What Taxes Affect Doctors Most? A Simple Guide

I work with a lot of physicians. And the one thing I see over and over is this: doctors are great at making money, but they're not great at keeping it. It's not their fault. Nobody teaches you this stuff in medical school.

Here's what I tell every physician I meet: the tax man is going to take a big chunk of your income whether you plan for it or not. You might as well plan for it.

Income Tax: Your Biggest Hit

Let's start with the obvious one. As a physician, you're likely in the highest tax bracket. We're talking 37% federal plus state taxes depending on where you live. That means almost 40 cents of every dollar you earn goes to income taxes.

But here's the thing most doctors don't realize. You're probably leaving money on the table. Are you maxing out your 401(k) or 403(b)? Are you doing the backdoor Roth? Are you properly accounting for student loan interest deductions?

These things add up fast. A physician making $300,000 who maxes out their retirement accounts could save $40,000 or more in taxes every single year. That's real money.

Self-Employment Tax: If You Own Your Practice

If you're an attending physician who owns part of the practice, you need to pay attention to self-employment tax. This covers Social Security and Medicare, and it applies to all your net earnings from self-employment.

The rate is 15.3% on the first $168,600 of net earnings (this changes every year with inflation). If you're pulling $400,000 from your practice, you're paying self-employment tax on the full amount. That's thousands of dollars you could potentially save with the right business structure.

I always tell physician practice owners: talk to a CPA about whether an S-corp election makes sense for you. It might save you tens of thousands per year.

Taxes on Investments: The Hidden Bite

This is where a lot of physicians get surprised. You make good money, you start investing, and then you get hit with capital gains taxes and dividend taxes.

Here's the thing: your investment gains are taxed differently than your income. Long-term capital gains get taxed at 0%, 15%, or 20% depending on your income. That sounds lower than your income tax rate, but it adds up.

And if you're trading actively? Short-term capital gains hit your regular income tax rate. That means you're paying your top marginal rate on every trade that makes money.

The solution isn't to stop investing. It's to have a tax-efficient strategy. Are you holding investments for more than a year before selling? Are you using tax-advantaged accounts first? Are you doing tax-loss harvesting when the market dips?

Estate Tax: The Tax Nobody Talks About

Here's one that flies under the radar for a lot of physicians. You build up a significant net worth, and then what happens when you pass it on?

The federal estate tax exemption is around $13.99 million per person in 2025. That number is scheduled to drop significantly in 2026. If you're a physician couple with a high net worth, you could be on the hook for estate taxes that wipe out a chunk of what you're trying to pass to your family.

This is one of those things where a little planning goes a long way. Revocable trusts, gifting strategies, life insurance in an irrevocable trust. These aren't just for the ultra-wealthy. If you're a high-earning physician, you need to think about this.

The Bottom Line

Taxes are a part of life. You're going to pay them whether you plan or not. But the physicians who build real wealth are the ones who have a plan.

Are you working with someone who actually understands how physicians make and keep money? That's the question you need to ask yourself.

The boring stuff matters. Tax planning isn't exciting, but it's one of the highest-ROI things you can do for your financial future.

Frequently Asked Questions

What's the most important tax for physicians to manage?

Income tax is typically the biggest hit. Maximizing retirement accounts like 401(k)s, HSAs, and exploring backdoor Roth conversions can significantly reduce your tax burden.

Do physicians pay more in taxes than other professionals?

Physicians often pay more in taxes simply because they're in higher income brackets. However, with proper planning, they can manage their tax liability as effectively as anyone else.

Should physicians hire a special tax advisor?

If you're an attending with a high income, own a practice, or have significant investments, working with an advisor who understands physician finances can pay for itself many times over.

When should physicians start tax planning?

The earlier the better. Even during residency, tax planning matters. A resident who maxes out a Roth IRA and starts building good habits will be far ahead by the time they're an attending.

Want more physician financial tips? Check out my guide on how much resident doctors should save.