Many physicians today supplement their primary practice with side practices—consulting, teaching, telemedicine, or a small clinic. Even though side practices may raise income, they add extra layers of tax complexity. Good planning can minimize tax liability, safeguard cash flow, and ensure compliance with federal and state laws. Here is a practical guide to navigating tax planning for physicians who run side practices.

The Importance of Side Practices Side practices alter the tax classification of your income. Income that would otherwise be taxed as salary becomes self‑employment income subject to the self‑employment tax (Social Security and Medicare). Combining W‑2 income from your main employer with 1099 income from a side practice results in a hybrid tax scenario. Different income sources have separate deduction rules, reporting obligations, and timing aspects.

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

Choosing the Right Entity

Sole Proprietorship (Schedule C)

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

Limited Liability Company (LLC)

Single‑member LLC treated as a disregarded entity; same as sole proprietorship for tax purposes unless you elect corporate taxation. Multi‑member LLCs submit Form 1065; each member gets a K‑1. Delivers liability protection without corporate formalities.

S‑Corp

Set a reasonable salary (W‑2) and take the surplus as shareholder distributions. Salary incurs payroll taxes, but distributions avoid SE tax. Requires payroll setup, quarterly payroll tax filings, and compliance with IRS reasonable‑compensation rules.

C‑Corporation

A distinct legal entity; profits taxed at the corporate level (21% federal) and again upon dividend distribution. Best for larger side practices or when you intend to reinvest profits. Demands detailed corporate governance and annual meetings.

Best Practice: Most physicians find an S‑Corp or LLC with an S‑Corp election strikes the right balance of simplicity, liability protection, and tax efficiency. However, the choice depends on your revenue, number of employees, and long‑term goals.

Deductible Expenses

Office Rent or Lease

Utilities, Internet, and Phone

Professional Liability Coverage

Continuing Medical Education and Licensing Fees

Equipment and Supplies such as medical instruments, computers

Marketing and Advertising expenses

Capital Asset Depreciation

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.

Note: All expenses must be ordinary, necessary, and directly connected to the side practice. Maintain detailed records, receipts, and a mileage log when claiming 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.
  
• Employ the safe‑harbor rule: pay 90% of prior year’s tax or 100% of current year’s tax (110% if AGI exceeds $150,000).
  
• An automatic payroll setup for an S‑Corp decreases the risk of underpayment penalties.
  
  

QBI Deduction

• The QBI deduction allows a 20% deduction on qualified business income from a pass‑through entity.
  
• Doctors with higher incomes encounter limits: wage and capital caps, and the 20% ceiling.
  
• A careful review of your total income and the type of side practice is essential to maximize the deduction.
  
  

Health Insurance and Retirement

• Premiums paid by self‑insured doctors are fully deductible from gross income.
  
• Establish a Solo 401(k), SEP IRA, or defined‑benefit plan to defer income and reduce taxable wages.
  
• Contribution limits are set by IRS rules; a financial advisor can help you stay compliant.
  
  

Recordkeeping and Documentation

• Separate bank accounts for primary practice and side practice.
  
• Record all income and expenses in a detailed ledger.
  
• Use accounting software tailored for medical practices to track reimbursable items, write-offs, and tax documents.
  
• Retain records for at least seven years in case of audit.
  
  

State and Local Issues

• States such as Texas, Florida, and Nevada lack state income tax, easing your compliance.
  
• Other states like California and New York levy extra taxes on medical income.
  
• Look into local licensing fees, business taxes, and health department permits that could apply.
  
  

Timing Strategies

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

Hiring Workers or Contractors

• Employees require payroll taxes, benefits, and compliance with labor laws.
  
• Independent contractors (1099) cut payroll overhead but heighten audit risk.
  
• Hire a qualified tax professional to classify workers correctly and dodge penalties.
  
  

Partnering with a Tax Professional

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

Common Pitfalls to Avoid

• Combining personal and business expenses in one bank account.
  
• Failing to keep detailed mileage logs for vehicle use.
  
• Underestimating SE tax and missing quarterly payments.
  
• Ignoring QBI limits and not structuring the side practice for qualification.
  
• Disregarding state‑specific tax rules for medical professionals.
  
  

Conclusion

Running a side practice can raise your income substantially, but it also creates numerous tax responsibilities. By selecting the appropriate entity, maximizing deductible expenses, staying on top of self‑employment tax, and 法人 税金対策 問い合わせ leveraging retirement and health‑insurance strategies, you can keep more of your earnings. 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.