Medical Practice Startup Costs (2026 Guide): What Equipment & Expenses Are Tax Deductible for Doctors?

Key Summary

IRS distinguishes startup costs from organizational costs with different tax treatment requirements Section 179 allows immediate deduction of up to $2.56 million in medical equipment purchases for 2026. Bonus depreciation offers 100% immediate deduction with no dollar limits for equipment purchased after January 19, 2025 Startup and organizational costs receive up to $5,000 immediate deduction reducing dollar-for-dollar once total exceeds $50,000. Remaining amounts must be amortized over 180 months Leased space improvements amortize over lease life or 15 years whichever is shorter. Purchased buildings depreciate over 39 years with land never depreciable Operational expenses immediately deductible include medical supplies, employee salaries, malpractice insurance, CME expenses, and professional licenses requiring proper documentation

Starting a medical practice represents one of the most significant financial commitments a physician makes in their career. The average healthcare startup requires between $350,000 and $700,000 in initial capital to cover facility buildout, medical equipment, staffing, and operating expenses before the first patient arrives. Understanding which costs qualify as tax deductions for doctors can save tens of thousands in the first year alone.

Many physicians launching a healthcare startup make costly mistakes by failing to properly categorize and document startup expenses. Some costs qualify for immediate deduction, while others must be capitalized and amortized over 15 years. Medical equipment receives special treatment under Section 179, potentially allowing full immediate deduction. Without proper medical practice accounting, you may lose valuable deductions or trigger IRS audits by claiming expenses incorrectly.

In this article we cover which healthcare startup costs qualify for immediate deduction versus amortization, how Section 179 allows you to deduct up to $2.56 million in medical equipment purchases in 2026, and what organizational and startup costs fall under special IRS rules.

Understanding startup costs vs. organizational costs

The IRS distinguishes between different types of pre-opening expenses, each with unique tax treatment. Proper medical practice accounting requires understanding these categories.

Startup costs (Section 195)

Startup costs are expenses you incur before your healthcare startup begins actively operating. These are costs that would be currently deductible if your practice were already open. Examples include market research and site analysis, advertising and promotional costs before opening, staff training before the practice opens, professional fees for consultants and advisors, and travel expenses to secure suppliers and establish vendor relationships.

Tax treatment for 2026: You can immediately deduct up to $5,000 of startup costs in the year your practice opens. However, this $5,000 deduction reduces dollar-for-dollar once total startup costs exceed $50,000. Any startup costs exceeding the $5,000 immediate deduction must be amortized (deducted gradually) over 180 months (15 years).

Example: Your healthcare startup incurs $75,000 in startup costs before opening. Because total costs exceed $50,000 by $25,000, your immediate deduction reduces to $0 ($5,000 – $25,000 = $0). You must amortize the entire $75,000 over 180 months, deducting $5,000 annually ($75,000 ÷ 15 years).

Organizational costs (Section 248/709)

Organizational costs are expenses to create your business entity—forming your LLC, professional corporation, or partnership. These include state filing fees to form your entity, legal fees to draft articles of incorporation or operating agreements, accounting fees for initial entity setup, and costs of organizational meetings.

Organizational costs follow the same rules as startup costs—up to $5,000 immediate deduction (reduced if total organizational costs exceed $50,000), with remaining amounts amortized over 180 months.

Medical equipment: Section 179 deduction

Medical equipment receives preferential tax treatment that can save your healthcare startup substantial amounts in year one. Section 179 of the Internal Revenue Code allows immediate deduction of qualifying equipment purchases rather than depreciating them over multiple years.

2026 Section 179 limits

For the 2026 tax year, Section 179 allows you to deduct up to $2.56 million in qualifying equipment purchases. The deduction begins phasing out dollar-for-dollar once total equipment purchases exceed $4.09 million.

