeping, and strategic decisions) is the natural REPS candidate. But qualification requires meticulous documentation: a contemporaneous time log, evidence of material participation in each property, and proper grouping elections on the tax return. The IRS scrutinizes REPS claims aggressively, and an improperly documented claim can result in disallowed losses, back taxes, and penalties.

Even if REPS isn't available, the Short-Term Rental (STR) Loophole offers an alternative path. If your average guest stay is 7 days or fewer and you materially participate in the rental activity, the income and losses are treated as non-passive by default, regardless of whether anyone in the household has REPS. This means a physician couple operating an Airbnb or VRBO property can generate non-passive losses that directly offset W-2 income, provided they handle at least the majority of the day-to-day operations.

Beyond real estate, the physician spouse can also operate their own business, property management, consulting, bookkeeping, or any legitimate enterprise, which opens up its own Solo 401(k), QBI deduction (Section 199A), and home office deduction. This effectively creates a second household income stream with its own set of tax-advantaged accounts and deductions.

When you stop earning a physician's salary, your taxable income drops dramatically. But your tax-deferred accounts (traditional IRA, 401(k), 403(b)) are still growing, and when RMDs kick in at 73, you'll be forced to withdraw a percentage every year regardless of whether you need the money. Those withdrawals are taxed as ordinary income, and if your accounts are large enough, they can push you right back into the 32% or 35% bracket.

The Roth Conversion Ladder is the primary tool for managing this. During the low-income years between retirement and RMDs, you convert portions of your traditional IRA to a Roth IRA each year, paying tax at your current (lower) marginal rate. Once the money is in a Roth, it grows tax-free, withdrawals are tax-free, and there are no RMDs, ever. For your heirs, inheriting a Roth IRA is dramatically more tax-efficient than inheriting a traditional IRA under the current 10-year distribution rule.

But the conversion amount matters enormously. Convert too much in a single year and you jump into a higher bracket, trigger IRMAA surcharges on your Medicare premiums, or push your income above the threshold where the 3.8% Net Investment Income Tax kicks in. Convert too little and you leave money in the traditional account that will eventually be forced out as taxable RMDs. We build year-by-year conversion models that optimize the amount converted each year against your projected bracket, IRMAA thresholds, and capital gains exposure.

Qualified Charitable Distributions (QCDs) are another powerful tool once you're over 70½. Instead of taking an RMD as taxable income and then donating to charity separately, you can direct up to $105,000 per year from your IRA directly to a qualified charity. The distribution satisfies your RMD requirement but is excluded from your taxable income entirely, which means it doesn't affect your IRMAA bracket, your Social Security taxation, or your capital gains rate.

Social Security timing is the final piece. Claiming at 62 vs. 67 vs. 70 creates different tax scenarios for every year of retirement, and the optimal choice depends on your overall income picture, your spouse's benefits, your health, and your Roth conversion strategy. We model all of these variables together to find the claiming strategy that minimizes lifetime tax liability, not just maximizes the monthly check.