If you’re an employed orthopedic surgeon, no matter setting, your profession can be rewarding in some ways, together with the sense of objective that every one physicians get pleasure from and the avoidance of many enterprise points that contribute to emphasize and burnout.
Nonetheless, one huge drawback employed physicians have in contrast with these in impartial apply is that their W2 employment supplies fewer alternatives to learn from tax-efficient write-offs.
Utilizing a multipronged technique to maximise after-tax earnings all through your profession is crucial to make sure a cushty way of life, handle money owed and retire in your phrases. On this article, we’ll discover key monetary methods W2 physicians can implement to legally scale back their earnings tax burden and optimize the effectivity of their incomes energy.
Tax-advantaged retirement accounts
The central theme in optimizing tax effectivity as a W2 employed doctor is to legally scale back the quantity of your earnings that’s topic to earnings tax. Maxing out tax-advantaged, employer-sponsored retirement accounts and taking full benefit of match contributions by your employer the place accessible are highly effective methods to perform this goal.
401(okay) contributions: In 2025, you may contribute as much as $23,500 yearly (or $31,000 if older than age 50 years) to your 401(okay). In case your employer presents a match or profit-sharing, maximize these advantages as properly.
Backdoor Roth IRA: Due to earnings limits, excessive earners can’t contribute on to a Roth IRA. Nonetheless, a backdoor Roth — contributing to a standard IRA and changing to Roth — permits for tax-free development and withdrawals in retirement.
457(b) plans (for nonprofit hospital staff): These deferred compensation plans enable an extra $23,500 in contributions past your 401(okay).
Leverage well being financial savings accounts
Should you occur to have a high-deductible well being plan, well being financial savings account (HSA) might arguably be probably the most tax-advantaged account you may have. Contributions are tax deductible (decrease your adjustable gross earnings topic to earnings taxes), development is tax free and withdrawals for certified medical bills are additionally tax free.
In 2025, the bounds for HSA contributions are:
- $4,300 for people;
- $8,550 for households; and
- an additional $1,000 catch-up for these older than 55 years.
Physicians who don’t want to make use of their HSAs for well being bills annually can contemplate investing the stability and letting it compound, successfully turning it right into a second retirement account to fund future well being care bills.
Kind an LLC
W2 physicians can profit from the ability of enterprise deductions by forming a restricted legal responsibility firm (LLC) for any 1099 “facet hustle” earnings, together with professional witness work, consulting, talking engagements, product improvement or moonlighting. Utilizing an LLC may be essential for asset safety functions (a topic of a few of our different columns) and may also offer you tax flexibility — because the LLC may very well be taxed as a disregarded entity (in the event you personal 100% of it) or as an S or C company. Each S and C company tax remedies have their very own tax advantages, which we mentioned in our January 2024 article, co-authored by Carole Foos, CPA.
Past the usage of an entity, skilled/enterprise exercise out of your employment might create different tax alternatives on that earnings, together with:
- deducting enterprise bills (journey, subscriptions, residence workplace, CME, and so forth.);
- tax advantages on tools or software program purchases;
- residence workplace deduction; and
- creation of, and deductible contributions to, certified retirement plans equivalent to 401(okay), and so forth., or a Simplified Worker Pension IRA.
Losses out of your facet enterprise can probably offset W2 earnings (topic to passive exercise and passion loss guidelines). Simply guarantee your actions show a revenue motive and are properly documented.
Implement tax-loss harvesting
Tax-loss harvesting, an underutilized tax discount technique for high-income earners, is outlined because the apply of promoting underperforming belongings all year long to appreciate capital losses on paper that may offset all capital positive factors plus as much as $3,000 of abnormal earnings yearly. The method includes promoting dropping positions in taxable accounts earlier than year-end whereas additionally reinvesting in comparable however not considerably similar belongings to remain invested.
Tax-loss harvesting may be utilized to a wide range of funding sorts, together with conventional securities (shares and exchange-traded funds) and cryptocurrency (eg, Bitcoin) to appreciate highly effective losses that depend in opposition to taxable earnings. Though future laws might change this provision, cryptocurrency is at present not topic to the wash-sale rule, providing larger flexibility in realizing losses and instantly re-entering the market. Losses that exceed the $3,000 cap may be carried ahead indefinitely.
Conclusion
As a high-earning, W2-employed doctor, you will need to apply authorized and sensible tax-efficient methods to maintain extra of what you earn all year long.
By leveraging employer advantages, maximizing retirement account and HSA contributions, taking accessible deductions on facet hustle exercise and tax loss harvesting on investments, you may construct a strong tax-optimized monetary plan.
*Editor’s word: This text is for academic functions solely. Please seek the advice of a licensed monetary advisor earlier than making any funding choices.
- References:
- Mandell and OJM Group companions are happy to announce the publication of their latest e-book, Wealth Methods for In the present day’s Doctor: A Multi-Media Playbook. The playbook’s revolutionary format options greater than 90 hyperlinks to movies and podcast episodes to boost vital monetary matters for physicians. To obtain a free print copy or e-book obtain, textual content HEALIO to 844-418-1212, or go to www.ojmbookstore.com and enter code HEALIO at checkout.
- ‘S’ or ‘C’ company: Maximize tax therapy of your apply. https://www.healio.com/information/orthopedics/20240116/s-or-c-corporation-maximize-tax-treatment-of-your-practice. Printed Jan. 18, 2024. Accessed June 12, 2025.
- For extra info:
- Sanjeev Bhatia, MD, is an orthopedic sports activities drugs surgeon working towards at Northwestern Medication in Warrenville, Illinois. He may be reached at sanjeevbhatia1@gmail.com or @DrBhatiaOrtho.
- David B. Mandell, JD, MBA, is an lawyer, creator and founding father of the wealth administration agency OJM Group. He may be reached at 877-656-4362 or mandell@ojmgroup.com.
Sources/Disclosures
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Supply:
Professional Submission
Disclosures:
Bhatia stories holding inventory in TDA Ventures LLC, a agency linked to The Docs Brokers. Mandell stories no related monetary disclosures.