Example: You purchase $2.2 million in medical equipment for your new practice in 2026. You can deduct the entire $2.2 million on your 2026 tax return using Section 179, rather than depreciating it over 5-7 years. Assuming a 35% combined federal and state tax rate, this generates $770,000 in tax savings in year one.

Qualifying medical equipment

Section 179 applies to tangible personal property used in your medical practice. Qualifying equipment includes diagnostic imaging equipment (X-ray machines, ultrasound, MRI, CT scanners), examination tables and chairs, EKG machines and monitors, surgical instruments and tools, laboratory equipment and analyzers, sterilization equipment, patient monitoring systems, medical office furniture (desks, filing cabinets, reception furniture), and computer hardware and practice management software.

Key requirement: The equipment must be used in your practice more than 50% of the time. Equipment used partially for personal purposes only qualifies for the business-use percentage.

Bonus depreciation for medical equipment

In addition to Section 179, bonus depreciation allows 100% immediate deduction for qualifying equipment acquired and placed in service after January 19, 2025. The One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation, making it valuable for practices purchasing more than $2.56 million in equipment.

Important timing rule: Equipment must be both acquired (contract signed) and placed in service (ready for use) after January 19, 2025, to qualify for 100% bonus depreciation. Equipment acquired on or before January 19, 2025, only qualifies for 40% bonus depreciation, even if placed in service later in 2025.

This provides an alternative to Section 179 with no dollar limits—making it particularly valuable for practices with large equipment purchases. Proper medical practice accounting involves calculating whether Section 179, bonus depreciation, or traditional depreciation provides the best tax outcome for your specific situation.

Facility costs and improvements

Real estate and leasehold improvements receive different tax treatment than equipment, requiring careful medical practice accounting to maximize tax deductions for doctors.

Leased space improvements

If you lease your medical office space and make improvements (buildout, renovations, HVAC upgrades), these costs must be capitalized and amortized over the life of the lease or 15 years, whichever is shorter.

Example: You sign a 10-year lease and spend $150,000 on buildout (exam rooms, reception area, plumbing for procedure rooms). You amortize this $150,000 over 10 years, deducting $15,000 annually.

Purchased real estate

If you purchase the building for your practice, the land is never depreciable. The building structure depreciates over 39 years using straight-line depreciation. Building improvements (renovations, additions) also depreciate over 39 years.

Tax treatment for startup practices: Depreciation begins when the property is "placed in service"—meaning when it's ready and available for use in your practice, not when you purchase it.

Security deposits and prepaid rent

Security deposits paid to landlords are not immediately deductible—they're held as assets until returned or applied to rent. Prepaid rent (first month, last month) is deductible in the period to which it applies, not when paid.

Ongoing operational expenses: Tax deductions for doctors

Once your practice opens, numerous ongoing expenses qualify as immediate tax deductions for doctors. Proper medical practice accounting ensures these are properly documented and claimed.

Medical supplies and disposables

All supplies consumed in patient care are immediately deductible. This includes gloves, masks, and PPE, syringes and needles, bandages and gauze, medications and pharmaceuticals, sterilization supplies, and office supplies (paper, pens, printer ink, folders).

Documentation requirement: Keep detailed records and receipts. Separate supplies costing over $100 and lasting more than one year—these may require capitalization rather than immediate deduction.

Employee salaries and benefits

All compensation paid to staff is immediately deductible, including salaries and wages for nurses, medical assistants, front desk staff, billing specialists, and administrative employees, payroll taxes (employer portion of FICA, Medicare, unemployment), health insurance premiums for employees, retirement plan contributions (401(k) matching, profit-sharing), and paid time off and sick leave.

Important for healthcare startup practices: You must have employees on payroll and actively working to deduct their compensation. Payments to employees during training before the practice opens fall under startup costs (see above).

Professional liability (malpractice) insurance

Medical malpractice insurance premiums are fully deductible as ordinary and necessary business expenses for tax deductions for doctors. This applies to occurrence policies (covering incidents during the policy period) and claims-made policies (covering claims filed during the policy period).

