Most physicians I know will spend a week researching a $400 home appliance and about fifteen minutes a year thinking about the largest expense in their life.
That expense is taxes. For most attendings it’s a six-figure bill, every year, for the rest of their career. And the way most of us handle it is to hand a folder to someone in March and wait to be told what we owe.
I did that for years. I had a CPA, so I assumed my taxes were handled. What I actually had was someone who told me, accurately and on time, how much I was about to pay. Nobody was working on making that number smaller. It didn’t occur to me that this was a different job.
It is. There’s a real difference between a tax preparer and a tax strategist for physicians. Most doctors only have the first one. Most don’t know the second one exists.
Disclosure: This post may contain affiliate links. If you work with a company mentioned here, Passive Income MD may receive compensation at no additional cost to you. I only recommend people I’ve vetted and would send a colleague to. Nothing in this post is tax or legal advice. Please talk to your own professional about your situation.
Filing is reporting. Planning is changing the outcome.
A preparer tells you what happened. A strategist changes what happens.
Filing takes place in the spring. Someone takes numbers from a year that’s already over, enters them into a form, and hands you the bill. It has to be done, and it has to be done correctly. But it creates no value. It’s bookkeeping for the IRS.
Planning happens during the year, while the outcome is still open. A strategist looks at your income, your entity structure, your investments, and what you’re actually trying to build, then puts a plan in place to shrink the bill before it exists.
Here’s the part that took me too long to understand. Once January 1 hits, almost nothing can be done about the prior year. You can still file. You can’t really plan. The moves that generate meaningful deductions, like buying a property, putting your kids on payroll, or funding a retirement plan, have to happen inside the tax year.
So if your only contact with a tax professional is in March or April, you are paying someone to report a result you no longer control.
What proactive tax planning actually looks like
“Proactive” gets used loosely, so let me be concrete.
A strategist meets with you during the year, usually quarterly. Those meetings are half planning and half education, so you understand why each move is being made instead of signing where the sticky note says.
The plan is built around your goal, not around the lowest possible tax bill for its own sake. Some physicians want to save as much as they can. Others care more about retirement contributions, or about building enough passive income to drop to four days a week. The toolkit is the same. The mix depends on what you want your life to look like.
I recently had Kim Hopkins on the podcast. She’s an enrolled agent who has spent 17 years in tax and now runs planning for a physician-focused firm. She put the distinction in one sentence: “If you go somewhere that just files the taxes in April, they’re just going to hand you the bill that you owe and tell you to pay it.”
In her experience, a physician earning seven figures can realistically keep an extra $100,000 a year with proper planning. At more typical attending incomes, $30,000 to $60,000 in annual savings is common once the right structure is in place.
Your number will depend on your situation. But the direction isn’t in question. The gap between a preparer and a strategist is not a rounding error, and it compounds every year you leave it open.
The strategies most physicians have never been shown
A strategist earns their fee by knowing which levers exist and which ones apply to you. These are the ones that come up most in our community.
If you’re W-2. The common complaint is that employed physicians have nowhere to find deductions. That’s partly true. You don’t get to write off CME, dues, or subscriptions the way a 1099 physician does. But you still have the basics: a maxed 401(k), an HSA, a backdoor Roth. Beyond that, the two strategies with the most leverage are a short-term rental paired with a cost segregation study, and oil and gas working interests. Both can be treated as active rather than passive income, which is why they can offset W-2 wages when a long-term rental usually can’t.
The short-term rental strategy, briefly. A cost segregation study is an engineering analysis that breaks a property into components, like flooring, fixtures, and cabinetry, that can be depreciated far faster than the standard 27.5 years. With bonus depreciation, those components can be deducted in year one. A reasonable rule of thumb is a deduction around 20 percent of the purchase price. On a $1 million property, that’s roughly $200,000 off your taxable income, for a study that typically costs about $3,000.
Two caveats. It has to be a genuine short-term rental that you materially participate in. And it is far more work than people expect. I’ve watched physicians get excited about the deduction and then get blindsided by the operations.
