Physician Practice Tax Deductions: The Complete Checklist

A physician can contribute up to $24,500 in employee deferrals to a Solo 401(k) in 2026 ($32,500 if age 50 or older), plus an employer profit-sharing contribution of 25% of W-2 salary, for a combined cap of $72,000 ($80,000 with catch-up) — and that retirement contribution is just one line on a much longer list. Tax deductions for physician practice owners fall into two categories: the ones that show up automatically because a vendor sends a 1099 or an expense hits the practice bank account, and the ones that require affirmative decisions — structuring, timing, documentation — to capture.

Most practices do well on the first category. The second category is where significant money is routinely left behind.

This checklist covers both.

Category 1: Which Practice Operating Expenses Are Usually Already Captured?

These deductions flow through the practice P&L and are captured when bookkeeping is done correctly. They are noted here for completeness.

• Payroll — staff wages (clinical assistants, front desk, billing staff)
• Your W-2 salary from the S-corp (deductible at the practice level)
• Payroll taxes on all wages (employer share of Social Security and Medicare)
• Medical supplies and consumables
• Office rent or lease payments
• Equipment lease or financing interest
• Malpractice insurance premiums
• Professional liability tail coverage (deductible in the year paid, even if it covers prior periods)
• Medical billing service or billing software fees
• Electronic health record (EHR) system fees
• Answering service and phone systems
• Professional subscriptions (UpToDate, specialty journals, coding references)
• Professional membership dues (AMA, specialty society, state medical association)
• Bank and merchant processing fees

If any of these are missing from your P&L, the bookkeeping has a gap.

Category 2: Which Deductions Require Active Decisions?

Retirement Plan Contributions

The largest deduction available to most physician practice owners, and the one most frequently underutilized.

Solo 401(k): Up to $24,500 in employee deferrals ($32,500 if age 50+), plus employer profit-sharing contribution of 25% of W-2 salary up to a combined cap of $72,000 ($80,000 catch-up). The employer contribution is deductible at the S-corp level.

SEP-IRA: Simpler to administer, but limited to 25% of W-2 salary with no employee deferral component. Generally inferior to a Solo 401(k) for physician S-corp owners unless simplicity is the overriding priority.

Defined Benefit / Cash Balance Plan: Available contribution ranges from $80,000 to $300,000+ depending on age and actuarial design. Combined with a Solo 401(k), this is the maximum retirement deduction available to any individual. Requires an actuary and annual contributions.

Deadline: Solo 401(k) must be established by December 31 of the first year to take deductions for that year. SEP-IRA can be established as late as the tax return due date (including extensions). Cash balance plans must be established before year-end.

Go deeper: Physician Practice Retirement Accounts: The Options Most CPAs Don’t Surface

Health Insurance Premiums

S-corp owners can deduct health insurance premiums — including dental and vision — as an above-the-line deduction on Schedule 1 of the 1040. This requires a specific mechanical setup that many CPAs miss:

1. The S-corp must pay the premiums (or reimburse you for them)
2. The premiums must be included in your W-2 wages in Box 1 (but NOT in Social Security or Medicare wages in Boxes 3 and 5)
3. You then claim the deduction on Schedule 1, Line 17

If the premiums are not flowing through payroll correctly, the deduction disappears. The error is common — especially with CPAs who do not specialize in S-corp owner-employees.

Coverage this applies to: Your own health, dental, vision insurance. Also covers your spouse and dependents. Medicare premiums if you are age 65+.

Does not apply to: Long-term care insurance premiums (handled differently); plans where the owner is eligible for employer-subsidized coverage through a spouse’s employer.

Vehicle Deductions

Vehicle deductions are among the most commonly claimed incorrectly — both over-claimed (creating audit risk) and under-claimed (leaving money behind).

Section 179 expensing: Allows immediate deduction of the full cost of a qualifying vehicle in the year placed in service. For SUVs over 6,000 lbs GVWR (common in physician practices): up to $32,000 in 2026 under the luxury auto limits for SUVs. For vehicles over 6,000 lbs that are not SUVs (pickup trucks, vans used over 50% for business): potentially the full vehicle cost under Section 179.

Bonus depreciation: 100% bonus depreciation in 2026 — OBBBA made 100% bonus depreciation permanent for property placed in service after January 19, 2025, eliminating the prior phase-down schedule. Applies to most business vehicles. Works in combination with Section 179 for maximum first-year deduction.

Standard mileage vs. actual expense: For vehicles not fully expensed under Section 179, you choose either 72.5 cents/mile (2026) or actual expenses (gas, insurance, repairs, depreciation) times business use percentage. The choice locks in for the vehicle’s life — switching methods is not generally available after the first year.

