Tax Tips for Medical Professionals

You spent a decade training to earn a strong income — and now a surprising share of it disappears to taxes, while the hospital's W-2 leaves you almost nothing to deduct. Physicians, dentists, PAs, NPs, and CRNAs sit in a strange tax spot: high income, limited shelters on paper, and a set of rules (like the QBI service-business phaseout) that seem designed specifically for you. The good news: the playbook that works is well-established. Here it is, updated for tax year 2026.

Why do medical professionals overpay taxes so often?

Three structural reasons:

1. W-2 income is nearly deduction-proof. Unreimbursed employee expenses — CME, licenses, DEA registration, scrubs — are not deductible for W-2 employees, and the 2025 tax law made that suspension permanent. If you're purely W-2, your leverage lives in retirement plans, HSAs, and timing, not expense deductions.
2. Medicine is a "specified service trade or business" (SSTB). The 20% qualified business income (QBI) deduction phases out for health-care income once taxable income passes $201,750 (single) / $403,500 (joint) for 2026, disappearing over the next $75,000/$150,000. Many attendings blow straight through those ranges.
3. Nobody coordinates the moving parts. A hospitalist with moonlighting 1099 income, a working spouse, RSUs, and a side S-corp has five tax systems interacting — and usually no one watching all five.

What should you do with 1099 and moonlighting income?

Locum tenens shifts, medical directorships, expert-witness work, telehealth panels — 1099 income is where W-2 physicians get their planning room back. Reported on Schedule C, it generally unlocks:

• A solo 401(k) with employer-side contributions (see the table below) — usually the single biggest lever.
• Real deductions: malpractice tail coverage, CME and board exams, licenses and DEA fees, professional society dues, a compliant home office for your admin work, and business mileage at 72.5 cents per mile for 2026.
• Entity options: at higher 1099 income levels, an S corporation can trim self-employment tax — run your numbers in our S-corp calculator before assuming it's worth the payroll overhead.

The catch: no one withholds taxes on 1099 income. Quarterly estimated payments are on you, and underpayment penalties have accrued at 6–7% during 2026. A hedged example: a hospitalist earning $280,000 W-2 plus $60,000 of 2026 locums income might owe roughly $20,000–$25,000 of combined federal income and self-employment tax on that side income alone — money to set aside per shift, not discover in April 2027.

How much can you shelter in retirement accounts in 2026?

More than most physicians think — especially with multiple employers. The 2026 limits:

The 403(b) + 457(b) stack alone lets many hospital-employed physicians defer $49,000 of salary in 2026 before touching a single exotic strategy. Add a solo 401(k) employer contribution on moonlighting income — roughly 20% of net self-employment earnings — and a two-physician household can routinely shelter six figures. One 2026 wrinkle: if you earned over $150,000 of FICA wages from an employer in 2025, your catch-up contributions there generally must now be Roth.

Does the QBI deduction work for physicians?

Sometimes — and the difference is worth real money. Because medicine is an SSTB, the 20% QBI deduction on practice or 1099 profits phases out between $201,750–$276,750 (single) and $403,500–$553,500 (joint) of 2026 taxable income.

The planning insight: those thresholds test taxable income, not gross. A married practice owner at $460,000 who puts $72,000 into a solo 401(k), $8,750 into a family HSA, and takes the $32,200 standard deduction can land far enough down the phase-in range to preserve a meaningful slice of QBI — a deduction that would otherwise vanish. Every dollar of retirement contribution near the threshold can effectively do double duty. This is exactly the kind of interlocking math that deserves a projection in October, not a shrug in April.

Which deductions actually hold up for doctors?

For the self-employed side (Schedule C, partnership, or S-corp):

• Malpractice premiums and tail coverage
• CME courses, travel to conferences (with business purpose documented), board certification and recertification
• Licenses, DEA registration, hospital staff fees, society dues
• Self-employed health insurance premiums (generally deductible above the line)
• Equipment — loupes, diagnostic tools, computers — often fully deductible in year one under 100% bonus depreciation, now permanent
• A home office used regularly and exclusively for charting, billing, and practice admin

For W-2-only physicians, the honest list is shorter: retirement deferrals, HSA contributions, the $40,400 SALT cap (2026) if you itemize, charitable giving above the new 0.5%-of-AGI floor, and — for practice owners in most states — the pass-through entity tax (PTET) election, which effectively routes state income tax around the SALT cap. The 2026 tax changes hub covers what changed this year in each of those.

Two cautions, because claims matter: "write-offs" circulating in physician forums — Augusta-rule rentals to your own practice, hiring young children at implausible wages, cost-seg on your personal residence — draw exam attention when they're not documented and defensible. If a strategy sounds like it beats the system, it needs paper behind it.

What about practice owners — entity structure, PTET, and big retirement plans?

Owning the practice (or your slice of one) opens the serious tools:

• Entity design. Most private practices land on an S corporation or a partnership/PLLC. The S-corp saves Medicare/payroll tax on distributions above a reasonable physician salary — and "reasonable" for a physician is high, so the math is narrower than influencers claim. Model it before electing.
• PTET elections in most states restore a federal deduction for state taxes the SALT cap would otherwise block — often worth five figures for high-earning owners.
• Cash balance / defined benefit plans stacked on a 401(k) can create deductible contributions well into six figures for owners in their 50s and 60s, depending on age, census, and staff costs. These require actuarial administration; done right, they're the largest legal deduction most practice owners will ever see.
• Real estate: owning your building in a separate LLC and leasing it to the practice can shift income and build equity — with self-rental and grouping rules that need to be set up correctly from day one.

When a surgeon walks in with a hospital W-2, two 1099 gigs, a surgery-center K-1, and no coordinated plan, that's not a mess to be embarrassed about — that's Tuesday for us. Problems come here to get solved.

FAQ

Can I deduct CME, licenses, or scrubs against my W-2 salary?

Generally no — unreimbursed employee expenses are nondeductible for W-2 workers, permanently under current law. Route professional costs through your 1099/practice activity where legitimate, or ask your employer about an accountable-plan reimbursement instead; reimbursements are tax-free.

Is the backdoor Roth still allowed in 2026?

Yes, under current law. Contribute after-tax to a traditional IRA ($7,500 for 2026) and convert. Watch the pro-rata rule if you hold pre-tax IRA balances — rolling those into your employer plan first often cleans the slate.

Is PSLF loan forgiveness taxable?

Public Service Loan Forgiveness remains federal-tax-free. Some states treat forgiveness differently, so check your state before assuming zero.

I do locum tenens full-time. What's my biggest tax risk?

Missing quarterly estimated payments and misclassifying expenses. Locums are classic Schedule C taxpayers: set aside a fixed percentage per deposit, pay quarterly, keep contemporaneous mileage and travel logs, and evaluate the S-corp question once net income is comfortably into six figures.

Do you work with physicians outside Florida?

Yes — WAYG is a licensed CPA/EA firm serving clients nationwide from our Coral Gables HQ, and multi-state returns (common for locums and telehealth) are routine work for us.

Reviewed by the WAYG tax team · Updated July 2026