Physician Tax Planning Glossary

Short definitions of the terms used throughout the Resource Center, with links to the full guides.

Backdoor Roth IRA

A nondeductible traditional IRA contribution followed by a Roth conversion, used by people whose income is above the Roth IRA limit. Read more.

Cash balance plan

A defined benefit plan that expresses benefits as an account balance; it allows much larger deductible contributions than a 401(k). Read more.

Cost segregation

An engineering study that reclassifies parts of a building into shorter depreciation lives to accelerate deductions. Read more.

Effective tax rate

Total tax divided by total income, as opposed to the marginal rate on the next dollar earned. Read more.

Excess business loss limit

A cap ($256,000 single, $512,000 joint in 2026) on business losses that can offset wages and other non-business income. Read more.

Material participation

IRS tests showing you are involved in an activity on a regular, continuous and substantial basis, which makes its income or loss non-passive. Read more.

Net investment income tax (NIIT)

A 3.8% tax on investment income for taxpayers with modified AGI above $200,000 single or $250,000 joint. Read more.

Pass-through entity tax (PTET)

An elective state tax paid by a partnership or S corporation, which turns owners' state income tax into a deductible business expense. Read more.

Qualified business income (QBI) deduction

A deduction of up to 20% of pass-through business income; physicians are a specified service business and lose it at higher incomes. Read more.

Reasonable compensation

The salary an S corporation owner-employee must take for services before taking distributions. Read more.

S corporation

A corporation that elects pass-through taxation; owners pay payroll tax only on salary, not distributions. Read more.

SALT deduction

The itemized deduction for state and local taxes, capped at $40,400 in 2026 and phased down to $10,000 for higher incomes. Read more.

Section 179

An election to deduct the cost of qualifying equipment in the year it is placed in service, up to $2,560,000 in 2026. Read more.

Short-term rental strategy

Using a rental with an average stay of seven days or less, where you materially participate, to generate non-passive losses. Read more.

457(b) plan

A deferred compensation plan offered by many hospitals and governments, with its own contribution limit separate from the 401(k)/403(b). Read more.