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).
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Definition
The Section 199A QBI deduction is a federal tax deduction equal to 20 percent of qualified business income from pass-through entities (S corps, partnerships, sole proprietorships), subject to income thresholds and SSTB rules.
The detail
The QBI deduction was created by the Tax Cuts and Jobs Act of 2017 and made permanent by OBBBA (Public Law 119-21, signed July 4, 2025). For 2025, taxable income thresholds are $197,300 (single) and $394,600 (MFJ) per IRS Rev. Proc. 2024-40; for 2026, Rev. Proc. 2025-32 sets them at $201,750 (single) and $403,500 (MFJ). OBBBA also widened the phase-in range from $50,000 / $100,000 to $75,000 / $150,000 beginning with tax years after 12/31/2025, so for 2026 the deduction on SSTB income is fully phased out at $276,750 (single) and $553,500 (MFJ). Below the threshold, healthcare practices get the full 20 percent deduction with no SSTB restriction. Within the phase-in range, the deduction reduces ratably. Above the upper threshold, healthcare practices defined as SSTBs (which includes most clinical medicine, dentistry, and similar services) lose the deduction entirely. Owners whose taxable income sits above that upper limit lose it on their clinical income. The strategy that reliably works is lowering taxable income, mainly through retirement plan contributions. Moving real estate or equipment into a separate entity does not help when you own 50 percent or more of both it and the practice, because IRS rules treat the part of that business serving a commonly owned SSTB as an SSTB too.
For 2026 the QBI threshold is $201,750 single / $403,500 married filing jointly, and the phase-in range ends at $276,750 / $553,500.
Source: IRS Rev. Proc. 2025-32
Health is a specified service field, including physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals.
OBBBA (Public Law 119-21, July 4, 2025) widened the phase-in range to $75,000 ($150,000 for joint returns) and rewrote section 199A(i) to add a $400 minimum deduction, effective for tax years beginning after December 31, 2025.
Source: Public Law 119-21, section 70105
What this means for clinic owners
From Sorso
If your taxable income is near the SSTB threshold, retirement plan contributions can serve double duty: they defer tax on the contribution and can restore some or all of the 20 percent QBI deduction.
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What tax deductions are available to medical practices?
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.
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 a Solo 401(k) or SEP-IRA for solo practices (up to $72,000 for 2026, or $80,000 in a Solo 401(k) with the age-50 catch-up) and a 401(k) paired with a cash balance plan for high-earning partners, which Fidus Actuarial's 2026 illustrations put at about $252,000 a year at age 50 and $382,000 at age 60 for an owner at the $360,000 compensation cap.
Are healthcare practices specified service trades or businesses (SSTB)?
Yes. Under IRC Section 199A, the field of health is explicitly listed as an SSTB, including services performed by physicians, dentists, nurses, physical therapists, and similar healthcare professionals. SSTB status restricts the QBI deduction above income thresholds.
How do I structure a practice for tax efficiency?
A tax-efficient practice structure usually starts with an S corporation election for the clinical practice (held in a PC or PLLC where state law requires one) and a retirement plan sized to the owners' income, with a separate real estate LLC or MSO added for liability, financing or exit reasons. Those extra entities do not preserve the QBI deduction when the same owners hold 50 percent or more of both sides.
Founder of Sorso and a CFA charterholder. Before Sorso, Stan spent 19 years in corporate finance at institutions including UniCredit and Société Générale — managing a $450M loan portfolio and making senior partner at a major mezzanine lender by 29 — then built a fractional CFO firm exclusively for outpatient healthcare clinics.
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