CPA for Medical Practices

Physicians are among the highest-earning professionals in the country — and among the most under-served by generic tax advice. The combination of high W-2 income during residency, transition to practice ownership, significant student loan debt, malpractice considerations, and complex compensation arrangements requires a CPA who understands the medical profession specifically. Myung Keon Kim CPA works with physicians, specialists, and medical practice owners throughout New York to minimize tax liability and build long-term financial strength.

Entity Selection and S-Corp Election

Most physicians who own their practice operate as sole proprietors or single-member LLCs by default — which means 100% of net practice income is subject to self-employment tax. An S-Corp election changes the math. By splitting your income into reasonable W-2 compensation and S-Corp distributions, only the wage portion is subject to payroll taxes. For a physician earning $300,000 in net practice income, the annual tax savings from a properly structured S-Corp can be $10,000–$20,000 or more after accounting for additional compliance costs (payroll, corporate returns, quarterly filings).

The stakes are higher for physicians than for most business owners because practice income lands in the top brackets of three separate systems at once. A high-earning New York City physician faces the top federal rate of 37%, New York State's top rate of 10.9% (Tax Law §601), and New York City's resident income tax on top of both. Every dollar of planning — entity structure, retirement contributions, the timing of income and equipment purchases — is therefore worth substantially more here than the same planning would be for a physician practising in a no-income-tax state.

The key constraint is "reasonable compensation." The IRS and courts have consistently held that physician-shareholders must pay themselves fair market wages for their clinical work. Underpaying yourself to maximize distributions is the single biggest audit risk in medical S-Corps. We benchmark salary against MGMA and AMGA survey data for your specialty and document the methodology — because if the IRS looks, you need to be ready to defend the number.

Retirement Plan Strategy

Retirement plan contributions are the most powerful tax deduction available to physician practice owners. A solo 401(k) allows both employee and employer contributions — up to the annual §415(c) limit, plus an additional catch-up contribution once you turn 50. The employee (elective deferral) portion can be pre-tax or Roth; the employer (profit sharing) portion is always pre-tax.

For physicians who are behind on retirement savings, defined benefit (DB) plans are worth serious consideration. A DB plan actuarially calculates the contribution needed to fund a defined retirement benefit, which can allow annual deductions well above $100,000 depending on your age and income. The trade-off is complexity and cost — DB plans require an actuary and annual administration. Cash balance plans, a hybrid of DB and 401(k) design, are increasingly popular among high-income practice owners because they offer large deductions with more flexibility than traditional pension plans.

Equipment Depreciation — Section 179 and Bonus

Medical practices invest heavily in equipment. Under IRC Section 179, you can elect to expense the full cost of qualifying property in the year it is placed in service, up to the Section 179 limit, raised to $2,500,000 by Public Law 119-21 in July 2025 and indexed annually from there. Qualified property includes tangible personal property used in your practice — diagnostic imaging equipment, surgical tools, exam chairs, computers, and EHR hardware. Real property improvements (like building out a new exam room) do not qualify for Section 179 but may qualify for the shorter MACRS depreciation schedules applicable to qualified improvement property (15-year, 150% declining balance).

Bonus depreciation under IRC Section 168(k) allows an additional first-year deduction — 100% of cost for new and used property with a depreciable life of 20 years or less, acquired after January 19, 2025. The phase-down that would have ended this allowance was repealed by Public Law 119-21 in July 2025. Unlike Section 179, bonus depreciation is not limited by taxable income and can create a net operating loss that carries forward to future years. Timing equipment purchases relative to your income year and entity structure is a core part of year-end tax planning for medical practices.

Revenue Recognition and Insurance Reimbursements

Medical practices that use cash-basis accounting — the most common method for small practices — recognize income when payment is received, not when services are rendered. This creates planning opportunities around year-end receivables. However, if your practice uses accrual-basis accounting (required if you are a C-Corp with gross receipts above the gross-receipts threshold under §448(c), which is indexed annually, or elected voluntarily), revenue recognition becomes more complex — particularly for insurance reimbursements where the actual payment often differs from the billed amount. We ensure your accounting method is correctly applied and optimized for your situation.

Medical Practice Startup Costs

Starting a practice involves significant upfront costs — legal fees, licensing, credentialing, initial equipment, leasehold improvements, and marketing. Under IRC Section 195, startup costs (expenses incurred before the business opens) can be amortized over 180 months, with the first $5,000 expensed immediately (phased out if startup costs exceed $50,000). Organizational costs for forming your PC or LLC are treated similarly under Section 248. Proper categorization of startup versus ongoing costs is critical — and we document everything in case the IRS questions when your practice was "open for business."

Employment Tax and Payroll Compliance

If you have employees — office staff, nurses, medical assistants — you are responsible for withholding federal and state income taxes, Social Security (6.2%), and Medicare (1.45%) from their wages, and matching the employer portion of Social Security and Medicare. New York adds an additional layer with the Metropolitan Commuter Transportation Mobility Tax (MCTMT) for employers in NYC and surrounding counties. Payroll tax deposits must be made on time — the Trust Fund Recovery Penalty can hold individual owners personally liable for unpaid payroll taxes, even in a corporate entity.

Frequently Asked Questions

Should my medical practice be an S-Corp?

For most physicians earning above $80,000 in net self-employment income, an S-Corp election can produce meaningful tax savings by splitting income into salary and distributions. Distributions are not subject to self-employment tax (15.3% on the first $184,500 of net earnings, 2.9% above that). However, you must pay yourself a "reasonable compensation" as W-2 wages — the IRS scrutinizes medical professionals closely on this point. The actual savings depend on your net income, the reasonable salary benchmark for your specialty, and your state tax situation. New York has its own S-Corp rules (PTET) that add another layer of planning.

What retirement plans are best for physicians?

The best retirement plan depends on your entity type, employee count, and income level. Solo 401(k) plans allow contributions up to the annual §415(c) limit, with an additional catch-up once you turn 50, and are ideal for solo practitioners with no employees. Defined benefit (pension) plans can allow annual contributions exceeding $200,000 for older, high-income physicians and provide the largest current-year deductions. Cash balance plans combine features of both. If you have employees, a SEP-IRA (25% of compensation up to the annual §415(c) limit) is simpler but does not allow employee contributions. Plan design significantly impacts your tax bracket — this is one of the highest-value planning decisions a physician can make.

Can I deduct medical equipment under Section 179?

Yes. Section 179 of the Internal Revenue Code allows you to deduct the full cost of qualifying equipment in the year it is placed in service, rather than depreciating it over years. The deduction limit was raised to $2,500,000 by Public Law 119-21 in July 2025 and is indexed annually from there. Medical equipment — exam tables, ultrasound machines, EHR workstations, autoclave units, diagnostic devices — qualifies. Bonus depreciation (100% under IRC §168(k) for property acquired after January 19, 2025, with no scheduled phase-down) provides additional first-year write-offs for equipment that does not qualify for Section 179 or exceeds the limit. Both deductions are subject to the income of the business — you cannot create a loss with Section 179 that exceeds your practice income.

How should I handle locum tenens income?

Locum tenens income paid through a staffing agency is typically reported on a 1099-NEC as self-employment income. This creates self-employment tax exposure (15.3% on net earnings up to the Social Security wage base) in addition to income tax. Structuring locum work through your existing practice entity or a separate LLC can provide more flexibility. You can also deduct business expenses directly related to the locum work — malpractice insurance, licensing in the host state, travel, and professional memberships. If locum income is substantial, quarterly estimated tax payments are required to avoid underpayment penalties.