A growing number of doctors add side practices such as consulting, teaching, telemedicine, or a small clinic to their primary work. Although these side practices can increase earnings, they also introduce additional tax complexity. Effective planning can lower tax liability, protect cash flow, and keep you compliant with federal and state rules. This is a practical guide to navigating tax planning for doctors with side practices.

Why Side Practices Matter Side practices alter the tax classification of your income. What would normally be taxed as salary is now treated as self‑employment income, subject to Social Security and Medicare taxes. A blend of W‑2 income from your primary job and 1099 income from a side practice produces a hybrid tax environment. Different income sources have separate deduction rules, reporting obligations, and timing aspects.

Key Tax Concepts for Doctors 1. SEAT – 15.3% on net self‑employment income. 2. Qualified Business Income (QBI) deduction – up to 20% of qualified business income under Section 199A, subject to limitations. 3. Corporate rates – incorporating may provide lower tax rates and distinct liability. 4. State Taxes – many states tax medical income uniquely; some offer special exemptions or lower rates for doctors.

Choosing the Right Entity

Schedule C Sole Proprietorship

Simplest to set up; earnings are reported on Form 1040 Schedule C. All expenses are deducted on the same schedule; no separate corporate filing. The net profit is subject to self‑employment tax.

Limited Liability Company

A single‑member LLC is treated as a disregarded entity, identical to a sole proprietorship unless corporate taxation is elected. A multi‑member LLC files Form 1065, with each member receiving a K‑1. Delivers liability protection without corporate formalities.

S Corporation

Pay yourself a reasonable salary (W‑2) and take the remaining profits as shareholder distributions. Salary is subject to payroll taxes, but distributions are not subject to SEAT. Needs payroll setup, quarterly payroll tax filings, and adherence to IRS reasonable‑compensation rules.

C Corporation

Separate legal entity; profits taxed at the corporate level (21% federal) and again when distributed as dividends. Ideal for larger side practices or when you plan to reinvest earnings. Needs detailed corporate governance and annual meetings.

Best Practice: Many doctors choose an S‑Corp or LLC with an S‑Corp election for simplicity, liability protection, and tax efficiency. Nonetheless, the decision hinges on revenue, employee count, and long‑term objectives.

Deductible Cost Items

Office Rent or Lease

Utilities, Internet, and Phone

Professional Liability Insurance

Continuing Medical Education and Licensing Fees

Equipment and Supplies (e.g., medical instruments, computers)

Advertising and Marketing costs

Depreciation of Capital Assets

Health Insurance Premiums (if self‑insured)

Business‑related Travel and Meals (50% deduction for meals)

Home Office deduction when you use a dedicated area for patient care or administrative duties.

Remember: All expenses must be ordinary, necessary, and directly related to the side practice. Document everything with detailed records, receipts, and a mileage log if you claim a home office or vehicle deduction.

Paying Self‑Employment Tax on Time

• If your side practice yields $1,000 or more in SE tax, quarterly estimated payments (Form 1040‑ES) are required.
  
• Apply the safe‑harbor rule: pay 90% of last year’s tax or 100% of this year’s tax, increasing to 110% if AGI > $150,000.
  
• An automatic payroll setup for an S‑Corp decreases the risk of underpayment penalties.
  
  

Qualified Business Income Deduction

• The QBI deduction allows a 20% deduction on qualified business income from a pass‑through entity.
  
• Limitations apply for high‑income doctors: wage and capital limitations, and the 20% threshold.
  
• Reviewing your total income and side practice type is crucial to maximize the deduction.
  
  

Health Insurance & Retirement

• If you are self‑insured and pay your own premiums, you can deduct 100% of those premiums from your gross income.
  
• Establish a Solo 401(k), SEP IRA, or defined‑benefit plan to defer income and reduce taxable wages.
  
• IRS limits contributions to these plans; a financial advisor can guide you to stay within limits.
  
  

Recordkeeping and Documentation

• Use distinct bank accounts for primary and side practices.
  
• Keep a detailed ledger of all income and expenses.
  
• Use medical‑practice‑specific accounting software to track reimbursables, deductions, and tax documents.
  
• Store records for at least seven years to cover possible audits.
  
  

State and Local Issues

• Certain states like Texas, Florida, 節税対策 無料相談 and Nevada impose no state income tax, simplifying your setup.
  
• Other states like California and New York levy extra taxes on medical income.
  
• Check for local licensing fees, business taxes, or health department permits that may apply to side practices.
  
  

Timing Tactics

• Defer income: If your side practice allows, push the receipt of large invoices to the next calendar year to reduce current year tax.
  
• Accelerate deductions: Pay rent or purchase equipment before year‑end to increase deductions.
  
• Use a cash‑basis entity to better match income with expenses.
  
  

Employment vs. Contractors

• Employees require payroll taxes, benefits, and compliance with labor laws.
  
• Using independent contractors (1099) lowers payroll load but raises audit risk.
  
• Use a qualified tax professional to classify workers correctly to avoid penalties.
  
  

Working with a Tax Professional

• A CPA or tax lawyer experienced in medical practice taxes can guide you in entity selection, deduction optimization, and compliance.
  
• Work with a professional for quarterly estimates, payroll setup, and audit defense.
  
• Consistently evaluate your tax strategy.
  
  

Pitfalls to Avoid

• Mixing personal and business expenses in the same bank account.
  
• Failing to keep detailed mileage logs for vehicle use.
  
• Underestimating self‑employment tax and missing quarterly payments.
  
• Overlooking QBI limitations and failing to structure the side practice to qualify.
  
• Ignoring state‑specific tax rules for medical professionals.
  
  

Final Thoughts

Running a side practice can significantly increase your income, but it also introduces a range of tax responsibilities. Choosing the right entity, maximizing deductions, managing SE tax, and using retirement and health‑insurance plans lets you retain more income. Ongoing partnership with a qualified tax professional and thorough recordkeeping underpin solid tax planning for doctors running side practices. With the proper strategy, you can concentrate on high‑quality care while cutting your tax burden.