Should You Restructure Your Medical Practice? A Guide to Tax-Smart Business Decisions

The evolving tax landscape in 2025 presents both challenges and opportunities for your medical practice. Choosing the best tax structure for doctors under new tax laws is more important than ever. Understanding these changes is crucial to making informed decisions about restructuring.

Key Tax Changes Affecting Medical Practices in 2025

• Expiration of Tax Cuts and Jobs Act (TCJA) Provisions: Several provisions from the 2017 TCJA are set to expire on December 31, 2025. This includes adjustments to individual tax rates and the Qualified Business Income (QBI) deduction.
  • Example: A small group practice with three physicians currently structured as an S corporation could see an increase in their tax burden once the 20% QBI deduction expires, potentially raising their effective tax rate by several percentage points.
• Potential Changes to Corporate Tax Rates: Discussions are underway about adjusting corporate tax rates. While specifics are uncertain, any changes could impact the financial dynamics of different business structures.
  • Example: If corporate tax rates increase above the current 21%, medical practices structured as C corporations may face higher tax liabilities, making pass-through entities more attractive.
• Deductions and Credits: Certain tax credits and deductions may be revised or phased out, affecting how medical practices manage expenses and optimize their tax liabilities.
  • Example: If a deduction for medical equipment purchases is reduced, a clinic planning to invest in new imaging technology might need to reassess its purchasing strategy.

Evaluating Your Current Business Structure

• Pass-Through Entities: Structures like sole proprietorships, partnerships, and S corporations pass income directly to owners, who then pay personal income tax. The current QBI deduction allows eligible owners to deduct up to 20% of their qualified business income. However, this deduction is set to expire at the end of 2025, potentially increasing taxable income for these entities.
  • Anecdote: Dr. Smith, an independent physician running a successful S corporation, found that his net income was significantly impacted when his QBI deduction was limited due to exceeding the income threshold. Without this deduction, he might consider converting to a C corporation.
• C Corporations: These entities are taxed separately from their owners. The TCJA reduced the corporate tax rate to 21%, a change that remains in effect. However, C corporations face double taxation—once at the corporate level and again on dividends paid to shareholders.
  • Example: A growing multi-specialty clinic structured as a C corporation found that reinvesting profits into expansion rather than distributing them as dividends helped minimize the impact of double taxation.
• Professional Corporations (PCs) and Limited Liability Companies (LLCs): Depending on your state’s regulations and your business model, these structures might offer liability protection and tax benefits that should be considered when restructuring.
  • Example: A group of dermatologists forming a PC in California benefited from professional liability protections while maintaining tax efficiency through salary and bonus structures.

Considerations for Restructuring

When exploring the best tax structure for doctors under new tax laws, it’s critical to compare not just tax rates but how income is distributed, benefits are structured, and long-term goals are supported.

• Tax Implications: With the potential expiration of the QBI deduction, the tax advantage for pass-through entities may diminish. Conversely, if corporate tax rates remain low, restructuring as a C corporation could become more attractive.
  • Example: A pediatric practice operating as an LLC is considering switching to a C corporation to take advantage of potential corporate tax benefits and structured employee benefits packages.
• Double Taxation: C corporations are subject to double taxation, which can impact overall profitability. This is a critical factor when considering restructuring.
  • Example: A radiology group structured as a C corporation found that increasing salaries for owner-physicians rather than issuing dividends helped mitigate double taxation concerns.
• Self-Employment Taxes: Pass-through entity owners must pay self-employment taxes, which include Social Security and Medicare contributions. Shifting to a corporate structure could offer ways to reduce this burden, depending on how salary and distributions are structured.
  • Example: An orthopedic surgeon running a sole proprietorship realized that incorporating as an S corporation and paying herself a reasonable salary reduced her self-employment tax burden while maintaining flexibility with distributions.
• State and Local Taxes (SALT): Certain states may impose different tax rules on business structures, making it essential to analyze the full tax impact before making a decision.
  • Example: A practice in New York saw an increase in overall taxation due to state-level corporate tax rules, making it more beneficial to remain an LLC rather than transition to a C corporation.
• Business Goals and Succession Planning: Your long-term objectives, such as expansion plans or the eventual sale of the practice, should influence your decision. Different structures offer varying benefits in these contexts.
  • Example: A retiring family medicine practitioner found that selling shares of a C corporation was more tax-efficient than selling the assets of an S corporation.
• Retirement Planning and Benefits: Corporate structures may offer more flexibility in setting up retirement plans, health benefits, and other tax-advantaged programs for you and your employees.
  • Example: A surgical center restructured as a C corporation to take advantage of defined benefit pension plans, which provided significant tax savings for high-earning physicians.

Practical Steps to Take

Choosing the best tax structure for doctors under new tax laws is not a one-size-fits-all decision. The right path depends on a combination of income, goals, risk tolerance, and local tax regulations.

• Consult a Tax Professional: Engage with a CPA or tax advisor who specializes in medical practices to analyze how upcoming tax changes specifically affect your situation.
• Financial Modeling: Conduct a detailed financial analysis comparing your current structure to potential alternatives, considering both current and projected tax laws.
• Evaluate Payroll and Compensation Strategies: If moving to a corporate structure, review how you would allocate salaries, bonuses, and distributions to maximize tax efficiency.
• Stay Informed: Tax laws are subject to change. Regularly review updates from reliable sources to ensure your practice remains compliant and optimized for tax efficiency.
• Legal and Regulatory Compliance: Changing your business structure may require new licenses, compliance filings, and adjustments to contracts. Ensure that all aspects of your practice are aligned with the new structure.
  • Example: A medical spa transitioning from an LLC to an S corporation needed to update business registrations and insurance policies to reflect the new structure.

Questions to Reflect On

• How will the expiration of the QBI deduction impact your practice’s net income?
• Would the benefits of a lower corporate tax rate outweigh the drawbacks of double taxation for your practice?
• How do your long-term business goals align with the potential advantages or disadvantages of restructuring?
• Are there state-specific tax rules that may influence your decision to restructure?
• Would changing your business structure allow you to offer better benefits to your employees?

By thoroughly evaluating these factors and seeking professional guidance, you can make a well-informed decision about whether restructuring your medical practice is the right move in light of the 2025 tax law changes.

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If you’re serious about keeping more of what you earn, restructuring with expert support isn’t an expense. It’s an investment.

Visit contact physiciantaxsolutions.com to schedule a consultation and learn how we can help you take control of your tax strategy today.

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This post serves solely for informational purposes and should not be construed as legal, business, or tax advice. Individuals should seek guidance from their attorney, business advisor, or tax advisor regarding the matters discussed herein. physiciantaxsolutions.com assumes no responsibility for actions taken based on the information provided in this post.