The year the practice stopped overpaying.

Transforming challenges into opportunities

A practice can be well run clinically and still hand over more than it owes, because the entity, the compensation and the retirement plan were each chosen in a different year for a different reason. This case puts the three back in line.

Challenge

Four physicians own a specialty practice taxed as an S corporation. Profit in 2025 was roughly $1.6 million.

• Reasonable compensation set at the same figure for six years, unrelated to what each physician actually produced.
• A SIMPLE IRA carried over from when the practice had two owners and four staff, capping deferrals far below what the group could use.
• The building owned personally by two of the four partners and rented to the practice at a rate never tested against the market.
• Estimated payments made in equal quarters from the prior year figure, with no recalculation after a strong second quarter.

Strategic response

Each piece was defensible on its own. Together they cost the group money every year without anyone deciding that they should.

• Compensation reset on a study. Salaries set against production and market data and documented, so the wage and distribution split rests on evidence.
• The retirement plan rebuilt. The SIMPLE replaced with a 401(k) and cash balance pair sized to the partner ages and the staff census.
• The lease tested and papered. Rent set at a supported market rate under a written lease rather than an informal arrangement.
• Estimates rebuilt every quarter. Payments recalculated on actual results rather than carried forward from last year.

Result

• $1.04 million deferred across four partners. The 401(k) and cash balance pair replaced a plan capped at a fraction of that.
• $289,000 reduction in current federal tax. Driven by the deferral and the corrected compensation split, not by a product.
• Underpayment penalty ended. Quarterly recalculation removed the shortfall the flat estimates created each year.
• A lease that holds up. A written agreement at a supported rate, which matters most if the practice is ever sold or examined.

Conclusion

No part of this was aggressive. The group was paying for decisions made years earlier under a different set of facts. Planning is mostly the discipline of noticing that the facts changed.