Year-End Tax Planning Strategies for High-Earning Healthcare Professionals

As another year draws to a close, healthcare professionals face a unique opportunity—and challenge—when it comes to tax planning. Between high marginal tax brackets, complex compensation structures, and multiple income streams from practice ownership, hospital employment, and consulting work, the tax landscape for physicians and other healthcare leaders can feel overwhelming. But with strategic year-end planning, you can significantly reduce your tax burden and strengthen your financial foundation as you approach or enter retirement.

The key is acting now. Many tax-saving strategies have hard deadlines of December 31st, and waiting until tax season leaves money on the table. Let’s explore the most effective approaches for high-earning healthcare professionals to optimize their tax situation before the year ends.

Understanding Your Unique Tax Position

Healthcare professionals often find themselves in the highest marginal tax brackets, with federal rates reaching 37% for income above certain thresholds. When you factor in state taxes—particularly relevant for our Southern practitioners—your effective tax rate can exceed 40% on each additional dollar earned.

What makes your situation particularly complex is the variety of income sources you likely manage. Practice income, W-2 wages from hospital employment, consulting fees, and perhaps real estate investments all create a multifaceted tax picture. Many physicians also participate in deferred compensation plans offered by hospital systems, which require careful coordination with other retirement savings strategies.

For those practicing in states like Tennessee, Texas, or Florida that don’t impose state income taxes, you have a built-in advantage. However, if you’re in states with higher tax rates, strategic planning becomes even more critical. Understanding which income can be deferred, which deductions you can accelerate, and how different accounts are taxed creates the foundation for effective year-end tax planning.

Maximizing Retirement Contributions Before Year-End

One of the most powerful tax-reduction strategies available is maximizing contributions to retirement accounts before December 31st. For 2025, the contribution limit for 401(k), 403(b), and governmental 457 plans has increased to $23,500. If you’re age 50 or older, you can contribute an additional $7,500 in catch-up contributions, bringing your total employee contribution limit to $31,000.

Here’s where it gets even more interesting for those in their early 60s: beginning in 2025, individuals aged 60 to 63 are eligible to contribute up to $11,250 as a catch-up contribution instead of the standard $7,500, allowing for total contributions of $34,750. This enhanced catch-up provision recognizes that these years are often peak earning years when retirement is clearly on the horizon.

If you own your practice, you have additional options worth exploring. A SEP-IRA allows you to contribute up to 25% of your compensation, with significantly higher limits than traditional retirement accounts. Solo 401(k) plans offer even more flexibility, allowing you to make both employee and employer contributions that can total up to $70,000 for 2025.

For high earners who are phased out of direct Roth IRA contributions, the backdoor Roth IRA strategy remains valuable. This involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA. The deadline for IRA contributions actually extends to the tax filing deadline, but converting to a Roth in the current year provides clarity for your tax planning.

One critical timing consideration: while 401(k) and 403(b) contributions must come through payroll deductions and be completed by December 31st, SEP-IRA contributions can be made up until your tax filing deadline, including extensions. Work with your payroll provider or financial advisor now to ensure your contributions are maximized before year-end.

Tax-Loss Harvesting in Taxable Accounts

Market volatility creates opportunities for strategic tax-loss harvesting in your taxable investment accounts. This strategy involves selling investments that have declined in value to realize losses that can offset capital gains you’ve taken during the year. If your losses exceed your gains, you can use up to $3,000 of additional losses to offset ordinary income, with any remaining losses carried forward to future years.

The key is timing and awareness of the wash sale rule, which prohibits you from claiming a loss if you purchase a substantially identical security within 30 days before or after the sale. Your financial advisor can help you identify positions appropriate for harvesting while maintaining your overall investment strategy and asset allocation.

For healthcare professionals approaching retirement who may be taking distributions from retirement accounts, tax-loss harvesting becomes particularly valuable. Offsetting this ordinary income with realized losses can significantly reduce your overall tax bill. Additionally, if you’re planning to sell a practice or receive a large bonus, harvested losses from previous years can help offset that income spike.

The deadline for tax-loss harvesting is December 31st, though it’s wise to complete these transactions well before year-end to avoid settlement issues. Your financial advisor should review your taxable accounts now to identify opportunities before time runs out.

Charitable Giving Strategies

For healthcare professionals with charitable inclinations, strategic giving can provide significant tax benefits while supporting causes you care about. The key is moving beyond simply writing checks and exploring strategies that maximize tax efficiency.

Bunching charitable deductions has become increasingly valuable since the Tax Cuts and Jobs Act increased the standard deduction. Rather than giving smaller amounts annually, consider concentrating two or three years’ worth of donations into a single year to exceed the standard deduction threshold. In alternate years, you simply take the standard deduction.

Donor-advised funds make this strategy particularly elegant. You receive the full tax deduction in the year you contribute to the fund, but you can recommend grants to charities over multiple years. This gives you immediate tax benefits while allowing for thoughtful, ongoing philanthropy.

For those age 70½ or older, qualified charitable distributions from your IRA offer unique advantages. You can donate up to $100,000 directly from your IRA to qualified charities without recognizing the distribution as income. This strategy can satisfy your required minimum distribution while keeping your adjusted gross income lower, which may help with Medicare premium calculations and taxation of Social Security benefits.

Finally, consider donating appreciated securities rather than cash. If you’ve held stock or mutual funds for more than a year that have increased in value, donating them directly to charity allows you to deduct the full fair market value while avoiding capital gains taxes entirely. This strategy is often overlooked but can be significantly more tax-efficient than selling the asset and donating cash.

Business and Practice-Specific Considerations

If you own a medical practice or operate as an independent contractor, additional year-end tax strategies come into play. Equipment purchases made and placed in service before December 31st may qualify for Section 179 expensing or bonus depreciation, allowing you to deduct the full cost in the current year rather than depreciating it over time.

For those considering practice transitions—whether selling, bringing in partners, or merging with a larger group—the tax implications can be substantial. The structure of these transactions dramatically affects your tax liability, and proper planning can save hundreds of thousands of dollars. If you’re contemplating any practice changes in the next year or two, start the planning conversation now with your tax advisor and attorney.

Professional liability insurance premiums are fully deductible, and if you pay for tail coverage as part of a practice transition or retirement, understanding the timing and deductibility of these significant expenses is crucial. Similarly, if you’re transitioning from practice ownership to employment, coordinating the tax treatment of asset sales, accounts receivable, and goodwill requires careful planning.

Business structure optimization should also be on your year-end checklist. Whether you’re operating as a sole proprietor, S-corporation, or LLC, ensuring your structure still makes sense given your current income level and future plans is essential. Sometimes a simple change in how you’re organized can result in significant tax savings.

Take Action Before December 31st

Year-end tax planning isn’t just about reducing your current tax bill—it’s about building a more secure financial future and ensuring you keep more of what you’ve worked so hard to earn. The strategies outlined here work best when implemented as part of a comprehensive financial plan that considers your unique circumstances, retirement timeline, and long-term goals.

The December 31st deadline is firm for most of these strategies, which means now is the time to act. We recommend scheduling a year-end planning review with both your tax professional and financial advisor to ensure you’re taking advantage of every opportunity available to you. Working together, we can analyze your specific situation, project your tax liability, and implement strategies that make a meaningful difference.

Don’t leave money on the table this year. The complexities of your financial situation as a healthcare professional require sophisticated planning, but the rewards of strategic year-end tax planning are substantial. Contact us today to schedule your year-end planning consultation and finish the year on strong financial footing.