I recently hosted Paul Channo from Tax Planning Boutique to discuss the potential upcoming changes to the tax code in the “Big, Beautiful Bill.” These represent major shifts in the U.S. tax code—especially those that impact high‑earning professionals like physicians. This post will break down the key topics, practical takeaways, and proactive strategies you need to know and be thinking about in response to these tax code changes!
Disclaimer: This post is based exclusively on our webinar and is not formal tax advice. Please consult your tax advisor or CPA to tailor these insights to your specific situation.
The timing behind these tax code changes
Let’s start by placing these upcoming tax code changes in context:
- These are not one-off events—they’re part of a broader pivot initiated by tax reform efforts in Washington.
- Aimed at wealthier taxpayers and business owners, the changes loom large for physician‑entrepreneurs: smaller practices, medical groups, and even side‑businesses could see dramatic shifts.
- While much attention has gone to headline-grabbing portions of the Inflation Reduction Act and expiring TCJA provisions, the focus here is on under-the-radar rules that carry big implications.
Key takeaway: If you’re operating through an S‑corp, partnership, or LLC—or if your compensation mixes salary and distributions—your tax plan may face greater scrutiny and complexity.
Now let’s look at some of the more relevant tax code changes that are likely to come out and how high income earners like physicians may be impacted.
Upcoming changes to the U.S. tax code
1. Reassessing Business Entity and Compensation Strategies
A. S‑Corp Reasonableness is Under the Microscope
- What’s changing: The IRS is increasing enforcement around reasonable compensation for S‑corp owners—i.e., what portion is W‑2 salary vs. distributions.
- Why it matters: An imbalanced split—say, paying too little salary to minimize payroll taxes—can trigger audits and back‑taxes, penalties, and interest.
- What to do:
- Conduct a compensation benchmarking review using industry data (e.g., MGMA).
- Document your reasoning clearly.
- Consider minor salary adjustments now to avoid future red flags.
B. Aggregation of Businesses
- For physicians with multiple entities (private practice + real estate holdings + medical side-gigs), Paul highlights how the IRS may combine those entities for purposes of both wage and business income tests.
- This increases exposure to payroll and self-employment tax, particularly under Section 199A business income limitations.
C. Rethinking the Qualified Business Income (QBI) Deduction
- The beloved 20% QBI deduction (under Section 199A) is under threat:
- Income thresholds are dropping in future tax years.
- Higher‑earning individuals may phase out more swiftly.
- Aggregated earnings across related businesses may push total income into phase-out territory.
- Your move:
- Model the impact of continued QBI deductions, factoring in declining thresholds.
- Consider entity restructuring—moving some activities into lower-income brackets or different entities.
2. Net Investment Income Tax (NIIT) — Double‑Checking Your Buffers
- The 3.8% NIIT applies to the lesser of:
- Net investment income,
- Or Modified Adjusted Gross Income (MAGI) above $200 K (single) / $250 K (married filing jointly).
Critical nuance: Some business income—like passive real estate—can feed into NIIT if it’s not properly segregated or active.
- Action Steps:
- Scrutinize your real estate and investment holdings.
- Confirm whether REITs or rental income are classified as passive/non-passive.
- Segregate active vs. passive activities where beneficial.
3. Prepaid and Deferred Income: Watch for New Trapdoor
Newly expanded IRS rules target deferred income strategies:
- Any advance payments received for future services—like retainers, prepayments for upcoming consulting or speaking events—could be immediately taxable unless structured correctly.
- Special caution is warranted for:
- Membership dues,
- Event deposits,
- Other prepaid arrangements.
Practical Tips
- Delay invoicing until services are performed whenever possible.
- If prepaid, set up a deferred revenue reserve and clear policies to recognize income over time.
- Coordinate with your accountant and billing team to ensure proper timing and documentation.
4. Clawbacks on Excess Business Losses
One of the more aggressive changes: limits on excess business losses for high-income taxpayers.
- High-earning physicians may carry forward losses instead of deducting them this year, affecting liquidity and tax planning.
- Especially relevant for doctors with early-stage businesses, such as startups or clinics yet to produce steady profits.
What You Should Do
- Keep separate loss-tracking systems for each business.
- Plan investment timing and launch schedules to optimize loss deductibility over years.
- Talk to your CPA about the new thresholds and how to structure losses.
5. Retirement Planning: A Tax-Smart Route Forward
As some business write-offs disappear, retirement contributions emerge as a critical shelter:
- Max out 401(k) and SEP IRA contributions to reduce taxable income.
