Fact or Cap: 7 Common Tax Myths Costing Independent Physicians Thousands

Doc Wealth
6 days ago
4 min read

The internet is full of tax "advice" that ranges from outdated to dangerously wrong. Whether you're getting tips from colleagues in the break room or reading random threads on Reddit, tax misinformation spreads quickly.

As a high-earning physician, following generic advice can lead to significant overpayment. We're breaking down 7 common tax myths that cause independent physicians to pay more to the IRS than necessary.

Consider this your myth-busting menu.

Myth #1: "Retirement Savings is My Only Tax Planning Tool"

Truth: Maxing out your 401(k) or SEP IRA is essential, but if that's your only move, you're ignoring a major tax burden for 1099 physicians: the Self-Employment (SE) Tax. This tax hits hard (15.3%) on earnings up to the Social Security wage base.

Why It Matters: The retirement limit is just one tool. Comprehensive tax planning uses entity structuring, timing, and deductions to manage your overall tax burden, including the SE tax. Relying solely on retirement contributions is like trying to perform surgery with just a scalpel; you need the full kit.

Myth #2: "Quarterly Estimated Taxes Are Optional If I Pay By April 15th."

Truth: A big refund doesn't mean your tax preparer did a great job; it often means you gave the IRS an interest-free loan. Conversely, skipping quarterly payments triggers underpayment penalties, even if you pay the full bill by April 15th.

Why It Matters: Underpayment penalties can add up quickly. The IRS uses a pay-as-you-go system, just like W-2 withholding. On a high income with poor quarterly planning, penalties can reach thousands of dollars. That is capital you could have invested elsewhere.

Myth #3: "No 1099 Form? No Need to Report the Income"

Truth: All income is taxable, whether you received a form or not. If you earned under $600 from a client, they typically aren't required to send you a Form 1099-NEC, but you still owe taxes on that income.

Why It Matters:

The IRS receives copies of your 1099s and matches them to your return.
If you receive a Form 1099-K (from payment apps), the IRS sees that too.
Unreported income triggers penalties and interest.

Action: Whether you got a 1099-NEC,

1099-K, or nothing at all: report everything you earned.

Myth #4: "I Need an S-Corp to Take All My Business Deductions"

Truth: You can deduct legitimate business expenses (CME, supplies, malpractice insurance, etc.) as a Sole Proprietor using Schedule C. The S-Corp election can be a tax planning tool used to manage self-employment tax, but is not a prerequisite for taking standard business deductions.

Why It Matters: Rushing into an S-Corp just for deductions means you're taking on unnecessary payroll costs and compliance fees. An S-Corp works best at specific income thresholds. While an S-Corp can provide some great tax benefits, you need to have an income level that justifies the additional administrative work that comes with an S-Corp.

Myth #5: "I Make Too Much for a Roth or to Save More for Retirement"

Truth: This myth covers two common errors:

IRA Contributions: While income limits exist for direct Roth contributions, the Backdoor Roth Conversion (or Mega Backdoor Roth Contribution) remains a viable option for many. Physicians can often still build tax-free Roth wealth.
Separate Retirement Plans: If you max out a W-2 401(k), your 1099 income may still allow you to open a separate Solo 401(k) or SEP IRA for your business.

Why It Matters: Both the Backdoor Roth and a separate Solo 401(k) are IRS-approved methods that, when compounded over 20-30 years, can help create significant, tax-free wealth that most W-2 employees can't access.

Myth #6: "I Must Keep a Detailed Logbook for Every Business Trip"

Truth: Documentation is essential, but the IRS allows simplified methods for certain vehicle deductions. While you must track your miles, digital tools make compliance easier. You can generally claim either the Standard Mileage Rate or Actual Expenses, but not both for the same vehicle in the same year.

Why It Matters: Many physicians skip mileage deductions because they assume the tracking is too difficult. Proper tracking makes it easier to claim deductions for travel between hospitals, clinics, or CME events.

Myth #7: "My Health Insurance Premiums Are an Itemized Deduction on Schedule A"

Truth: For self-employed 1099 physicians, your health, dental, and qualified long-term care insurance premiums are typically not an itemized deduction. They are often an "above-the-line" adjustment to income.

Why It Matters: Taking the deduction "above the line" means you may deduct the cost of premiums before your Adjusted Gross Income (AGI) is calculated.

It lowers your AGI, which can impact other tax calculations.
You can typically take this deduction even if you take the Standard Deduction

The Positive Impact of Proactive Planning

Tax Optimization: Timely entity elections and optimization help secure an efficient structure, aiming to prevent overpayment.
Compliance: Proper quarterly estimates and documentation ensure IRS compliance, helping avoid unnecessary penalties.
Wealth Building: Capturing strategic opportunities helps unlock wealth-building tools, ensuring your tax structure supports long-term growth.

The common thread across all these myths is the difference between tax filing (reactive) and tax planning (proactive). The tax code often rewards physicians who treat their taxes as a year-round business process rather than a once-a-year event.

Next Steps:

Before the next deadline approaches, take 15 minutes to perform a quick "self-audit" of your current habits:

Check your digital mileage logs: Are there gaps from the last month?
Review your estimated tax payments: Are you on track for the next quarter?
Verify your 1099s: Do you have a system to capture income forms as they arrive?

Small adjustments to your tracking habits today can prevent the panic, and the penalties, of April 15th.

Disclaimer:

This material is intended for educational and informational purposes only and does not constitute tax, legal, accounting, or financial advice. The content is general in nature and may not apply to your specific circumstances. Tax laws and financial regulations are subject to change and interpretation, and the application of these laws can vary based on individual situations. Before making any decisions, you should consult with a qualified tax advisor, legal counsel, or financial professional.