Tail coverage: If you purchase "tail coverage" when leaving a previous practice or switching insurance carriers, these premiums are also deductible as business expenses—either all in the year paid or amortized over the coverage period depending on the policy terms.

Continuing medical education (CME)

For self-employed physicians and practice owners, CME expenses that maintain or improve skills required for your current practice are fully deductible. Deductible CME costs include conference and seminar registration fees, required courses for license renewal or board certification, medical journals and subscriptions, online CME platforms and courses, and travel expenses for CME conferences (airfare, hotel, 50% of meals).

Important limitation: The CME must relate to your current specialty and practice. A cardiologist cannot deduct CME on dermatology if they don't practice dermatology. CME for a new specialty you're entering (career change) is not deductible—it's considered qualifying for a new trade or business.

Professional licenses and memberships

State medical licenses, DEA registration fees, board certification fees, and professional association memberships (AMA, specialty society memberships) are all immediately deductible as tax deductions for doctors.

Technology and software

Electronic health records (EHR) systems, practice management software, telemedicine platforms, billing and coding software, and cybersecurity and data backup systems all qualify for immediate deduction. Software subscriptions are deducted as paid. Software purchased outright can be expensed under Section 179 or depreciated over three years.

Utilities and office expenses

Electricity, water, gas, and heating, internet and phone service (business portion), janitorial and cleaning services, and security monitoring systems are all immediately deductible operational expenses.

Marketing and advertising

Once your practice is operational, all marketing expenses are immediately deductible, including website development and hosting, online advertising (Google Ads, Facebook), print advertising (magazines, direct mail), patient brochures and materials, and community sponsorships and events.

Pre-opening marketing: Marketing expenses before your practice opens are startup costs (see above), not immediately deductible.

Research & Development (R&D) Tax Credit for Medical Practices

Medical practices developing new processes, technologies, or treatment protocols may qualify for federal and state R&D tax credits worth up to 25% of qualified spending. This dollar-for-dollar credit directly reduces your tax liability.

Qualifying activities: Developing custom EHR or patient portal software, creating telemedicine platforms, designing new treatment protocols, improving medical devices, conducting clinical trials, and creating data analytics tools.

Qualifying expenses: Wages for developers, engineers, and clinical support staff involved in research, cloud computing for R&D activities, supplies consumed during development, and third-party contractor payments.

Startup advantage: Healthcare startups with less than $5 million in gross receipts and less than five years of revenue can use R&D credits to offset payroll taxes rather than income taxes. You can amend returns up to three years back to claim previously overlooked credits.?

Cost Segregation Study for Medical Office Buildings

If you purchase or construct a medical office building, a cost segregation study can accelerate depreciation deductions and generate substantial first-year tax savings. This engineering-based analysis identifies building components qualifying for shorter depreciation periods than the standard 39-year schedule.?

How it works: The study reclassifies 30-40% of building value into 5-year property (carpeting, decorative lighting, specialized electrical) and 15-year property (landscaping, parking lots, HVAC systems). With 100% bonus depreciation available in 2026, these components provide immediate deductions.

Example: A physician purchases a $3.58 million medical office building. Cost segregation generates $117,778 in first-year tax savings, with 10-year net present value exceeding $127,766.?

When it makes sense: Properties purchased, constructed, or renovated after 1987 with values exceeding $150,000. Studies cost $5,000-$15,000 but typically deliver full ROI in year one through tax savings.?

Qualified Business Income (QBI) Deduction for Physicians

The Section 199A QBI deduction allows owners of pass-through businesses (sole proprietors, partnerships, LLCs, S corporations) to deduct up to 20% of qualified business income on their personal tax return.

