Liability and asset protection for OB/GYN

OB/GYN has the highest liability exposure in non-surgical specialties. Here’s the asset protection playbook. The threat of a lawsuit is a constant, ambient stressor in our field. While we all carry robust malpractice insurance, true financial security isn’t just about defense—it’s about building a financial structure that is resilient by design. This isn’t about hiding assets; it’s about intelligently segregating them using legal and financial tools so that a professional threat doesn’t become an existential one for your family. This playbook moves beyond insurance policies into the corporate and tax strategies used by sophisticated physician-owners to build lasting wealth and a durable financial fortress. For a deeper dive into the operational and clinical aspects of our specialty, you can find more resources at the GigHz OB/GYN hub.

ASC Ownership and K-1 Distribution Tax Structuring

For many OB/GYNs in private practice, partnership often includes an opportunity to buy into an Ambulatory Surgery Center (ASC). This is a powerful wealth-building tool, but the financial mechanics are fundamentally different from your W-2 income. Your return on this investment comes via a Schedule K-1, which reports your share of the partnership’s income, deductions, and credits. Understanding this form is the first step in leveraging your ownership.

Here’s the critical distinction: your participation in the ASC determines how its financial results affect your personal tax return. The IRS defines participation as either “active” or “passive” under the passive activity loss rules of IRC §469. To be considered an active participant, you generally must meet one of several “material participation” tests. The most common one for physicians is spending more than 500 hours during the year on the activity. If the ASC is profitable, this distinction matters less. But if it generates a loss in its early years—a common scenario due to startup costs and depreciation—the difference is huge. Active participation allows you to deduct those K-1 losses against your other active income (like your clinical salary), generating a significant tax refund. Passive losses can typically only offset passive income.

A common planning trap is the “at-risk” limitation under IRC §465. You can only deduct losses up to the amount you have “at risk” in the venture. This includes the cash you invested plus certain types of debt you are personally responsible for. Some physicians assume a large paper loss on their K-1 is fully deductible, only to be surprised when their CPA tells them they don’t have enough basis or at-risk capital. Before you invest, model out your basis calculation and understand how financing the buy-in (with cash vs. a loan) will impact your ability to use any potential early-year losses.

Commercial Medical Real Estate via a Separate LLC

One of the most effective and time-tested strategies for high-income specialists is to own the real estate where you practice. The structure is simple but powerful: you and your partners form a separate legal entity, typically a Limited Liability Company (LLC), to purchase the medical office building. This real estate LLC then leases the property back to your medical practice at a fair market rate.

This creates two distinct economic engines with significant tax advantages.

1. The Medical Practice: Your practice pays rent to the real estate LLC. This rent is a fully deductible business expense, reducing the practice’s taxable income.
2. The Real Estate LLC: The LLC receives rental income. While this income is taxable, it’s offset by the expenses of owning the property: mortgage interest, property taxes, insurance, and—most importantly—depreciation.

The real power move here is a cost segregation study. Instead of depreciating the entire building over 39 years (the standard for commercial property), a cost segregation study identifies components of the building that can be depreciated over much shorter periods (5, 7, or 15 years). Things like specialty electrical wiring, plumbing for exam rooms, cabinetry, and landscaping can be written off much faster. This front-loads your depreciation deductions, creating large paper losses in the early years of ownership which can be used to offset other income.

The planning trap here involves qualifying to use those real estate losses. By default, all rental real estate is considered a passive activity. To deduct these “paper losses” against your active surgical income, you or your spouse must qualify for Real Estate Professional Status (REPS). Under IRC §469(c)(7), this requires two tests: (1) more than half of your professional time is spent in real property trades or businesses, and (2) you spend more than 750 hours a year in those activities. It’s nearly impossible for a practicing OB/GYN to meet this. However, if your spouse can meet the criteria and you file taxes jointly, their REPS status allows you to use the real estate losses to offset your high clinical income. The key is meticulous, contemporaneous time logging to substantiate the hours in case of an audit.

Stacking a Cash Balance Plan on Your 401(k)

Most physicians are familiar with 401(k) and profit-sharing plans, which allow for significant pre-tax retirement savings. For 2026, you can contribute up to $24,500 as an employee, and your practice can contribute up to a combined total of $70,000. While excellent, this often isn’t enough to meaningfully reduce the tax burden for a high-earning OB/GYN partner.

