The greatest expense of the large majority of doctors is taxes and it can feel like this is inevitable. In fact, a recently published working paper showed that highly compensated individuals with salaried jobs, like doctors, are taxed at a much higher rate than the average American. But, it doesn't have to be this way!

Let's take a look at the situation in depth and illustrate how doctors can use knowledge to pay less in taxes.

Doctors pay more in taxes. Period.

This August 2025 paper from the National Bureau of Economic Research found that US workers who made the most through salaried jobs paid an effective tax rate of 45% in 2020. This is compared to a 30% effective tax rate for the entire population of US taxpayers.

Who makes up the top percent of highly compensated salaried workers in the US…Doctors.

By contrast, the same authors looked at the individuals the Forbes top 400 wealthiest Americans and found that they pay an average effective tax rate of just 24%. This is almost half of what doctors were paying!

Why is this the case?

The reason is the tax code.

Remember, the tax code is not some immutable, constitutional law. It is a set of rules and regulations that the government puts out every year. Essentially, it is a book of incentives. Follow the rules and you get incentives in the form of tax deductions and tax credits. Don't follow them and you get taxed more.

It's as simple as that. Alongside implementing the strategies below, I personally work with Cerebral Tax Advisors to maximize my tax savings while following the tax code.

As this article points out, the effective tax rate for the 400 wealthiest Americans approached 30% in 2010-2017 before dropping after the introduction of the Tax Cuts and Jobs Act in 2017.

The cold, hard truth is that this tax book of rules and regulations is now, and always has been to a large degree, heavily skewed to favor non-salaried income.

Non-salary related sources of income like stock dividends, interest from bonds, rent from real estate, and even gifts or inheritances receive a much lower tax treatment than salaries. Additionally, income as a business owner opens up tons of doors for deductions not available to the individual with a salary. This explains the lower effective tax rate of the Forbes 400 compared to us doctors.

Is this right or fair? Maybe. Probably not. But it doesn't really matter. Because it is the way it is right now.

The question then becomes, what do we do about it?

3 ways doctors can pay less in taxes

1. Maximize deductions

This is the lowest hanging fruit but so many doctors still are not taking full advantage of it.

Maximize your contributions to all tax deferred retirement accounts at your disposal. This includes 401k, 403b, 457, and/or health savings accounts.

Doing this alone can reduce your taxable income in any given year by greater than $100,000. If you have access to a cash balance plan through your practice, you can save, invest, and deduct an even greater sum.

The beauty of this strategy is that it works for every type of doctor – private practice, employed, academic. There are no restrictions.

2. Convert active income to passive income

Let me be the first to say that being taxed more is not the end of the world. It means that you are earning more money. Yes, every additional $1 taxed may only be $0.60 in your pocket. But I will take that $0.60 over $0.00 any day of the week.

However, if I can reduce the tax so that I get $0.75 in my pocket, that will always be my preference.

So, if we know that some types of income receive a more favorable tax treatment than earned, salaried income, it makes sense to try and convert as much of our income from the higher tax kind into the lower tax kind. In fact, this is what many of those in the Forbes 400 have done over time. They started as active earners only to transition to passive earners.

As doctors, we can do this by investing heavily in dividend producing stocks (there are advantages and disadvantages here), other businesses, and cash flowing real estate with passive cash flow (my preferred method).

Over time, a greater proportion of our income will be receiving favorable tax treatment, lowering our effective tax rate while also minimizing our reliance on our salary. Win-win.

3. Become a business owner in some way

Once you become a business owner, a whole new world of tax treatment opens up for you.

You can now deduct business expenses, claim a home office, use the Augusta rule, along with myriad other strategies that are best employed in coordination with a tax advisor.

Most doctors think that becoming a business owner means going into private practice. And while this is a great option for many, there are others who just don't want to do this for one reason or another. But there is no one saying that the business you own has to be your medical practice in order to take advantages of these tax incentives!

You can become a business owner through any number of lucrative side gigs, some that leverage your medical knowledge and others that have nothing to do with medicine at all. These include:

• Real estate investing
• Expert witness work
• Insurance chart review
• Medical consulting
• Locum tenens
• Telemedicine

(You can find a full list of physician side gigs here.)

Any of these and others that we haven't even thought of yet (you can crochet and sell covers to keep stethoscopes warm!) will unlock the massive tax advantages available to business owners.

The bottom line

More and more doctors are on salary now. For the first time ever it is greater than 50% of us. The result is that we pay more taxes in general and especially when compared to other wealthy individuals.

This is not right or just based on the sacrifices we make, the debt we take on, and the work we do. But it is the reality. So, we can either wallow in it or do something about it.

And I choose to do something about it.

By maximizing deductions, converting active into passive income, and becoming a business owner, any doctor can reduce their effective tax rate and pay less in taxes right away. Take control into your hands and use these strategies to keep more of your hard earned money!

Looking for advisors that can help you implement all of this? Book a call with Cerebral Tax Advisors!

For more tax strategies for doctors, check out these posts:

• Maximizing Tax Deductions as a Physician
• Top 5 Tax Mistakes Every 1099 Physician Must Avoid
• What You Need to Know: Upcoming Changes to the U.S. Tax Code (A Physician’s Guide)
• 3 Important Lessons Learned From Our Recent Tax Audit
• The Overlooked Investment Every Doctor Should Use to Cut Taxes and Lower Risk

What do you think? Do doctors pay too much in taxes? Why is that? What can we do about it? What tax strategies do you implement? Let me know in the comments below!