Doctors often find themselves juggling two distinct income streams: a regular salary from a hospital or academic institution, and the earnings from a private practice or consulting work.

Although each stream faces different tax treatments, the combined tax landscape can be intricate, particularly when considering self‑employment tax, health‑insurance premiums, retirement contributions, and state‑specific regulations.

This guide outlines essential tax considerations for balancing salary and practice income, 法人 税金対策 問い合わせ providing actionable strategies to reduce your tax bill and boost your take‑home earnings.

Comprehending the Two Income Streams

Wage Income

If you work as an employed physician—whether at a hospital, clinic, or university—you obtain a salary that is subject to payroll deductions.

These deductions include federal income tax, Social Security tax, Medicare tax, and, if applicable, state and local taxes.

The employer generally withholds the right amount consistently, and you obtain a W‑2 at the end of the year.

Practice Income

Alternatively, earnings from a private practice, consulting, or other self‑employment pursuits are filed on Schedule C (or a partnership return if the practice is a partnership) and are subject to self‑employment tax plus income tax.

The self‑employment tax accounts for both employee and employer contributions to Social Security and Medicare, totaling around 15.3% of net earnings.

Nonetheless, you may deduct the employer portion (7.65%) in computing your adjusted gross income, thereby lowering taxable income.

Key Distinctions to Remember

Tax Withholding: With salary income, taxes are automatically withheld; with practice income, you might have to make quarterly estimated payments.

Deductions: Practice income provides greater chances for business deductions such as office rent, equipment, supplies, mileage, professional liability insurance, and continuing education.

Retirement Contributions: Salary income can be directed into employer‑sponsored accounts (403(b), 401(k), etc.), while practice income can be rolled into a solo 401(k), SEP‑IRA, or SIMPLE IRA.

Health Insurance: For premiums paid out of practice income, you might be able to deduct health insurance on your personal return.

Self‑Employment Tax: Only practice income is subject to self‑employment tax, but you can recover part of it via deductions.

Planning for Quarterly Estimated Taxes

As salary taxes are withheld, you usually need less attention to quarterly payments unless significant practice income escapes full withholding.

Determine your total tax liability for the year by adding anticipated salary and practice income, then subtracting deductions and credits.

If your practice income is large enough that you anticipate owing more than $1,000 in tax at year‑end, you’ll likely need to file quarterly payments.

IRS offers a worksheet (Form 1040‑ES) to assist in computing these payments.

Maximizing Deductions on Practice Income

Office Space
• Rent, utilities, and office supplies may be fully deducted if the space is used exclusively for business.
• If you work from home, a reasonable share of your home expenses (mortgage interest, property taxes, utilities, internet) can be deducted as a home office.

Mileage and Transportation
• Keep a logbook or app for all business mileage. The IRS standard mileage rate is $0.655 per mile for 2025.
• Or, deduct actual expenses (gas, maintenance, depreciation) if they surpass the standard rate.

Professional Development
• CME courses, conferences, and certifications are deductible.
• Keep receipts and confirm that the courses are needed or useful for your practice.

Equipment and Technology
• Computers, medical devices, software licenses, and mobile phones used for patient communication are deductible.
• For major purchases, consider depreciation (MACRS) or Section 179 expensing.

Insurance
• Professional liability (malpractice) insurance premiums are fully deductible.
• Practice‑related health insurance premiums for yourself and employees can be deducted as a business expense.

Employee Compensation
• If you hire staff, such as nurses, medical assistants, or billing clerks, their salaries are deductible.
• Payroll taxes paid by the practice are also deductible.

Retirement Planning for Dual Income

Salary Portion
• If your employer offers a retirement plan, you can contribute up to the maximum allowed ($22,500 for 2025, plus $7,500 catch‑up if 50+).
• Employer matches add benefit and are untaxed.

Practice Portion
• You can set up a solo 401(k) or SEP‑IRA for your practice. This allows you to contribute up to 25% of your net self‑employment income, up to $66,000 (or $73,500 if you’re 50+).
• A solo 401(k) also allows a salary from your practice, potentially lowering self‑employment tax as the salary portion faces only employee payroll taxes.

Health Insurance Deductions
• Self‑employed individuals may deduct 100% of health‑insurance premiums on their personal return (Form 1040, Schedule 1).
• This deduction is not limited to a percentage of your income and can significantly lower your adjusted gross income.

State‑Specific Considerations
• In New York and California, high state income taxes and extra physician taxes exist. Verify if your state has a distinct tax on medical professionals.
• Some states allow a deduction for out‑of‑state practicing physicians if they meet residency requirements.
• State health‑insurance mandates can necessitate extra forms (e.g., California’s SDI for self‑employed).

Avoiding Common Pitfalls

Under‑Withholding
• Don’t rely solely on salary withholding to cover practice income. Use the IRS's Tax Withholding Estimator to adjust your W‑4 or make quarterly payments.

Improper Tracking
• Keep meticulous records of all business expenses. Digital receipts, a dedicated bank account, and regular reconciliation help avoid audit issues.

Overlooking Deductions
• Many doctors miss deductions for student loan interest, continuing‑education tuition, or charitable contributions linked to their practice.

Ignoring Tax Credits
• The Qualified Business Income deduction can reduce qualified income by up to 20%. Confirm eligibility and claim it.

Failing to Update Your Tax Strategy
• Tax statutes evolve yearly. Review your tax strategy annually, especially after income, expense, or life changes (marriage, children, etc.).

Putting It All Together: A Sample Planning Scenario

Dr. Lee earns $300,000 in salary from a teaching hospital and runs a private practice that nets $200,000 after expenses. Here’s how the tax picture might look:
• Salary: $300,000 subject to payroll withholding. No self‑employment tax.
• Practice: $200,000 net income. Self‑employment tax on $200,000 (15.3% = $30,600). Deduct employer portion (7.65% of $200,000 = $15,300) from AGI.
• Total taxable income before deductions: $300,000 + $200,000 – $15,300 = $484,700.
• After standard deduction ($14,600 for married filing jointly), taxable income: $470,100.
• Federal tax: Approximately $120,000 (using 2025 brackets).
• Self‑employment tax: $30,600.
• Total tax: $150,600.

To reduce this burden, Dr. Lee could:
• Contribute $22,500 to a 403(b) from salary.
• Max out a solo 401(k) with $66,000 from practice income.
• Deduct $15,300 employer portion of SE tax.
• Deduct health‑insurance premiums.
• Use Section 179 to expense new imaging equipment ($40,000) in the first year.

After these adjustments, the taxable income shrinks, and the overall tax bill could drop by tens of thousands of dollars.

Final Thoughts

Balancing salary and practice income is a fine balance of taxation, deduction maximization, and financial planning.

Treating each stream per its distinct tax rules, keeping meticulous records, and using retirement and health‑insurance options helps physicians lower tax liability while maintaining healthy cash flow for both employment and entrepreneurial ventures.

Regular consultation with a tax professional familiar with the medical field is invaluable; they can spot opportunities and pitfalls that might otherwise slip through the cracks.

With the right strategy, you can keep more of what you earn and focus on what matters most—providing excellent patient care.