Tax planning for doctors centers on retirement plans and, for practice owners, the limits on the QBI deduction.
Section 199A treats health as a specified service, so a medical practice’s 20% qualified business income (QBI) deduction phases out as income rises. In 2026, the deduction is gone at $553,500 of joint taxable income. Doctors paid on a W-2 get none on their wages. Retirement plans are the main shelter for owners and employees alike. A doctor at a nonprofit or public hospital may have both a 403(b) and a 457(b).
Updated · Sources
Doctors, tax year 2026
- $403,500
- of joint taxable income is where a medical practice’s QBI deduction starts to phase out.
- $24,500
- is the most you can defer from your pay into a 401(k) or 403(b), before catch-ups.
- $290,000
- is the cap on the yearly pension a cash balance plan can pay you, for a pension starting between 62 and 65.
None of the 2027 amounts had been published as of September 24, 2026.
Does your practice income get the QBI deduction?
You earn it as an owner
QBI comes only from a business you own, or from your share of one. Wages you earn as an employee never count, so pay on a hospital or group practice W-2 gets no deduction. An S corporation owner’s salary and a partner’s guaranteed payments are left out too.
Your taxable income sets how much QBI counts
Above the 2026 joint threshold, the share of QBI that counts falls evenly across a $150,000 range until none is left. For single filers, the range runs from $201,750 to $276,750.
Medical care is what triggers the phase-out
The phase-out reaches any business where physicians, nurses, pharmacists, dentists, physical therapists or similar professionals provide medical services. Research, testing, and making or selling drugs or medical devices fall outside the field of health. A surgical center that bills only for the facility, with no clinicians on staff, is not a health business.
A separate business is tested on its own
A business with its own books, invoices and staff is tested apart from your practice, so it can qualify when the practice cannot. If its gross receipts are $25 million or less, it is a health business only when 10% or more come from health. If the same owners, family included, hold 50% or more of both, the part that serves your practice counts as a health business.
The One Big Beautiful Bill Act (P.L. 119-21) made the deduction permanent. The same law widened the joint phase-out range from $100,000 to $150,000, starting in 2026.
What the QBI phase-out costs a practice owner in 2026.
The thresholds use taxable income for the whole return, so a spouse’s pay can push a practice into the phase-out.
$400,000 taxable income
$60,000
Below the threshold, all of her QBI counts. In the 24% bracket, the deduction saves $14,400 of federal tax.
$478,500 taxable income
$30,000
Halfway through the range, half of her QBI counts. In the 32% bracket, the deduction saves $9,600.
$553,500 taxable income
$0
At the top of the range, none of her QBI counts.
The deduction is 20% of the QBI that counts, with taxable income measured before the deduction. At $478,500, which is $75,000 into the $150,000 phase-out range, half of her QBI and half of her wages count. The wage limit is then 50% of $100,000, or $50,000, so it does not cut the deduction. The overall cap of 20% of taxable income does not cut it either. The tax saved uses the 2026 joint brackets: 24% up to $403,550 (the bracket edge, not the QBI threshold), then 32% up to $512,450. The case assumes no capital gains and no qualified property (the depreciable assets that can raise the wage limit), and it ignores state tax.
A 401(k) caps what goes in, and a cash balance plan caps what comes out.
A practice can run a cash balance plan alongside its 401(k). A cash balance plan has no fixed dollar cap on contributions, because an actuary sets them each year to fund its pension.
| 401(k) plan | Cash balance plan | |
|---|---|---|
| What is capped | Contributions Yours and the practice’s, each year | The pension The yearly benefit it pays you |
| 2026 limit | $72,000 Or 100% of your pay, if less | $290,000 a year Or 100% of your average pay over your three highest-paid consecutive years, if less |
| Who sets the amount | You and the practice Within the $72,000 | An actuary Each year, from the pension the plan must fund |
| Starting before 62 or after 65 | The same limit | Adjusted Lower before 62, higher after 65 |
| First years in the plan | The full limit | Phased in Over your first 10 years in it |
The limits are for 2026, from IRS Notice 2025-67. Catch-ups sit on top of the $72,000: $8,000 at 50 or older, or $11,250 if you turn 60 to 63 in 2026. Both plans count only the first $360,000 of your pay. A practice that runs both plans has a combined deduction cap, which can hold its own 401(k) contribution to 6% of pay.
Most of a physician’s tax surprises come from how the pay arrives.
As an employee, you cannot deduct license or CME costs
An employed doctor cannot deduct job costs paid out of pocket on a federal return, such as licenses, dues or continuing medical education (CME). The 2025 One Big Beautiful Bill Act made that rule permanent. If your employer reimburses them under an accountable plan, the money stays off your W-2 and is not taxed.
Catch-ups turn Roth above $150,000 of wages
From 2026, catch-up contributions must be Roth if your 2025 wages from the employer that sponsors your plan topped $150,000. They are taxed now instead of at withdrawal, so they no longer lower this year’s taxable income. The rule does not reach owners paid only through self-employment income, such as partners.
Moonlighting pay has no tax withheld
No one withholds tax from shifts paid on a Form 1099-NEC, so you must pay it yourself. Extra withholding at your W-2 job can cover moonlighting pay in place of estimated payments, even if it starts late in the year. You owe self-employment tax on that pay too, though only the Medicare part once your W-2 wages pass the Social Security wage base.