Critical requirements:

• Vehicle must be used more than 50% for qualified business purposes
• Mileage logs are required (date, destination, business purpose, miles). No log = no deduction on audit
• Listed property rules apply — vehicles are subject to additional scrutiny

Entity placement: Business vehicles are generally most advantageous when owned by and operated through the S-corp, with the S-corp reimbursing personal-use allocations to you. Personal vehicles used for business can alternatively be reimbursed through an accountable plan.

Home Office Deduction

Available to physician practice owners who use a portion of their home exclusively and regularly for administrative or management activities of the practice — billing review, documentation, practice management tasks — even if you also have a primary office location.

Two methods:

Simplified method: $5 per square foot, maximum 300 sq ft = $1,500 maximum deduction. No depreciation recapture issues on home sale.

Actual expense method: Pro-rate actual home expenses (mortgage interest/rent, utilities, insurance, repairs, depreciation) by the percentage of home used for business. Larger deduction for larger spaces or higher home costs; depreciation recapture applies on home sale.

For S-corp owners: The deduction is claimed on Form 8829 attached to your personal return as an unreimbursed employee business expense, under an accountable plan where the S-corp reimburses home office expenses. This is the correct mechanism for S-corp owner-employees.

Documentation: Dedicated space with exclusive business use (no shared family use of the desk/room), measured in square feet.

Continuing Medical Education (CME)

CME expenses are deductible when required to maintain your medical license or are directly connected to your current practice specialty. This includes:

• Conference registration fees
• Travel to conferences (flights, hotel, 50% of meals)
• CME subscriptions and online courses
• Board exam preparation (if required for current practice)
• Journal subscriptions used for ongoing CME credits

What is not deductible: Education to qualify for a new specialty or career (initial medical school costs are not deductible as business expenses).

Timing: CME expenses are deductible in the year paid. Front-loading registration for next year’s conferences in December is a legitimate timing strategy for year-end planning.

Business Meals

50% of the cost of meals with business associates where business is discussed. Requires documentation: who was present, what business was discussed, date and location.

The 100% meals deduction (briefly available 2021–2022) has expired. Back to 50%.

Professional Fees

• CPA and tax preparation fees for the practice return (1120-S)
• Legal fees related to practice operations (contracts, employment agreements, entity setup)
• Consulting fees for business advisors
• Financial planning fees directly related to the practice

Note: Personal tax preparation fees (Schedule A) are no longer deductible after the 2017 TCJA for most taxpayers. Fees related to the business return and K-1 preparation remain deductible at the business level.

Technology and Software

• Practice management software
• Telemedicine platforms
• Medical devices used in the practice
• Computers, tablets, and phones used for the practice (subject to listed property rules if also used personally)
• Cloud services and storage
• Website hosting and practice marketing software

Computers and electronics are generally deductible under Section 179 or bonus depreciation if used predominantly for business, with personal use excluded or documented.

Qualified Business Income Deduction (Section 199A)

Up to 20% of qualified business income — not an ordinary expense deduction, but a deduction that reduces taxable income directly. Available to physician practice owners below or within the SSTB phase-out thresholds.

This is the most commonly miscalculated deduction for physician practice owners. See the full analysis at The QBI Deduction for Physician Practices.

Which Deductions Require Action Before Year-End?

Some deductions require decisions before December 31:

Deductions that can be made after year-end (up to tax return due date including extensions):

What Documentation Standard Does the IRS Require for These Deductions?

The IRS burden of proof standard for business deductions is on the taxpayer. “I know I spent it” is not sufficient. For every deduction you want to claim:

• Receipts or invoices for all expenses over $75
• Bank and credit card statements for recurring expenses
• Mileage log for vehicle deductions (date, destination, miles, business purpose)
• Meeting log for business meals (who, what business, when, where)
• CME certificates for continuing education
• Square footage measurement for home office

A CPA can prepare an accurate return from the records you provide. What they cannot do is reconstruct documentation on audit that does not exist. The documentation obligation belongs to the business owner.

Which Deductions Are You Probably Missing?

If your practice has been operating for more than two years and you have not been working with a CPA who specializes in physician practices, the most likely missing deductions are:

1. Retirement contributions — either missing entirely or using the wrong vehicle (SEP-IRA instead of Solo 401(k) + cash balance)
2. Health insurance premiums — not flowing through payroll correctly
3. QBI deduction — not claimed because the CPA assumed SSTB = ineligible
4. Vehicle deductions — claimed at the wrong entity level or without adequate documentation

These four gaps, at a $400,000 net income practice, routinely represent $30,000–$60,000 in missed annual deductions. The taxes on that are $11,000–$22,000 per year, every year the structure remains uncorrected.