How Doctors Avoid Paying High Taxes

Income taxes are inevitable. There’s no avoiding paying them. For higher income earners like doctors, paying more in income taxes might also seem inevitable, but it does not have to be. There are a number of tactics physicians use to help lower their annual tax bill. Keep reading to learn their tricks of the trade.

Leverage Retirement Plans

Contributing to retirement plans—such as a 401(k) or an Individual Retirement Account (IRA)—helps doctors, as well as all other professionals, save for the future. Retirement savings are a great benefit on their own, but these accounts can also be a valuable tax deduction. For example, 401(k)s and 403(b)s let doctors save money at their high marginal tax rate while also shielding their investments from taxes. When it comes time to start withdrawing those funds in retirement, that income will fall in a lower tax bracket than when you were working. Meanwhile, the lifetime tax savings will likely exceed your contributions.

If you work another job, you could use a second 401(k) to help further lower your taxes. The way this would work is if you have a 401(k) with your employer where contributions come from your paycheck and potentially an employer match. You could then open an individual 401(k) for your side job and contribute up to 20% of your profit to the account.

Additionally, a Roth IRA will lower your tax bill annually. Every dollar earned in this particular account isn’t taxed as long as it is withdrawn during your retirement. The same is true for Roth 401(k), Roth 403(b), and Roth 457(b) accounts as well. While there are limits on how much you can earn while contributing to a Roth IRA, you can use the backdoor method if you have a high income and still want to leverage this retirement account.

More information here:

Top 10 Ways to Lower Your Taxes and Lower Your Tax Bracket

Invest in Real Estate

Real estate ownership can also help doctors avoid paying high taxes in several ways. When you buy a house with a mortgage, you can claim a deduction on Schedule A. While only the interest of the first $750,000 of debt on new mortgages is deductible, it’s still a large deduction for many doctors. Just keep in mind that property taxes and income taxes are combined and limited to $10,000 total as Schedule A deductions. Taking that deduction only works, however, if you itemize on your tax bill. If you use the ever-increasing standard deduction, you can't deduct mortgage interest.

Having a mortgage is just one way that homeownership can help doctors avoid paying high taxes, however. You could also rent out your home to your business—doing so for up to 14 days per year will allow you to avoid paying taxes on your rental income. The same applies if you rent out to others. Additionally, if you rent your home to your business, the rent paid becomes a business tax deduction. This deduction could be more than 10-20 times the size of a standard home office deduction.

Meanwhile, equity real estate investing can reduce the amount of taxes you pay on the income the property produces if said property depreciates. If you exchange the property instead of selling it, you could avoid recapturing the depreciation. There’s also an opportunity to use real estate depreciation to offset your or your spouse’s earned income—you’d have to qualify for Real Estate Professional Status, however. That entails working 750 hours annually in real estate and not surpassing that amount of time in anything else.

Hire Help

If you have young children who need to be looked after, any paid childcare makes you eligible for the child and dependent care tax credit. The credit is up to 35% of $3,000 (for one child under 12 years old) or $6,000 (for two children under 12) spent on childcare. You can also apply this credit to summer day camps. The best part? It does not phase out like the child tax credit.

Your children can also help you lower your taxes even after they’re old enough that they don’t require care. You can hire them (when they’re still minors) as employees of your non-incorporated business. Their pay counts as business deduction and your company and children don’t have to pay payroll taxes on that income. Additionally, up to $15,000 [2025] can be earned prior to federal income tax becoming due.

More information here:

How to Hire Your Kids for Taxes the Right Way

Donate Money to Charity

Giving money to charity is usually rewarded with a lower tax bill—itemizing deductions allows any donation to appear on your Schedule A as a deduction. There are other ways to help others and benefit from a tax perspective besides just writing a check, however. For example, if you donated appreciated mutual fund shares from one of your taxable accounts, you (as well as the charity) avoid paying capital tax gains. Plus, you’d still receive a Schedule A deduction for the donated shares’ whole value. Combining this strategy with tax-loss harvesting could save high-earning physicians plenty of money in taxes.

Since the standard deduction has increased to $30,000 [2025] (in 2024, it's $29,200) for married doctors, making smaller charitable donations may not be as beneficial from a tax-lowering perspective. Instead, consider combining your charitable deductions and make a single bigger donation every other year. You could use the appreciated securities donation strategy to get a big tax break this year and donate smaller amounts from that fund in the years after.

More information here:

Charity — How to Give, Why to Give, and the Tax Benefits You Can Receive

The Bottom Line

Taxes are a part of life for anyone who earns an income. High taxes are an even bigger part of life for those who earn high salaries like physicians—but they don’t have to be. Knowing the tools that are available to you and how to implement tax-lowering strategies are key to minimizing your tax bill every year. The more you can save in taxes, the more you can put toward paying off medical school loans, saving for retirement, and reaching all of your other financial goals.

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