What tax deductions are available to medical practices?
A tax deduction is a business expense that reduces taxable income, governed by IRC Section 162 (ordinary and necessary business expenses) and related sections of the Internal Revenue Code.
Quick answer
Medical practices can deduct ordinary business expenses including staff wages, rent, equipment depreciation, supplies, malpractice insurance, CME, retirement plan contributions, and qualified business income (QBI) where eligible.
The detail
Medical practices deduct expenses across several IRC categories. Section 162 covers ordinary and necessary business expenses: staff wages, rent, utilities, malpractice insurance, professional dues, CME, supplies, marketing, professional fees. Section 167 and 168 cover depreciation of equipment and improvements over MACRS recovery periods. Section 179 allows immediate expensing of qualifying equipment up to $2.5M for tax years beginning after Dec 31, 2024 (per OBBBA — Public Law 119-21, signed July 4, 2025), with a phase-out threshold of $4M; for tax year 2026, Rev. Proc. 2025-32 sets the inflation-indexed limits at $2.56M / $4.09M. Bonus depreciation under Section 168(k) is permanently reinstated at 100% for property acquired and placed in service after January 19, 2025 (reinstated by OBBBA). Retirement plan contributions under SEP, SIMPLE, 401(k), and defined benefit plans can deduct $70,000 to $300,000+ per partner depending on plan structure. Section 199A QBI deduction can deduct up to 20 percent of qualified business income for pass-through entities, subject to specified service trade or business (SSTB) limitations on income above thresholds — made permanent by OBBBA.
Section 179 expense limit is $2.5M for TY 2025 / $2.56M for TY 2026, with a phase-out threshold of $4M / $4.09M (OBBBA Public Law 119-21, signed July 4, 2025; TY 2026 amounts per IRS Rev. Proc. 2025-32).
Bonus depreciation under Section 168(k) is permanently reinstated at 100% for property acquired and placed in service after January 19, 2025 (per OBBBA).
Section 199A QBI deduction can be up to 20 percent of qualified business income for pass-through entities; made permanent by OBBBA.
Source: IRS Section 199A
What this means for clinic owners
From Sorso
The biggest tax savings for medical practices come from retirement plans and equipment timing, not from finding obscure deductions. A properly structured cash balance plan plus disciplined Section 179 timing can save six figures of federal tax annually for a $5M practice.
Related questions
What is Section 179 for medical equipment?
Section 179 lets medical practices immediately expense up to $2.5M of qualifying equipment placed in service in the tax year (for tax years beginning after Dec 31, 2024, per OBBBA — Public Law 119-21, signed July 4, 2025; $2.56M for tax year 2026 per Rev. Proc. 2025-32), instead of depreciating it over multiple years.
What retirement plans work best for clinic owners?
The best retirement plans for clinic owners are Solo 401(k) and SEP-IRA for solo practices ($70,000 to $77,500 contribution limits for 2025), and 401(k) plus Cash Balance Plan combinations for partnerships, which can shelter $250,000 to $400,000+ per partner annually.
What is the QBI deduction for healthcare?
The Section 199A Qualified Business Income (QBI) deduction allows a 20 percent deduction on qualified business income from pass-through entities, but it phases out for healthcare specified service trades or businesses (SSTB) above income thresholds ($403,500 MFJ for 2026 per IRS Rev. Proc. 2025-32).
How do I structure a practice for tax efficiency?
The most tax-efficient practice structure typically involves an S corporation or PLLC for the clinical practice, a separate LLC for real estate, an MSO for non-clinical services, and a defined benefit retirement plan, optimized to preserve QBI and balance payroll tax exposure.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
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