Keeping More of Your Hard-Earned Income – All Year Long
Direct Primary Care (DPC) continues to grow in popularity, giving physicians more flexibility outside the insurance system and patients a more personalized care experience. By some estimates, the market for DPC is projected to reach $82.5 billion by 2032 (up from $55.8 billion in 2022). While this is good news for physicians and practice owners already within the sector (or those thinking about breaking through), it is worth remembering that DPC practices often feature unique financial structures that come with their own repercussions where taxes are concerned.
Many DPC physicians make the mistake of only thinking about taxes in March or April, often leaving money on the table and facing unnecessary cash flow crunches. The truth is, effective tax planning happens year-round. Fear not though, we have you covered with five strategies to consider that can help you minimize liabilities and maximize your take-home pay.
1. Choosing the Right Tax Structure for Your DPC Practice
One of the first decisions that will impact your tax burden is your practice’s legal structure. For instance, are you operating as a sole proprietor? An LLC? Or have you elected S-Corp status? Each option comes with different implications for self-employment taxes and deductions.
For many DPC physicians, the S-Corp structure offers particular advantages. By classifying a portion of your income as salary and another portion as distributions, you may be able to reduce your self-employment tax burden. However, this requires careful planning to ensure compliance and avoid IRS scrutiny.
Then there is also the Qualified Business Income (QBI) deduction, which allows many DPC practices to deduct up to 20% of qualified business income. The rules here can be complex, especially as your income grows, making mid-year reviews with your CPA particularly valuable.
2. Staying Ahead With Quarterly Estimated Payments
Wearing the hat of business owner, as well as that of practising physician, DPC proprietors need to make estimated tax payments throughout the year. Falling behind on these payments can lead to penalties and an unwelcome cash crunch come April.
The IRS offers two safe harbors to avoid penalties: paying either 90% of the current year’s tax liability or 100% of last year’s liability (110% if your adjusted gross income exceeds $150,000). Many DPC physicians find it helpful to base their first three quarterly payments on the prior year’s taxes, then make a final adjustment in January based on their actual annual income.
If it’s starting to seem complicated, this is where working with a CPA who intimately understands the ebb and flow of DPC revenue can be invaluable. They can help you adjust payments as your practice grows, ensuring you stay compliant without tying up more cash than necessary.
3. Claiming Every Legitimate Deduction
DPC practices often qualify for deductions that traditional medical practices can’t claim – if you know where to look. Your home office, for example, may qualify for a deduction whether you use the simplified method ($5 per square foot) or the more detailed actual expense method.
Technology expenses add up quickly in a DPC practice, so it’s worth knowing that your Electronic Health Record system, billing software, and even patient communication platforms may be fully deductible. Many physicians overlook smaller recurring expenses like website hosting fees or online scheduling tools that can collectively make a significant difference.
And don’t forget about vehicle expenses for home visits or medical conferences either. Keeping a detailed mileage log (there are excellent apps, such as MileIQ for this) can translate to substantial deductions. And if you’ve invested in medical equipment or supplies – even those not billed to insurance – these likely qualify as business expenses too.
4. Retirement Planning as a Tax Strategy
Retirement accounts offer DPC physicians one of the most powerful tax reduction tools available. The right retirement strategy can simultaneously secure your future and reduce your current tax burden.
Simplified Employee Pension (SEP) IRAs remain popular for their high contribution limits (up to 25% of net earnings or $69,000 in 2024). Solo 401(k) plans offer similar benefits with additional flexibility, while defined benefit plans can shelter even larger amounts for high-earning physicians.
Health Savings Accounts (HSAs) also deserve special mention. When paired with a high-deductible health plan, these triple-tax-advantaged accounts allow you to deduct contributions, enjoy tax-free growth, and make tax-free withdrawals for qualified medical expenses. For DPC physicians who typically have lower insurance utilization, HSAs can be particularly advantageous.
5. Year-End Moves to Lock in Savings
As December approaches, you have one last opportunity to reduce your taxable income for the year. Strategic timing of expenses and income can make a noticeable difference in your tax bill.
Here is where it pays to employ a bit of strategic foresight. For example, consider prepaying certain Q1 expenses in December – things like malpractice insurance premiums, rent, or software subscriptions. If you’re planning major equipment purchases, accelerating these into the current tax year might make sense. Conversely, you might delay invoicing for December memberships until January to defer that income.
Charitable giving strategies can also play a role. Donor-advised funds allow you to take a current-year deduction while distributing the funds to charities over time. This can be especially useful in years when your income is particularly high.
Making Tax Planning Part of Your Practice’s Rhythm
Making the shift from traditional medical practice to DPC can be extremely daunting, especially where finances are concerned. It’s not an impossible path to navigate alone, but having a dedicated partner in the form of a CPA can seriously help. One of our current DPC clients recently confessed:
“Goodman CPA has been one of my most valued resources during the first three years of starting my DPC practice. I’ve partnered with them since day one and can attribute much of our financial success to their guidance. Not only do they handle all my accounting and state filings, but just knowing someone else is keeping an eye on the margins puts my mind at ease.”
This speaks to the kind of proactive partnership that makes year-round tax planning effective—something we want for all of our clients. At the very least, we highly encourage all DPC physicians and practice owners to start building tax strategies into their ongoing financial management, rather than viewing taxes as an annual event.
By implementing these strategies throughout the year, you can transform tax time from a source of stress into just another part of running your successful DPC practice.
The clock on the tax year is ticking. Are you ready to take control of your practice’s tax strategy?
Book a consultation with Goodman CPA today and let us take some stress off your shoulders.