- For solo practitioners: explore the benefits of a Solo 401(k) or Defined Benefit Plan, potentially saving $60K–$100K/year pre-tax.
Paul emphasizes:
- “Retirement plans are a triple win—build wealth, defer tax, and protect from income spikes.”
6. R&D Tax Credit — Often Overlooked, Often Misunderstood
Many physician-entrepreneurs miss out:
- The R&D tax credit has expanded to include:
- Medical procedure development,
- App/software creation,
- Enhanced patient care processes.
- Even small clinics can claim credits for investments in protocols, tools, or even telehealth platforms.
The goal: Document expenses, identify qualifying activities, and secure credits that reduce both payroll and income tax.
Strategic tax actions: What to consider in 2025
Paul outlines an action checklist for quick deployment:
- Entity review – Are your structures optimized for this tax environment?
- Compensation review – Adjust now to avoid audit alarms.
- Income timing – Defer or accelerate to align with deduction periods.
- Retirement plan setup – Establish or top-off before year-end.
- Track losses – Separate books and loss pools for each business.
- Identify credits – R&D and other industry‑specific credits.
- Match state/local planning – Some states may add alternative minimum taxes (AMTs).
What the IRS might target next
To wrap up, Paul flags emerging concerns:
- Shifting IRS audits toward service professionals with substantial self‑employment income.
- Greater info-sharing between institutions (banks, brokers) and the IRS.
- Potential for new transparency on bookkeeping, compensation structure, and intra‑company transfers.
Summary Table: The Rapid Reference Cheat Sheet
| Area | Challenge | Your Action Steps |
|---|---|---|
| S‑Corp Salary Splits | Undercompensating → IRS scrutiny and back‑taxes | Benchmark salary. Document. Adjust before audit. |
| QBI Deduction | Phase‑outs tightening. Aggregation limits. | Project impact. Model alternate structures. |
| NIIT Exposure | Passive income creeping into AGI brackets | Reclassify passive vs. active. Structure holdings optimally. |
| Prepaid Income Rules | Prepayments potentially immediately taxed | Delay billing. Use deferred revenue schedules. |
| Excess Business Loss Limits | Losses deferred instead of deducted now | Track separately. Plan startup timing across years. |
| Retirement Contributions | Missing an opportunity to shelter income | Open Solo 401(k) or defined benefit. Max out contributions soon. |
| R&D Tax Credit | Under‐claimed by medical businesses | Identify and document qualifying R&D activities. Work with specialist. |
| IRS Audit Trends | Enforcement tightening on high-income service professionals | Get proactive. Document everything, and consult a tax advisor. |
Looking ahead: Planning for 2026 and beyond
These changes are a call to action. If you’re not:
- Reviewing your entity setup,
- Benchmarking your compensation,
- Proactively managing revenue timing,
- And maximizing every deduction and credit—
you could be handing money to Uncle Sam that you didn’t need to. Plus, audits can be costly in time and money.
As Paul said in the webinar: “We’re in a more complex tax era—aggressive planning isn’t a luxury, it’s essential.”
What’s next?
Here’s how to prepare in the coming weeks:
- Schedule a tax strategy session with your advisor focused on these issues.
- Prepare benchmark reports for your practice, compensation, and revenue.
- Implement new retirement vehicles before Q4.
- Identify R&D-eligible projects and get documentation in place.
- Review your deferred income pipelines and reform billing systems.
Final Thoughts
Tax season is no longer a once-a-year event—it’s a year-round cycle. With the proposed changes, staying ahead of the curve means being strategic, structured, and supported by a proactive team. For physician-entrepreneurs in particular, the stakes are higher—but so are the rewards of smart planning.
If you’d like to dive deeper into any of these areas—whether entity structuring, compensation strategy, audits, or credit harvesting—just let me know or you can connect with Paul and his team here!
And if you are looking for more actionable tax planning tips, check out these posts:
- How to Use the Augusta Rule to Lower Your Taxes
- 5 Important Tax Tips for Physicians
- Finance Flash Go! Episode #147: QBI (199A) Tax Deduction
- 5 Ways W2 Physicians Can Lower Their Taxes
You can also check out our full webinar replay below!
What do you think? Have you thought about the potential new tax changes and how they could impact you? What are you doing to be proactive? Let us know in the comments below!
One Response
Appreciate this summary; it contained a lot of new tidbits for me! Agree 100% on the importance of identifying relevant credits (such as the Secure 2.0 credits for retirement plans) for new businesses. I’ll be watching intently to see what happens with the SALT cap, since that will have a direct impact on the utility of paying state taxes at the partnership/S Corp level (what’s called the pass through entity tax)