Partners owe tax on profit the practice keeps
In a group practice taxed as a partnership, you owe tax on your share of profit, paid out or not. That share and any guaranteed payments are generally self-employment income as well. Our guide for lawyers works through the self-employment tax on a $500,000 partner share.
A C corporation can tax the same profit twice
Profit a C corporation pays you as a dividend is taxed twice: at 21% in the corporation, then again on your own return. A professional corporation pays the same 21%, since the old 35% rate for personal service corporations ended after 2017.
We plan your practice and your retirement savings before the year ends.
Valim is a CPA firm that helps doctors in all 50 states plan their retirement contributions and practice structure, and file their returns.
- We model a cash balance plan against your 401(k) alone, including its effect on your QBI deduction.
- Under Tax advisory, we also compare S and C corporation status for your practice.
- We prepare your practice’s Form 1120-S or 1065 and your Form 1040 together, so the QBI figures match.
- We set your four estimated payments, moonlighting income included.
- If the IRS or a state writes about a return we prepared, we handle the reply within your fee.
- Individual return
- from $195
- Business return
- from $495
We quote a flat fee before work starts. We do not bill hourly.
What doctors ask about their taxes.
What are 7 legal tax loopholes that doctors can exploit to reduce their tax bills?
Doctors have seven main legal ways to cut their tax, and three of them are retirement plans. For 2026, you can defer $24,500 of pay into a 401(k) or 403(b), plus catch-ups from age 50. A doctor at a tax-exempt or government employer may defer another $24,500 into a 457(b). A practice owner can add a cash balance plan, with a pension of up to $290,000 a year starting between 62 and 65. A health savings account takes pre-tax money too, up to $4,400, or $8,750 for a family, in 2026. To contribute, you need a high-deductible health plan and, in general, no other health coverage. An owner taxed as an S corporation pays payroll tax only on a reasonable salary, and none on the rest of the profit. An owner below the income limits also gets the 20% qualified business income (QBI) deduction. An employer’s accountable plan can reimburse your license and continuing medical education costs tax-free.
What can a doctor write off on taxes?
Most tax deductions for doctors belong to practice owners, who write off the practice’s ordinary and necessary costs. These include staff pay, malpractice insurance, dues and continuing medical education. An employed doctor cannot deduct job costs paid out of pocket on a federal return, though California still allows them on its own. Pre-tax 401(k), 403(b) and HSA contributions still lower an employee’s taxable income. Buying a practice brings its own rules for equipment and goodwill, which our guide for dentists covers.
Who gets the new $6000 tax break?
The new $6,000 tax break, often called the senior deduction, goes to each taxpayer or spouse aged 65 or older by year end. It applies from 2025 through 2028, and the return must show that person’s Social Security number. A married couple must file jointly to claim it. Each $6,000 shrinks by 6% of modified AGI above $75,000 ($150,000 joint), and it is gone at $175,000 ($250,000 joint). Most working doctors are under 65 or earn too much to claim it.
Can doctors take the QBI deduction?
Yes, doctors who own their practice can take the 20% QBI deduction, but in full only below $403,500 of joint taxable income in 2026. Because health is a specified service, the deduction then phases out and is gone at $553,500. For single filers, it phases out between $201,750 and $276,750. An employed doctor gets none, since wages are not business income. If your practice is an S corporation, the salary it pays you does not count as QBI.
Can a doctor contribute to both a 403(b) and a 457(b)?
Yes, a doctor can contribute to both a 403(b) and a 457(b) when a tax-exempt or government employer offers both plans. A 457(b) is a deferred compensation plan those employers can run, and its $24,500 limit for 2026 is separate from the 403(b)’s. Together, the two plans let you defer up to $49,000 of pay before any catch-up, less any employer money put in the 457(b). At a tax-exempt hospital, 457(b) money belongs to the employer until it is paid, so the employer’s creditors can reach it. A government plan holds it in trust for you.
Sources
- 26 U.S.C. § 199A, Qualified business income
- 26 C.F.R. § 1.199A-5, Specified service trades or businesses
- IRS, Rev. Proc. 2025-32 (2026 inflation adjustments)
- IRS, Notice 2025-67 (2026 retirement plan limits)
- IRS, Rev. Proc. 2025-19 (2026 HSA limits)
- 26 U.S.C. § 415, Limitations on benefits and contribution under qualified plans
- 26 U.S.C. § 404, Deduction for contributions of an employer to an employees’ trust
- 26 U.S.C. § 414, Definitions and special rules (catch-up contributions)
- 26 U.S.C. § 457, Deferred compensation plans of State and local governments and tax-exempt organizations
- IRS, How much salary can you defer if you’re eligible for more than one retirement plan?
- 26 U.S.C. § 223, Health savings accounts
- 26 U.S.C. § 67, 2-percent floor on miscellaneous itemized deductions
- FTB, 2025 Instructions for Schedule CA (540)
- 26 C.F.R. § 1.62-2, Reimbursements and other expense allowance arrangements
- 26 U.S.C. § 162, Trade or business expenses
- 26 U.S.C. § 1401, Rate of tax (self-employment income)
- 26 U.S.C. § 1402, Definitions (net earnings from self-employment)
- 26 U.S.C. § 6654, Failure by individual to pay estimated income tax
- 26 U.S.C. § 11, Tax imposed (corporations)
- 26 U.S.C. § 1202, Partial exclusion for gain from certain small business stock
- 26 U.S.C. § 151, Allowance of deductions for personal exemptions
Reviewed and updated September 2026. General information, not advice for your situation.