As an independent physician or CRNA, you have a unique opportunity to optimize your tax situation. Below, we outline practical strategies to help you maximize deductions, reduce your tax liability, and avoid common pitfalls.
S-Corp vs Sole Proprietorship: A Brief Overview
Choosing the right business structure is critical for independent professionals. While sole proprietorships offer simplicity, an S-corp can provide significant tax savings by allowing you to split income between wages and distributions. This reduces self-employment taxes on the distribution portion. However, S-corps require payroll, additional filings, and adherence to strict IRS rules.
For a detailed analysis of the pros and cons, read our article on S-Corp vs Sole Proprietorship.
Accountable Plan vs. Home Office Deduction
Many sole proprietors are aware that they can write off some home office expenses as they fill out their schedule C. This makes it very simple if they own their home as the forms (and DIY software) will help them calculate their depreciation expense. But how do S-corp filers do this? Enter the Accountable Plan.
An accountable plan allows you to reimburse yourself for business expenses, such as home office depreciation and utilities, without these amounts being treated as taxable income. This strategy is particularly beneficial for S-corp owners. To implement it:
Draft a formal plan document.
Keep detailed records, including cost basis of your home and all utility bills
Reimburse yourself through your business account for documented expenses.
Vehicle Write-Offs
If you use a vehicle for business purposes, you can deduct vehicle expenses. This can be done in two ways:
Standard Mileage Rate: Deduct a set rate per mile driven for business (e.g., 65.5 cents per mile for 2023).
Actual Expenses: Deduct the actual costs of operating your vehicle, including gas, insurance, and depreciation.
Pro Tip: Maintain a mileage log to substantiate your deduction—a simple app can make this easy.
Substantiating Meals and Entertainment Deductions
Meals and entertainment deductions can be valuable but must be properly substantiated. Follow these guidelines:
Ensure the expense has a clear business purpose.
Keep receipts and note the time, place, attendees, and business purpose of the meeting.
Remember, meals are generally 50% deductible unless purchased during business travel, where they may qualify for a higher deduction rate under specific IRS guidelines.
Pass-Through Entity (PTE) Tax Election
States like California offer a PTE tax election, allowing S-corps and partnerships to pay state taxes at the entity level. This can effectively bypass the $10,000 cap on state and local tax (SALT) deductions imposed by federal tax law.
Work with a tax professional to determine if this election is right for you and ensure you’re complying with state-specific deadlines and filing requirements.
Self-Employed Health Insurance Deduction
As a self-employed physician or CRNA, you can deduct the cost of health insurance premiums for yourself, your spouse, and your dependents. This deduction applies to:
Medical, dental, and vision insurance premiums.
Long-term care insurance premiums (subject to age-based limits).
To qualify for this deduction:
You must have a net profit from self-employment.
The insurance policy must be in your name or the name of your business.
You or your spouse must not have access to subsidized health insurance through an employer.
If you're an S-corp, the premiums must be included as part of wages so you can properly deduct it at the S-corp level.
This deduction reduces your adjusted gross income (AGI), which can have a cascading benefit on other tax credits and deductions. Be sure to maintain accurate records and consult a CPA to maximize this valuable benefit.
Retirement Plans: A Brief Overview
Retirement planning is a key component of financial security for independent professionals. Popular options include:
Solo 401(k): Allows higher contribution limits at lower income levels and avoids the pro-rata rule.
SEP IRA: A simpler plan that works well for those with no employees.
Cash Balance Plans: Beneficial for high earners exceeding QBI phase-out thresholds in high-tax states.
Each plan has unique benefits and implications for cash flow. For a deeper dive, check out our article on Retirement Plans for Independent Professionals.
Avoid Aggressive Tax Strategies
While certain tax strategies might sound appealing due to high promised returns, they often come with significant risks. Be cautious of:
Land Conservation Easements: These arrangements often attract IRS scrutiny and carry a high audit risk.
Oil and Gas Partnerships: These investments can be volatile and may not yield promised tax benefits.
Solar Projects with Accelerated Depreciation: While renewable energy incentives exist, some projects overpromise and fail to deliver tangible benefits.
Captive Insurance: This involves setting up a private insurance company to insure your business risks. It’s complex and can draw IRS attention if not properly structured.
Any preparer or advisor who charges fees based on ROI or guarantees significant tax savings through aggressive strategies is a red flag. These approaches often lead to audits, high investment risk, or both.
Work with a Trusted Advisor
Navigating the complexities of tax law as an independent professional requires expert guidance. Partnering with a CPA who understands the unique challenges and opportunities of physicians and CRNAs ensures you’re taking advantage of legitimate strategies while avoiding unnecessary risks.
For tailored advice and a proactive approach to tax compliance, visit Ken Eremita CPA’s Pricing Page and learn how we can simplify your tax life while maximizing your savings.
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