Physicians achieve remarkable success through years of deep commitment to patient care, yet this very achievement often creates complex financial situations that a standard playbook can’t solve. As a practice grows, its financial structure must evolve with it. Unfortunately, for many top-tier physicians, a few common oversights in planning can silently hinder their long-term wealth potential. Addressing these isn’t about correcting past mistakes; it’s about seizing future opportunities to unlock the full financial power of the enterprise they’ve worked so hard to build.
1. Optimizing Your Entity Structure for Lower Taxes and Future Growth
The entity structure of a practice is a critical financial tool. When a practice is first established, a standard PLLC is a common and logical starting point due to its simplicity. As a practice becomes more profitable, however, this default structure can become a source of significant tax inefficiency. The high pass-through income can lead to substantial personal tax bills that limit the capital available for reinvestment and growth. Continuing to operate within a structure that the practice has outgrown is a common but costly oversight.
Re-evaluating the entity structure is a necessary step to reduce tax liabilities and support the practice’s operational goals. For a practice that needs to retain capital for new equipment, expansion, or to manage fluctuating revenue cycles, a different structure may be more advantageous. For instance, electing C-corporation status for a portion of the business, such as a separate ancillary services arm, can allow earnings to be retained within the business at a lower corporate tax rate, freeing up more working capital without increasing the owner’s tax burden.
For physicians planning to add partners or execute a future sale, the choice of entity directly impacts the ease and financial outcome of those transactions. The correct structure should align with the long-term operational and financial plan of the practice so it serves as a functional tool rather than just a legal formality.
2. Structuring Compensation for Maximum Tax Efficiency
Once the business entity is correctly aligned, the next point of optimization is owner compensation. The method by which a practice owner is paid has direct and significant tax implications. A common approach is to simply draw a large salary equivalent to the practice’s profits. This method is straightforward but can be one of the least tax-efficient ways to take income. High W-2 salaries are fully exposed to the Federal Insurance Contributions Act (FICA) and other payroll taxes, which can be substantially reduced with a more methodical compensation structure.
A more effective strategy involves separating compensation into different classifications, primarily a formal salary and shareholder distributions. The owner pays themselves a reasonable W-2 salary that is defensible to the IRS for the clinical and managerial work performed. The remaining profits of the business can then be taken as distributions. These distributions are not subject to self-employment or FICA taxes, which can result in considerable tax savings each year. This is not about tax avoidance but about tax planning—structuring income in a legally compliant way that minimizes unnecessary tax drag. This calculated approach allows owners to retain more of their income, all while meeting every single regulatory requirement.
3. Reinvesting Profits for Long-Term Financial Growth
The final strategic shift is to use the profits of the practice to support long-term financial growth for the owners. A highly profitable practice can support investments and financial strategies that strengthen the owner’s long-term wealth, options that aren’t typically available to individuals with only W-2 income. This doesn’t mean the practice becomes an investment entity itself, but rather that it can enable tax-advantaged planning that enhances the owner’s broader financial picture.. It is accomplished by having the practice fund major, tax-deductible initiatives that directly benefit the owner’s long-term financial position.
There are two primary ways to execute this. The first is through the implementation of advanced retirement plans. A practice can establish and contribute to a cash balance plan, which is a type of defined benefit plan. These plans allow the business to make huge, tax-deductible contributions on behalf of the owner, with annual limits that can exceed $300,000 depending on age. This approach lowers the practice’s taxable income while rapidly accelerating the owner’s retirement savings.
The second method is for the physician to own the practice’s real estate in a separate entity. The practice then pays fair market rent to the owner’s real estate holding company. This converts a major business expense into a personal income stream that builds equity in a valuable, tangible asset.
Think of your practice’s entity structure, compensation, and reinvestment strategies as the interconnected architecture of your future wealth. Applying the same diagnostic rigor to this financial architecture as you do to patient care is the key to unlocking its true potential. When you methodically align these elements, you directly lower your tax burden, enhance cash flow, and systematically build your net worth. This results in a resilient and valuable enterprise that actively works to secure your future and ensure the rewards of your demanding career are fully realized.
About Tal Binder
Tal Binder is the CEO and co-founder of Gelt, a modern tax platform built for investors, founders, and business owners with complex financial lives. With a background in finance and a deep understanding of the tax challenges faced by high-net-worth individuals, Tal is passionate about making tax strategy more accessible, personalized, and impactful. Under his leadership, Gelt is redefining how people think about taxes—not just as a compliance task, but as a powerful tool for building and preserving wealth.
