On the annual list of the top ten highest-paying jobs, doctors of various specialties usually take most of the slots. Recent statistics show the average U.S. doctor makes $352,000 in 2024-2025, a wage that continues to grow annually.
With that much wealth comes a higher tax bracket. If you aren’t careful about managing your tax deductions, you could find yourself returning much of your income to the government. An accountant and financial advisor can assist you as you strategize your tax planning, but knowing first-hand is the best way to save. Consider these essential tax deductions and whether they might help you minimize your financial burden this year or in the future.
1. Home Office Deduction
Are you self-employed as a locum tenens, a research writer, or doing any kind of side work at home? Do you practice medicine in a clinic? If any of these factors apply to you, even if the work is part-time, you can take a home office deduction.
Instead of the standard deduction, save your receipts for the following expenses:
- Your rent or lease for the clinic
- Office supplies and equipment
- Medical equipment
- Your scrubs and uniforms
- All license renewal fees (and initial licensing costs)
- Malpractice insurance payments
- Costs for continuing education expenses, board exams, and professional membership dues
- Wages for staff, employee benefits, and payroll taxes
Keep records of any expenses you incur running your business. If you travel for conferences and seminars, you can deduct part of the travel costs (meals, lodging, rental vehicles, and airfare).
2. Pass-Through Deductions
Physicians who operate as sole proprietors, LLCs, S-corporations, or partnerships fall under the “pass-through” business category. For tax purposes, this means you may be eligible for the Qualified Business Income Deduction (QBID).
The QBID allows you to deduct up to 20% of your business income. However, the requirements are complicated. There are two components: the QBI and the real estate. In addition to business income, you can deduct rental property income.
3. Retirement and Investment Contributions
Whether self-employed or working for someone else, you can invest part of your income into retirement. Not all these investments are eligible for tax deductions, but many are.
Allocating funds into pre-tax retirement plans, such as 401(k)s, 457 plans, and traditional IRAs, up to the maximum contribution limit could put you into a lower tax bracket. Health savings account (HSA) contributions and investing in 529 college savings plans are tax deductible.
Depending on your situation, you may benefit from investing outside the traditional employment avenues. This article by OJM Group explains the types of investment opportunities physicians can use to reduce their tax threshold and diversify their retirement portfolio.
4. Healthcare Costs
Your employer may partly pay for your healthcare insurance, but you can deduct any premiums you pay to cover you, your spouse, and qualified dependents. If you have hefty healthcare costs exceeding 7.5% of your adjusted gross income, they are tax-deductible, too.
5. Miscellaneous
Looking for other ways to reduce your tax liability? Your home and personal expenses can help.
Many of your interest payments are tax-deductible, including interest paid up to $2,500 on student loans, interest on home mortgage debt, and interest paid on a home equity line of credit.
Donating to charities is another way to lower your tax threshold. Up to 60% of your adjusted gross income is deductible.
Many physicians choose to invest in real estate. Depreciation can be written off using a cost segregation method, and if you take a loss on your investment, tax-loss harvesting rules help keep your portfolio balanced. Before investing in real estate, talk to your financial advisor to ensure you know the tax rules in your state.
If you’re a business owner physician with dependent children who are looking for work, you can hire them. Paying your child’s wages up to the standard deduction is tax-free. However, the work must be age- and skill-appropriate and recorded thoroughly in case of audits.
Conclusion
The basic tax deductions aren’t enough for physicians to maximize their income. With a higher income, you must go beyond the standard methods to reduce your tax obligations and reach your financial and retirement goals.
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