Last week I reviewed the top 15 tax deductions for sole proprietors, and this few weeks we’ll review the same top 15 list for corporations—both S and C-corps.

The tax rules and low for sole proprietors, S-corps, and C-corps are unique and different, thus it’s important to understand exactly how you can maximize your tax advantages—depending on which taxable entity you choose.

Generally speaking, physicians who form choose to individually operate as a business entity will find that a professional micro-corporation elected as an S-Corp is their best option, but I recommend you meet with a tax or business professional to help to determine which is best for you. SimpliMD can do a feasibility study that will assist you with a comparative analysis of which business structure is best for you. I highly recommend you check this out.

As a doctor operating as an S-Corporation (S-Corp) of any type, you have the opportunity to take advantage of various tax deductions to reduce your overall tax liability. This offers unique tax benefits, allowing you to save on self-employment taxes and optimize your tax situation. In this blog post, we will discuss the top 15 S-Corp tax deductions specifically tailored for doctors, helping you maximize your tax savings.

1. Reasonable Compensation:

   • S-Corp owners must pay themselves a reasonable salary for the services they provide. By doing so, you can allocate a portion of your income as salary and the remainder as business profits, reducing your overall self-employment taxes.

   • Given your high income, reducing your self-employment “reasonable salary” to the lowest level possible will lead to significant tax savings.

   • I like to follow the 60:40 principle as a good starting point for lowering your salary. By this I mean you take the total dollars you would like to see your business flow into your household and multiply this number by 60% This would be considered a reasonable W-2 salary that your business is paying you. This 60% will have employment taxes removed. The other 40% can be delivered to you via distributions from business profits and the good news is that employment taxes do not need to be paid out of these dollars.

2. Employee Salaries:

   • If you have hired employees for your corporation, their salaries, and wages are fully deductible expenses for your S-Corp. This includes payments made to nurses, receptionists, technicians, and other staff members. In the case of a micro-business owner, this can include a spouse who might work as the corporate bookkeeper. This is what I do, and thus my wife and are the only two corporate employees.

3. Employer Share of Payroll Taxes:

   • As an S-Corp owner, you are responsible for paying the employer portion of payroll taxes, such as Social Security and Medicare taxes, for your employees. These taxes are deductible as a business expense.

4. Health Insurance Premiums:

   • S-Corp owners can deduct health insurance premiums paid on behalf of themselves and their employees. This includes premiums for medical, dental, and vision insurance. Keep in mind that the premiums must be established under a qualified plan and meet certain criteria to be deductible.

5. Retirement Contributions:

   • Contributions to retirement plans, such as a Simplified Employee Pension (SEP) IRA or a solo 401(k), are deductible for both the S-Corp and the individual owner. This allows you to save for retirement while reducing your taxable income

6. Rent and Lease Payments:

   • If your medical practice leases or rents office space, you can deduct these expenses as business rent payments. This includes payments for medical offices, examination rooms, and other facilities.

7. Utilities and Office Expenses:

   • Deductible expenses include utilities (electricity, water, internet), office supplies, equipment rentals, maintenance, repairs, and other costs associated with running your medical office. This includes phones/cell phone plans.

8. Medical Equipment and Supplies:

   • Costs related to medical supplies, equipment, and instruments necessary for your practice are deductible. This includes items such as stethoscopes, diagnostic tools, examination tables, medical devices, computers, and cell phones.

9. Continuing Education and Professional Development:

   • Expenses for attending medical conferences, workshops, seminars, and courses to enhance your professional skills are deductible. This also includes the cost of educational materials and travel expenses associated with these events.

   • The great thing about this event is that as long as it is qualifying CME, you can do this anywhere in the world. My favorite group for doing this is CME Away because they allow spouses to join the trip for free and they have awesome destinations and itineraries.

10. Professional Association Dues and Subscriptions:

    • Deductible expenses include membership dues for professional organizations, medical societies, and subscriptions to medical journals or publications that are directly related to your medical practice

11. Business Insurance:

    • Premiums paid for business insurance policies, such as malpractice insurance, general liability insurance, and property insurance for your medical office, are deductible expenses.