Physicians are classified as a "specified service trade or business" (SSTB), which means the QBI deduction faces strict income limitations. For the 2025 tax year (filed in 2026), full QBI deduction availability depends on your taxable income:

Below threshold: Full 20% deduction for single filers under $197,300 and married filing jointly under $394,600
Phase-out range: Partial deduction for single filers $197,300-$247,300 and married filing jointly $394,600-$494,600
Above threshold: No deduction for single filers exceeding $247,300 and married filing jointly exceeding $494,600

Example: A physician with $150,000 in S corporation business income and joint taxable income of $310,000 receives a $30,000 QBI deduction (20% of $150,000). If taxable income exceeded $494,600, no deduction applies.

Important: The QBI deduction applies only to business income on Schedule K-1 or Schedule C, not W-2 wages you pay yourself.

What's not deductible for medical practices

Certain expenses don't qualify as tax deductions for doctors despite being necessary for practice operations.

Personal expenses: Personal medical care for yourself or family, personal travel unrelated to practice operations, clothing that can be worn for everyday use (even if you only wear it at work), and personal cell phone portions are not deductible.

Fines and penalties: Parking tickets, late fees on bills, and regulatory fines and penalties are never deductible.

Federal income taxes: Your personal income tax is never deductible. Self-employment tax is partially deductible (50% of SE tax), but income tax is not.

Documenting expenses for medical practice accounting

Proper documentation is critical for medical practice accounting and defending tax deductions for doctors in an IRS audit.

Essential documentation practices

Maintain separate business bank accounts and credit cards—never commingle personal and business funds. Keep all receipts for expenses over $75 (IRS requirement for substantiation). Document the business purpose of expenses, especially travel, meals, and continuing education. Use accounting software designed for medical practices to categorize expenses properly. Save electronic copies of all receipts and invoices for at least seven years.

Special documentation for startup costs

For healthcare startup expenses before opening, create a detailed spreadsheet tracking each expense with the date, amount, vendor, and category (startup cost, organizational cost, equipment purchase, etc.). This documentation is essential for properly claiming the $5,000 immediate deduction and calculating 180-month amortization.

Attach a statement to your first tax return electing to deduct $5,000 of startup costs immediately and amortize the remainder. Without this election, you may forfeit the immediate deduction.

Home office deduction for medical practices

If you use part of your home exclusively and regularly for administrative work for your practice (billing, scheduling, patient records), you may qualify for a home office deduction.

Requirements: Exclusive use (the space is used only for business, not personal activities) and regular use (the space is used consistently for business, not occasional use).

Calculation methods: Simplified method ($5 per square foot, up to 300 square feet = $1,500 maximum deduction) or actual expense method (calculate percentage of home used for business and deduct that percentage of mortgage interest, property taxes, insurance, utilities, and depreciation).

Most physicians don't qualify for the home office deduction because they have a dedicated office at their practice location. The home office must be your principal place of business or used for administrative activities because you have no other location for those activities.

Working with a medical practice startup consultant

Navigating healthcare startup tax rules, equipment depreciation, and medical practice accounting requirements is complex. Many physicians benefit from hiring a medical practice startup consultant specializing in tax planning and accounting for medical practices.

How NSKT Global helps with medical practice accounting

NSKT Global specializes in medical practice accounting and tax planning for physicians launching new practices and established healthcare providers. Our experienced team understands the unique challenges of healthcare startup accounting and helps you maximize tax deductions for doctors while maintaining full IRS compliance.

Our services include startup cost planning and documentation helping you properly categorize and document pre-opening expenses to maximize immediate deductions and proper amortisation. We also help with Section 179 and bonus depreciation analysis calculating optimal equipment purchase timing and tax treatment to maximize year-one deductions, entity selection and structuring advising whether an LLC, S corporation, or professional corporation provides the best tax treatment for your specific situation.

Whether you're planning a healthcare startup, managing an established practice, or considering expansion, NSKT Global ensures you maximize tax savings while staying compliant with complex IRS requirements. As your medical practice startup consultant, we help you focus on patient care while we handle the accounting complexities.