Physicians & Medical Practices, CPA & Tax Services

Why Physicians in Dallas Need a CPA Who Understands Medical Practice Finances

Physicians earn high incomes but face a tax landscape that punishes mistakes. Between moonlighting 1099 income that arrives with zero taxes withheld, S-Corp structures that demand defensible salary calculations, and student loan repayment strategies that hinge on how your taxes are filed, a general-purpose tax preparer can cost you tens of thousands of dollars over a career. Most CPAs understand W-2 income and standard deductions. Few understand the specific interplay of clinical compensation structures, malpractice insurance deductions, and retirement contribution strategies that define physician finances.

At AG Freideman, we work with physicians, surgeons, dentists, and medical practice owners across Dallas, Plano, Frisco, and the entire DFW metro. Al Freideman has spent 30+ years handling complex returns for high-income professionals, and he handles every physician client personally. No hand-offs to junior staff who have never seen a physician’s K-1 or a locum tenens 1099.

How Should Physicians Handle Moonlighting 1099 Income Alongside W-2 Pay?

If you pick up extra shifts, cover for colleagues at other facilities, or do locum tenens work, that income almost always arrives as 1099-NEC compensation with no taxes withheld. This creates two immediate problems: you owe both the income tax and the full 15.3% self-employment tax (Social Security at 12.4% up to the 2026 wage base, plus 2.9% Medicare with an additional 0.9% Medicare surtax on earnings above $200,000 for single filers or $250,000 for married filing jointly).

The mistake we see most often is physicians treating moonlighting income as an afterthought, then facing a five-figure tax bill in April along with underpayment penalties from the IRS. The solution involves:

• Quarterly estimated tax payments calculated based on your combined W-2 and 1099 income, filed using Form 1040-ES by each quarterly deadline
• Proper expense tracking for any costs tied to that moonlighting work: travel between facilities, licensing fees for additional hospital privileges, tail coverage premiums, and CME required by the moonlighting facility
• Entity structure evaluation to determine whether routing 1099 income through an S-Corp (discussed below) would reduce your self-employment tax burden

We set up systems for our physician clients so estimated payments are calculated correctly from the start, not reverse-engineered after a surprise balance due.

S-Corp Reasonable Compensation for Physicians and Locum Tenens Work

For physicians with significant 1099 income (typically $50,000 or more annually from moonlighting, locum tenens, or a private practice), forming a Texas S-Corp can reduce self-employment taxes substantially. The strategy works because S-Corp owners pay themselves a “reasonable salary” subject to payroll taxes, then take remaining profits as distributions that are not subject to the 15.3% self-employment tax.

The IRS scrutinizes physician S-Corps closely. A surgeon generating $400,000 through an S-Corp cannot pay herself a $60,000 salary and take $340,000 as distributions. The IRS compares your salary to what similarly qualified physicians earn in your specialty and geographic market. For Dallas-area physicians, we research compensation data from MGMA and AMGA surveys to establish a salary that is defensible under audit while still delivering meaningful tax savings.

We handle the full S-Corp setup for physicians: Texas LLC formation ($350 plus the $300 state filing fee to the Texas Secretary of State), S-Corp election filing with the IRS (Form 2553), payroll processing, and the annual 1120S return with K-1 preparation. Our S-Corp and partnership returns run $1,000 to $2,000, and monthly bookkeeping with payroll processing runs $300 to $600 per month.

Are Malpractice Insurance Premiums Tax Deductible?

Yes, but how you deduct them depends entirely on your employment and entity structure. Malpractice premiums are one of the largest recurring expenses physicians carry, often $10,000 to $50,000+ annually depending on specialty and coverage type, and the deduction method matters.

• Employed physicians (W-2): If your employer pays your malpractice premiums, they are excluded from your taxable income automatically. If you pay your own premiums as a W-2 employee, this is an unreimbursed employee expense, which is not deductible on your federal return under current tax law (the 2017 Tax Cuts and Jobs Act suspended miscellaneous itemized deductions through 2025, but Congress may extend this provision into 2026 and beyond).
• Self-employed physicians (Schedule C or S-Corp): Premiums you pay for your own coverage are fully deductible as a business expense, reducing both your income tax and (on Schedule C) your self-employment tax.
• Tail coverage: If you leave a practice and purchase tail coverage (extended reporting period coverage), this is deductible in the year paid if you have self-employment income. The timing of this deduction can be strategically valuable.

We review every physician client’s insurance situation to make sure no deductible premium dollar is missed.

PSLF vs. Refinancing: The Tax Implications Physicians Miss

Public Service Loan Forgiveness (PSLF) and student loan refinancing are not just financial planning decisions. They are tax decisions. Under PSLF, the forgiven balance after 120 qualifying payments is not treated as taxable income. Under standard Income-Driven Repayment (IDR) forgiveness (after 20 or 25 years), the forgiven balance is taxable income in the year of forgiveness, which can create a six-figure tax bill for physicians with large loan balances.

This matters for how you file your taxes right now. Physicians pursuing PSLF or IDR forgiveness often benefit from filing Married Filing Separately to keep their AGI (and therefore their IDR payment) lower. But filing separately disqualifies you from several credits and deductions, including the student loan interest deduction, certain education credits, and Roth IRA contributions at lower income thresholds. The math is specific to your situation, and getting it wrong in either direction costs real money.

We run the numbers both ways for every physician client carrying student loans, so you make the filing status decision based on actual dollar outcomes rather than guesswork.

Backdoor Roth IRA Strategy for High-Earning Physicians

Most Dallas-area physicians earn well above the 2026 Roth IRA income limits. The backdoor Roth strategy (contributing to a traditional IRA, then converting to a Roth) remains available, but it requires careful execution. The most common mistake is the pro-rata rule violation: if you have any pre-tax money in a traditional, SEP, or SIMPLE IRA, the conversion is partially taxable based on the ratio of pre-tax to after-tax funds across all your IRAs.

We coordinate with your financial advisor to ensure the backdoor Roth conversion is executed cleanly, that any existing pre-tax IRA balances are rolled into your employer’s 401(k) before the conversion year, and that Form 8606 is filed correctly. This is a form many preparers overlook or fill out incorrectly, which can result in double taxation on the converted amount.

Physician Tax Mistakes We Fix

• Failing to make quarterly estimated payments on 1099 income: This triggers IRS underpayment penalties (currently calculated at a rate tied to the federal short-term rate plus 3%). We set up a quarterly payment schedule the day we onboard you.
• Overpaying self-employment tax on moonlighting income: Physicians earning $80,000+ in 1099 income without an S-Corp election are paying thousands more in self-employment tax than necessary.
• Missing the CME and licensing deduction for self-employed physicians: Board exam fees, medical license renewals, DEA registration, hospital credentialing costs, and CME travel are all deductible when you have self-employment income. We see physicians leave these off their returns every year.
• Filing the wrong status while pursuing PSLF: Choosing Married Filing Jointly when Married Filing Separately would lower your IDR payments by thousands per year can cost more over the life of your loans than any tax benefit from joint filing.
• Botching the backdoor Roth conversion: Forgetting to file Form 8606, failing to clear out pre-tax IRA balances first, or converting in a year when your income is unusually high due to a signing bonus or partnership buy-in.