12. Marketing and Advertising:

    • Expenses related to marketing and advertising your medical practice, such as website development, online ads, print materials, and promotional events, are deductible.

    • Personally, I like to contribute to supporting various community events and charities and this is a nice deductible way to do that.

13. Business Meals and Entertainment:

    • Costs associated with business meals and entertainment that are directly related to your medical practice, such as meals with colleagues or networking events, can be partially deductible. Keep detailed records and receipts to support your deductions.

14. Travel Expenses:

    • You can deduct your travel expenses if you travel for business purposes, such as attending medical conferences or visiting patients in different locations. This includes airfare, lodging, meals, and transportation costs.

15. Home Office Deduction:

    • If you have a dedicated space in your home that is used exclusively for your medical practice, you may be eligible for a home office deduction. This allows you to deduct a portion of your home-related expenses, such as mortgage interest, property taxes, utilities, and maintenance costs. There are IRS guidelines you must follow to accurately claim this, so work with your tax professional to do this.

16. Bonus: The Augusta Deduction

    • When it comes to tax planning for S-Corporations, the Augusta Deduction is a valuable strategy that shouldn’t be overlooked. This deduction allows S-Corp owners to take advantage of significant tax savings when it comes to their personal residence.

      The Augusta Deduction is named after the prestigious golf tournament held annually in Augusta, Georgia. It refers to the practice of renting out a personal residence for up to 14 days per year and receiving rental income without having to report it as taxable income. This unique tax benefit can result in substantial savings for S-Corp owners who have a home that is desirable as temporary lodging during high-demand events like golf tournaments, conferences, or other local attractions. This has morphed into your micro-corporation renting your personal residence from you for the purposes of a business meeting—14 times per year.

      By utilizing the Augusta Deduction, you can generate additional income from the rental fee— that is tax-free while simultaneously reducing your business’s taxable liability. This deduction can be particularly advantageous for those who own homes in prime locations or areas with high demand for short-term rentals.

      It’s important to note that taking advantage of the Augusta Deduction requires careful planning and adherence to IRS guidelines. Proper documentation and record-keeping are essential to ensure compliance with tax regulations. Consulting with a knowledgeable tax professional is crucial in navigating this deduction and maximizing its benefits

17. Bonus Bonus: Transportation Expenses: Deductible transportation expenses include the cost of traveling to visit patients, attend medical conferences, and make business-related trips. This can include mileage, parking fees, tolls, and public transportation expenses. The federal mileage reimbursement rate is set by the IRS, and you must track your mileage and generate a report for this deduction. I personally like using the app MileIQ for this purpose. You can also deduct your actual automobile expenses if your vehicle is used for business purposes. This deduction allows self-employed individuals to deduct expenses related to their business vehicles, including depreciation, maintenance, and fuel costs. Section 179 of the Internal Revenue Code provides an opportunity for small business owners to deduct the cost of qualifying vehicles used for business purposes. This deduction allows you to immediately expense a portion or the full. By utilizing Section 179, you can potentially reduce your taxable income and lower your overall tax liability. However, it’s crucial to understand the specific rules and limitations that apply. For example, there are maximum deduction limits and requirements regarding how much the vehicle is used for business purposes. It’s important to consult with a tax professional or accountant who can guide you through the process and ensure compliance with IRS regulations. They can help determine if your vehicle qualifies for Section 179 deduction and assist in accurately calculating the allowable expense. One of the key elements to qualify is the vehicle’s gross vehicle weight must be 6000lbs or greater. This year, I am using my Section 179 deduction for the purchase of a Ranger Rover Sport that will be used for business purposes. Since bonus depreciation is being phased out, I wanted to get this more expensive vehicle purchased before it goes away completely. The extra tax savings is enormous with this loophole.

As an S-Corp owner, understanding the specific tax deductions available to doctors can significantly impact your tax liability and overall financial health. By taking advantage of these deductions, you can optimize your tax situation and maximize your savings. Remember to consult with a qualified tax professional or accountant who can provide personalized advice based on your specific circumstances and ensure compliance with tax laws.

Interested in finding out if you would benefit from forming a professional micro-corporation as an S-corp, schedule a FREE 45-minute consult with SimpliMD here: https://calendly.com/drinc/45min