A growing number of doctors add side practices such as consulting, teaching, telemedicine, or a small clinic to their primary work. 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. Below is a practical guide to navigating tax planning for doctors who run side practices.

Why Side Practices Are Important A side practice changes the tax character of your earnings. What would normally be taxed as salary is now treated as self‑employment income, subject to Social Security and Medicare taxes. Combining W‑2 income from your main employer with 1099 income from a side practice results in a hybrid tax scenario. Each type of income has different deduction rules, reporting requirements, and timing considerations.

Essential Tax Concepts for Physicians 1. Self‑Employment Tax (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

Sole Proprietorship

Most straightforward to establish; income appears on Form 1040 Schedule C. All expenses are written off on the same schedule; no separate corporate filing needed. The net profit is subject to self‑employment tax.

Limited Liability Company (LLC)

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. Offers liability protection without corporate formalities.

S Corporation

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 separate legal entity; profits taxed at 21% federal and again on dividends. Ideal for larger side practices or when you plan to reinvest earnings. Requires 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 choice relies on revenue, number of staff, and future goals.

Tax‑Deductible Expenses

Rent or Lease of Office Space

Utilities, Internet, and Phone services

Professional Liability Coverage

CME and Licensure Fees

Equipment and Supplies such as medical instruments, computers

Advertising and Marketing costs

Depreciation of Capital Assets

Premiums for Health Insurance when self‑insured

Travel and Meals related to business (50% meals deduction)

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. Keep detailed records, receipts, and a mileage log if you’re claiming a home office or vehicle deduction.

Paying SE Tax on Time

• Quarterly estimated tax payments (Form 1040‑ES) are required if your side practice produces $1,000 or more in self‑employment tax.
  
• Use the "safe harbor" rule: pay 90% of last year’s tax or 100% of this year’s tax (110% if your adjusted gross income exceeds $150,000).
  
• An automatic payroll setup for an S‑Corp decreases the risk of underpayment penalties.
  
  

Qualified Business Income (QBI) 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 and Retirement

• Premiums paid by self‑insured doctors are fully deductible from gross income.
  
• Set up a Solo 401(k), SEP IRA, or defined‑benefit plan to defer income and lower taxable wages.
  
• IRS limits contributions to these plans; a financial advisor can guide you to stay within limits.
  
  

Recordkeeping & Documentation

• Maintain separate bank accounts for the main practice and side practice.
  
• Keep a detailed ledger of all income and 法人 税金対策 問い合わせ expenses.
  
• Employ accounting software designed for medical practices to monitor reimbursable items, deductions, and tax docs.
  
• Store records for at least seven years to cover possible audits.
  
  

State and Local Considerations

• Certain states like Texas, Florida, and Nevada impose no state income tax, simplifying your setup.
  
• Others (e.g., California, New York) impose additional taxes on medical income.
  
• Verify local licensing fees, business taxes, or health department permits that might affect side practices.
  
  

Timing Strategies

• Defer income: Move large invoice receipts to the following year if permitted, lowering current year tax.
  
• Accelerate deductions: Pay rent or buy equipment before year‑end to boost deductions.
  
• Consider using a "cash‑basis" entity to match income and expenses more closely.
  
  

Hiring Workers or Contractors

• Hiring employees triggers payroll taxes, benefits, and labor law compliance.
  
• Independent contractors (1099) can reduce payroll burden but increase audit risk.
  
• Engage a qualified tax professional to classify workers properly and avoid penalties.
  
  

Partnering with a Tax Professional

• A CPA or tax attorney versed in medical practice taxes can assist with entity choice, deduction maximization, and compliance.
  
• Collaborate with a professional to handle quarterly estimates, payroll setup, and audit defense.
  
• Regularly review your tax strategy.
  
  

Pitfalls to Avoid

• Merging personal and business expenses within a single bank account.
  
• Neglecting detailed mileage logs for vehicle usage.
  
• 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.
  
  

Conclusion

Operating a side practice can boost your income considerably, yet it brings a variety of tax obligations. Choosing the right entity, maximizing deductions, managing SE tax, and using retirement and health‑insurance plans lets you retain more income. Regular collaboration with a qualified tax professional and meticulous recordkeeping are the cornerstones of effective tax planning for doctors with side practices. With the correct approach, you can dedicate yourself to quality care while reducing your tax load.