Real estate professional status. Most physicians can’t qualify. It requires 750 hours a year in real estate and more hours there than in any other activity, and medicine will win that count every time. A spouse without a full-time career often can qualify. If they do, rental losses become active and can offset clinical income.
If you own your practice. The biggest single lever is a cash balance plan, which can allow $100,000 to $300,000 a year in deductible retirement contributions on top of your 401(k). It’s designed as a permanent plan, so it fits best with steady income. Beyond that: hiring your spouse and children, funding retirement accounts for them, and the Augusta rule, which lets you rent your personal residence to your business for up to 14 days a year without the income being taxable to you.
None of these are exotic. They’re well-established parts of the tax code. The reason most physicians aren’t using them is that nobody on their team was looking.
The mistakes a strategist catches
When physicians move from a preparer to a strategist, the same three problems show up.
The most common is an entity structure chosen by default. A lot of physicians get put into an S-corp because that’s what someone told them to do, without anyone checking whether it makes sense for their state and income. In some states, it costs them money.
The most painful is a backdoor Roth done wrong. If you had any money in a traditional IRA on December 31, the backdoor Roth gets complicated, and unwinding the mistake is tedious.
The most expensive is money simply left on the table. Strategists who review prior returns routinely find tens of thousands of dollars in missed deductions. You can amend returns and receive refunds for up to three years from the original due date, so a bad prior year isn’t necessarily closed.
What a strategist costs, and how to think about it
This is the question that keeps people with their current preparer.
The range is wide. TurboTax is a few hundred dollars and is an algorithm with no person behind it. A human preparer typically runs $500 to $1,500 but is still just entering numbers. A strategist can run anywhere from $4,000 to $40,000 a year depending on the firm and the complexity of your situation.
Evaluate value to price, not price alone. If you pay $5,000 and the plan generates $50,000 to $200,000 in deductions, the math is obvious. If you pay $1,000 and get no plan, the cost looks low but the value is zero. For 1099 physicians and practice owners, the fee is also deductible.
Subscribe to receive the 7 Steps you can follow to achieve Financial Freedom
If financial freedom is your goal, there’s no better time to get started than right now.
Unlock actionable steps that you can take every day to fine-tune your goals, discover your interests, and avoid costly mistakes on your financial freedom journey.
Four questions to ask before you hire anyone
If you decide to interview a new tax professional, these are the questions I’d ask.
- Are you fluent in the strategies that apply to physicians? Augusta rule, cash balance plans, short-term rental and cost segregation, backdoor Roths, and the rules in my state.
- How quickly do you respond? If a question sits for two months, you’ve lost the window to act on it.
- Can you handle the whole picture, including entity formation, payroll, bookkeeping, and the legal side? Or will I be coordinating four firms?
- Who will I actually work with? Many firms sell you a senior partner and hand you to a junior associate. You want one experienced person who knows your goals and stays with you.
One more thing. Physicians are increasingly getting tax ideas from ChatGPT. Some of them are right. Some aren’t. If you get audited, “the AI told me” is not a defense. Part of a strategist’s job is to vet what’s real and keep you compliant.
When to make the switch
The best window is right now through February. Filing season for last year is over, and a strategist has a full twelve months to work with for the year ahead. If you want anything done for the current year, start before December so there’s still time to execute.
Here’s where I’ve landed. You do careful due diligence on things that affect your life far less than this does. Taxes shape how much you work, how fast you reach your goals, and how much room you have to change your mind along the way. Talk to a few people. Ask the questions above. Find someone who fits you.
If you want to go deeper, the full conversation with Kim Hopkins and Laxman Pitchappan of DocWealth is on the Passive Income MD podcast. They’ve worked with a lot of physicians in our community, and it’s a good place to start if you’re not sure what to ask.
Were these helpful in any way? Make sure to sign up for the newsletter and join the Passive Income Docs Facebook Group for more physician-tailored content.
Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.
