Doctors frequently juggle two separate income streams: a steady salary from a hospital or academic setting, and revenue from a private practice or consulting engagements.

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, providing actionable strategies to reduce your tax bill and boost your take‑home earnings.

Comprehending the Two Income Streams

Employed 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.

Your employer usually withholds the appropriate amount regularly, and you receive a W‑2 by year‑end.

Private Practice Income

Contrarily, revenue from a private practice, consulting, or other self‑employment endeavors is reported on Schedule C (or a partnership return if the practice is a partnership) and faces self‑employment tax along with income tax.

Self‑employment tax includes both employee and employer shares of Social Security and Medicare, amounting to roughly 15.3% of net earnings.

However, you can deduct the employer portion (7.65%) when calculating your adjusted gross income, which reduces your taxable income.

Important Differences to Note

Tax Withholding: Salary income receives automatic tax withholding; practice income may need quarterly estimated tax payments.

Deductions: Practice income offers more opportunities for business deductions (office rent, equipment, supplies, mileage, professional liability insurance, 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: You may be able to claim a health‑insurance deduction on your personal return if you pay premiums out of pocket for practice income.

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

Since salary taxes are withheld, quarterly tax payments become less of a concern unless you have substantial practice income that isn't fully withheld.

Calculate your overall tax liability for the year by summing expected salary and practice income, and then deducting any deductions and credits.

If your practice income reaches a level where you foresee owing more than $1,000 in tax by year‑end, you’ll likely need to make quarterly payments.

The IRS supplies a worksheet (Form 1040‑ES) to aid in calculating these payments.

Maximizing Deductions on Practice Income

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

Mileage and Transportation
• Track all business mileage in a logbook or use an app. 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
• Continuing medical education (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 phones used for patient communication are deductible.
• For major purchases, consider depreciation (MACRS) or Section 179 expensing.

Insurance
• 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, contribute up to the maximum allowed ($22,500 for 2025, plus $7,500 catch‑up if 50+).
• The employer’s matching contributions are an added benefit with no tax penalty.

Practice Portion
• A solo 401(k) or SEP‑IRA can be established for 確定申告 節税方法 問い合わせ your practice, letting you contribute up to 25% of net self‑employment income, up to $66,000 (or $73,500 if 50+).
• With a solo 401(k), you can draw a salary from your practice, reducing self‑employment tax since the salary portion is taxed only as employee payroll tax.

Health Insurance Deductions
• If self‑employed, you can deduct all health‑insurance premiums on your personal return (Form 1040, Schedule 1).
• The deduction isn’t capped by income percentage and can notably reduce 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.
• Certain states permit a deduction for out‑of‑state physicians who meet residency criteria.
• State‑level health‑insurance mandates may require you to file additional forms (e.g., California’s SDI for self‑employed individuals).

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 physicians miss out on deductions for student loan interest, tuition for continuing education, or charitable contributions related to their practice.

Ignoring Tax Credits
• QBI deduction offers up to a 20% cut on qualified income. Verify eligibility and claim it.

Failing to Update Your Tax Strategy
• Tax laws change every year. Perform an annual review of your tax strategy, especially if you’ve had changes in income, expenses, or life events (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 with 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: Roughly $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 involves careful 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 who knows 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.