7 Things to Know Before You Start a New Medical Practice

Starting a medical practice is a major step, and taxes are often the last thing on your mind. But the decisions you make in the first year can cost or save you thousands. Here are the 7 things you need to know before you open your doors, with concrete numbers and steps you can take this week.

1. Your Business Structure Affects Your Tax Bill

The legal structure you choose determines how you pay taxes and your personal liability. For most new medical practices, the two main options are an S-corporation (S-corp) or a limited liability company (LLC).

• S-corp: You pay yourself a reasonable salary (subject to payroll taxes) and take the rest as distributions, which are not subject to self-employment tax. This can save you thousands. However, you must file Form 2553 with the IRS within 2 months and 15 days of the practice’s start date to elect S-corp status.
• LLC: By default, a single-member LLC is taxed as a sole proprietorship, meaning all profit is subject to self-employment tax (15.3% in 2026). You can elect to be taxed as an S-corp, but you must file the election.

What to do this week: Meet with a CPA who specializes in medical practices. Discuss the pros and cons of each structure based on your projected income. The cost of a CPA is $200-$400/hour, but it’s worth it.

2. You Must Pay Estimated Taxes Quarterly

As a self-employed practice owner, no one withholds taxes from your income. You are required to pay estimated taxes quarterly to the IRS and your state. The due dates are typically April 15, June 15, September 15, and January 15 of the following year.

If you underpay, you may face penalties. To avoid this, calculate your estimated tax using Form 1040-ES. A common rule of thumb is to set aside 25-30% of your net income for federal taxes, plus state taxes (which vary, e.g., 0-13.3%).

What to do this week: Open a separate bank account for tax savings. Transfer 25% of every deposit into this account. This simple habit prevents cash flow surprises.

3. You Can Deduct Startup Costs, But There’s a Cap

You can deduct up to $5,000 of startup costs in your first year, but only if your total startup costs are $50,000 or less. If they exceed $50,000, the $5,000 deduction is reduced dollar-for-dollar. Any remaining costs must be amortized over 180 months.

Startup costs include market analysis, training, advertising, and legal fees. They do not include costs to acquire tangible assets (like equipment), which are depreciated separately.

What to do this week: Track every startup expense from day one. Use a spreadsheet or accounting software like QuickBooks ($30-$100/month). Categorize expenses as startup, equipment, or operational.

4. Equipment Purchases: Section 179 and Bonus Depreciation

Medical equipment is expensive, but the tax code offers significant breaks. Under Section 179, you can deduct the full purchase price of qualifying equipment (up to $1,160,000 in 2026) in the year you place it in service, rather than depreciating it over time. Bonus depreciation allows an additional 80% deduction for new equipment in 2026.

For example, if you buy a $50,000 ultrasound machine, you could deduct the entire $50,000 in year one, potentially saving $12,000-$15,000 in federal taxes.

What to do this week: Create a list of equipment you plan to buy in the first year. Ask your CPA about Section 179 eligibility. Ensure you keep receipts and document the date the equipment is placed in service.

5. Retirement Plans Offer Big Tax Breaks

A retirement plan not only secures your future but also reduces your current tax bill. As a practice owner, you have several options:

• Solo 401(k): For practices with no employees (other than a spouse). You can contribute up to $23,000 as an employee (plus $7,500 catch-up if over 50) and up to 25% of net self-employment income as an employer, for a total of up to $69,000 in 2026.
• SEP IRA: Simpler, but contributions are limited to 25% of net income, up to $69,000. No catch-up contributions.
• Defined Benefit Plan: Allows much larger contributions (up to $230,000), but requires an actuary and ongoing costs. Best for high earners.

What to do this week: If you have no employees, open a Solo 401(k) with a provider like Vanguard or Fidelity (no cost to open). Even a modest contribution of $10,000 can save you $2,200-$3,500 in federal taxes.

6. Hiring Staff Triggers Payroll Taxes and Forms

If you hire employees, you must withhold and pay payroll taxes: Social Security (6.2% each for employer and employee), Medicare (1.45% each), and federal unemployment tax (FUTA, up to $42 per employee per year). You also need to file quarterly payroll tax returns (Form 941) and provide W-2s at year-end.

Many new practices use a payroll service like Gusto or ADP ($40-$100/month base fee plus per-employee costs). This ensures compliance and saves time.

What to do this week: If you plan to hire, set up payroll before your first hire. Research payroll services and get quotes. Budget for the employer portion of payroll taxes (about 7.65% of each employee’s gross pay).

7. Track Mileage and Home Office Deductions

If you use your car for practice-related travel (e.g., visiting hospitals, picking up supplies), you can deduct mileage. In 2026, the standard mileage rate is 67 cents per mile. Alternatively, you can deduct actual vehicle expenses, but the standard rate is simpler.

If you have a home office used exclusively and regularly for administrative work, you can deduct a portion of your home expenses (mortgage interest, utilities, insurance) based on the square footage. The simplified method allows $5 per square foot, up to 300 square feet ($1,500 max).

What to do this week: Start a mileage log today. Use an app like MileIQ ($59/year) or a simple spreadsheet. Record every trip, date, and purpose. For home office, measure your office space and calculate the percentage of your home’s total square footage.

FAQ

Q: When is the deadline to elect S-corp status? A: You must file Form 2553 within 2 months and 15 days of the start of your business. If you miss it, you can request a late election, but it’s not guaranteed.

Q: Can I deduct health insurance premiums for myself? A: Yes, if you are self-employed, you can deduct health insurance premiums for yourself, your spouse, and dependents, as long as you are not eligible for an employer-sponsored plan. This deduction reduces your adjusted gross income.

Q: What is the penalty for not paying estimated taxes? A: The IRS charges interest on the underpayment, currently around 8% per year, compounded daily. The penalty is calculated on Form 2210.

Q: Should I buy or lease medical equipment? A: It depends. Buying gives you Section 179 deductions, but leasing may offer lower monthly payments and easier upgrades. Run the numbers with your CPA, considering your cash flow and tax situation.

Related guides

• 7 Mistakes New Medical Practices Make in Their First Year
• 7 Questions to Ask Before Buying a New Medical Practice
• Best New Medical Practice Tools Compared in 2026

The bottom line

Taxes are a critical part of starting a medical practice, but they don’t have to be overwhelming. The key is to plan early: choose the right entity, set aside money for taxes, track deductions, and consult a CPA. The steps above can save you thousands of dollars in your first year. Take action this week: schedule a meeting with a CPA, open a tax savings account, and start tracking expenses. Your future self will thank you.