Enter the defined benefit cash balance plan. This is a hybrid retirement plan that acts like a traditional pension but feels like a 401(k). It allows for massive, age-dependent pre-tax contributions that can dwarf the 401(k) limits. A physician in their late 40s or 50s can often contribute an additional $150,000, $200,000, or even over $300,000 per year, pre-tax, into a cash balance plan. This is arguably the single most powerful tax deduction available to high-income professionals.

Here’s how it works: An actuary calculates the annual contribution needed for each partner to reach a predetermined benefit amount at retirement. Older partners with higher incomes have a shorter time to save, so their allowable annual contributions are much larger. The practice makes these contributions, which are fully tax-deductible to the practice. The funds grow tax-deferred in an account earmarked for you. This strategy is most effective in small, stable partner groups where the partners are of similar ages and have a shared goal of aggressive retirement saving.

The trap is inflexibility and cost. Unlike a 401(k), contributions to a cash balance plan are mandatory. If the practice has a bad year, the contribution is still due. Setting up and administering these plans also involves actuarial fees, which are higher than for a standard 401(k). Most of us learned this the hard way—you can’t just “pause” contributions if cash flow gets tight. Therefore, this is a strategy for practices with consistent, high profitability. It’s a golden-handcuffs tool for partners, but you must commit to funding it annually.

The 199A QBI Deduction: What It Is

The Tax Cuts and Jobs Act of 2017 introduced the Section 199A Qualified Business Income (QBI) deduction. In theory, it was a landmark tax break for owners of pass-through businesses (S-corps, partnerships, sole proprietorships), allowing them to deduct up to 20% of their qualified business income directly from their taxable income. For a physician earning $500,000 in pass-through practice income, a 20% deduction would mean $100,000 of that income would be tax-free—a potential tax savings of over $30,000 annually.

The calculation is complex, but the basic premise is simple: it’s a straight-up reduction of your taxable income, taken “below the line” after you’ve calculated your adjusted gross income (AGI). To be eligible, the income must come from a qualified trade or business. The deduction is generally the lesser of 20% of your QBI or 20% of your taxable income minus net capital gains. This powerful deduction was designed to give pass-through businesses a tax rate more competitive with the new, lower C-corporation rate.

However, the law was written with specific guardrails and limitations, particularly for service professionals. This is where the promise of 199A begins to unravel for most physicians, especially those in a high-liability, high-income field like OB/GYN. The rules created a major distinction between general businesses and a “Specified Service Trade or Business” (SSTB), a category that explicitly includes the field of medicine.

The 199A SSTB Phase-Out: A Warning for OB/GYNs

While the 199A deduction sounds great, here’s the reality check: most successful OB/GYNs will never see a dime of it from their clinical practice income. The law specifically designates medicine as a “Specified Service Trade or Business” (SSTB). For owners of an SSTB, the 20% QBI deduction is completely phased out once your taxable income exceeds certain thresholds.

For the 2026 tax year, that phase-out range is projected to be approximately $394,000 to $494,000 for single filers and $787,000 to $987,000 for those married filing jointly. A partner-track OB/GYN, especially when combined with a spouse’s income, will almost certainly have taxable income far above these limits. Once you cross the upper threshold, your QBI deduction from the medical practice drops to zero. It’s not reduced; it’s eliminated.

The planning trap is spending time and energy trying to qualify for a deduction that is statutorily unavailable to you. I’ve seen physicians try to create complex management companies or billing entities to sidestep the SSTB rules, but the IRS has aggressive anti-abuse provisions to shut these down. The takeaway is not to mourn the loss of the 199A deduction, but to treat its absence as a given and focus your energy on the strategies that *do* work for high-income physicians. This is precisely why the other strategies discussed—owning medical real estate, maximizing qualified retirement plans like cash balance plans, and other structural planning—are so critical. They provide the tax savings that 199A fails to deliver for our specialty. If you are unsure which strategies apply to your specific income and practice structure, working with a physician-focused CPA who handles asset protection is essential.

Building a durable financial life in a high-stakes specialty like OB/GYN requires a proactive, multi-layered approach. It’s about more than just a good malpractice policy; it’s about structuring your practice ownership, real estate, and retirement savings in a way that is both tax-efficient and resilient. These strategies work in concert to build a fortress around the wealth you work so hard to create. If you’re ready to implement a more sophisticated plan, you can talk to GigHz about asset protection to get started.

Reviewed by Pouyan Golshani, MD, Interventional Radiologist — May 21, 2026