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.

While each stream is taxed differently, the overall tax picture can become complex, especially when you factor in self‑employment tax, health‑insurance premiums, retirement contributions, and state‑specific rules.

Here we dissect the main tax factors for balancing salary and practice income and present practical tactics to keep your tax liability low while maximizing net income.

Understanding the Two Income Streams

Wage 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 typically withholds the correct amount on a regular basis, and you receive a W‑2 at the end of the year.

Self‑Employment 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 provides greater chances for business deductions such as office rent, equipment, supplies, mileage, professional liability insurance, and continuing education.

Retirement Contributions: Salary income may be funneled into employer‑sponsored plans (403(b), 401(k), etc.), whereas practice income can be channeled 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

As salary taxes are withheld, you usually need less attention to quarterly payments unless significant practice income escapes full withholding.

Estimate your total tax liability for 法人 税金対策 問い合わせ the year by adding your expected salary and practice income, then subtracting any deductions and credits.

If your practice income is large enough that you anticipate owing more than $1,000 in tax at year‑end, you’ll likely need to file 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 may be fully deducted if the space is used exclusively for business.
• If you work from home, a reasonable portion of your home expenses (mortgage interest, property taxes, utilities, internet) can be deducted as a home office.

Mileage and Transportation
• Keep a logbook or app for all business mileage. The IRS standard mileage rate is $0.655 per mile for 2025.
• Alternatively, deduct actual expenses (gas, maintenance, depreciation) if they exceed the standard rate.

Professional Development
• 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
• Professional liability (malpractice) insurance premiums are fully deductible.
• Health insurance premiums related to practice for yourself and employees can be deducted as a business expense.

Employee Compensation
• Hiring staff (nurses, medical assistants, billing clerks) makes their salaries deductible.
• The practice’s payroll taxes 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+).
• Employer matching contributions add benefit without tax penalty.

Practice Portion
• You can create a solo 401(k) or SEP‑IRA for practice income, contributing up to 25% of net self‑employment income, up to $66,000 (or $73,500 if 50+).
• A solo 401(k) also allows a salary from your practice, potentially lowering self‑employment tax as the salary portion faces only employee payroll taxes.

Health Insurance Deductions
• If you’re self‑employed, you can deduct 100% of your health‑insurance premiums on your personal return (Form 1040, Schedule 1).
• This deduction is not limited to a percentage of your income and can significantly lower your adjusted gross income.

State‑Specific Considerations
• New York and California feature high state income taxes and additional physician taxes. Confirm if your state levies a separate tax on medical professionals.
• Some states allow a deduction for out‑of‑state practicing physicians if they meet residency requirements.
• 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
• Maintain detailed records of every business expense. Digital receipts, a separate bank account, and regular reconciliation prevent audit problems.

Overlooking Deductions
• Physicians often overlook deductions for student loan interest, continuing‑education tuition, or charitable contributions tied to their practice.

Ignoring Tax Credits
• The Qualified Business Income deduction can reduce qualified income by up to 20%. Confirm eligibility and claim it.

Failing to Update Your Tax Strategy
• Tax statutes evolve yearly. Review your tax strategy annually, especially after income, expense, or life changes (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: Approximately $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 is a delicate dance of taxation, deduction maximization, and financial planning.

Treating each stream per its unique tax rules, maintaining meticulous records, and using retirement and health‑insurance options lets physicians cut tax liability while keeping healthy cash flow for both employment and entrepreneurial ventures.

Regular consultation with a tax professional who understands the medical field is also 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.