As the calendar year draws to a close, medical practice owners face a critical opportunity: the chance to optimize their tax strategy and set a strong foundation for the new year. Unlike other businesses, medical practices grapple with unique financial complexities, including reimbursement delays, fluctuating cash flow, and rising labor and compliance costs. Year-end planning isn’t just smart, it’s essential.
Review and Optimize Practice Income Strategies Before December 31
Evaluate Your Compensation Structure
For S-corporations and partnerships, the mix between salary and distributions can have a major tax impact. While distributions may be taxed more favorably, the IRS requires that physician-owners receive “reasonable compensation” through W-2 wages. If that balance is off, it could raise red flags. We help clients review their compensation structure to stay compliant, while keeping taxes in check.
Project Your 2025 Tax Liability
Don’t wait until tax season to learn you're under-withheld. If your practice has seen shifts in volume, procedure mix, or payer reimbursement, your quarterly tax estimates may no longer be accurate. We help clients analyze year-to-date revenue and forecast 2025 liability, giving you time to adjust withholdings or make estimated payments before penalties apply.
Maximize Deductions Through Strategic Year-End Investments
Take Advantage of Section 179 and Bonus Depreciation
Investing in new medical or office equipment before year-end can reduce your taxable income if timed properly. Section 179 and bonus depreciation rules allow you to deduct qualifying purchases such as diagnostic machines, IT systems, and exam room upgrades. But these incentives come with annual limits and phaseouts, which can change year to year. Our team can help you determine what purchases make sense.
Upgrade Your Technology Infrastructure
If you've been delaying upgrades to your EHR, cybersecurity protocols, or telehealth systems, now could be the time to act. Many of these technology investments are deductible and can support both operational efficiency and tax savings. We guide clients through the cost-benefit analysis and help prioritize upgrades that pay off financially and functionally.
Use Retirement Plans to Reduce Taxes and Build Wealth
Reassess or Enhance Your Retirement Plan
A well-structured retirement plan does more than retain talent. It’s a powerful tax shelter. Whether you already have a 401(k), Safe Harbor, or profit-sharing plan, year-end is the time to ensure you’re maximizing contributions. Contribution deadlines vary, and last-minute changes may be limited, so early action is key.
Consider a Cash Balance or Defined Benefit Plan
High-earning physicians often benefit from adding a cash balance or defined benefit plan. These plans allow significantly larger contributions than traditional 401(k)s. Our healthcare accounting specialists help you evaluate feasibility and design plans that support both tax reduction and long-term retirement goals.
Clean Up Your Practice’s Books Before the Year Closes
Reconcile Payables and Receivables
For cash-basis practices, unpaid bills and uncollected revenue can distort taxable income. For accrual-basis practices, the timing of revenue recognition is even more critical. Cleaning up your books now helps ensure your income and expenses are accurately reported, avoiding overpayment (or underpayment) of taxes.
Scrutinize Non-Deductible or Partially Deductible Expenses
Expenses like CME, travel, meals, and vehicles require special treatment under IRS rules. We help clients categorize expenses correctly and ensure documentation supports any deductions claimed, minimizing audit risk and maximizing allowable write-offs.
Specialty Considerations for Medical Practices
Plan Year-End Bonuses Carefully
Physician and staff bonuses can be powerful motivators—but without planning, they may lead to unexpected tax bills or misclassified income. We help practices structure bonuses in a tax-efficient manner, with the right timing and payroll treatment.
Account for Mid-Level Provider Compensation
Nurse practitioners and physician assistants play a growing role in practice delivery—but their compensation models can have payroll and tax implications. Whether offering incentive-based pay or profit-sharing, we help ensure proper classification and compliance.
Evaluate Ancillary Revenue Streams
Do you offer imaging, lab work, or therapy services in-house? These can be profitable—but they also introduce new tax and regulatory complexities. We help clients analyze how ancillary revenue affects overall tax liability and entity structuring.
Looking Ahead: Tax Law Changes on the Horizon
2026 may bring significant tax code changes, especially as provisions from the 2017 Tax Cuts and Jobs Act are set to expire. While the exact details remain in flux, proactive planning today can help you stay ahead of future limitations on deductions or rate increases. Baldwin CPAs stays on top of emerging legislation so our clients are prepared.
Let’s Talk Before December 31
The window for 2025 tax-saving moves is closing fast. Schedule a year-end planning session with Baldwin CPAs to ensure your practice enters the new year on solid financial ground.
Contact us today to reserve your consultation.
