Physician Finance

Teleradiology economics: 1099 structure, tax planning, and the LLC question

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Teleradiology often pays through 1099 structures. Here’s when an S-corp or LLC actually changes the math, and when it just adds compliance work.

For many radiologists, the move to teleradiology or independent contract work feels like a purely clinical shift. But the financial plumbing is entirely different. When you receive a 1099-NEC instead of a W-2, you’re no longer an employee; you’re a business. This transition opens up a suite of powerful, and often misunderstood, financial strategies that are simply unavailable to W-2 physicians. The initial question most of us ask is, “Should I form an LLC or S-corp?” While that’s a valid starting point, it’s only the first step. The real economic leverage comes from using that business structure to access tax code provisions designed for capital-intensive fields like ours. This isn’t about finding sketchy loopholes; it’s about understanding the rules Congress wrote to incentivize investment in equipment and real estate—the very assets that define a modern imaging practice. For a deeper dive into specialty-specific resources, the radiology free tools hub offers a good collection of guides and references.

The S-Corp Election: When It Saves You Money, and When It Doesn’t

Let’s get the most common question out of the way first. As a 1099 independent contractor, all your net business income is subject to self-employment (SE) tax—that’s 15.3% for Social Security and Medicare, up to the Social Security wage base ($181,500 for 2026), and 2.9% on all earnings above that. This is on top of your regular federal and state income taxes. It’s a significant tax drag.

Forming an LLC and electing to be taxed as an S-corporation is the classic strategy to mitigate this. Here’s the mechanism: an S-corp allows you to pay yourself a “reasonable salary” (which is subject to payroll taxes, the equivalent of SE tax) and take the remaining profit as a distribution. These distributions are not subject to SE tax. For a teleradiologist earning $600,000, the math might look like this:

  • As a Sole Proprietor (or single-member LLC): The full $600,000 (after business expenses) is subject to SE tax.
  • As an S-Corp: You pay yourself a reasonable W-2 salary of, say, $250,000. Only this amount is hit with payroll taxes. The remaining $350,000 is taken as a distribution, avoiding the 2.9% Medicare tax (and the 0.9% additional Medicare tax). The savings can easily be over $10,000 per year.

The Trap: The key phrase is “reasonable salary.” The IRS requires this salary to be in line with what someone would be paid for similar work. You can’t pay yourself a $50,000 salary on $600,000 of income from reading studies. An unreasonably low salary is a red flag for an audit. Furthermore, running an S-corp adds complexity: you need to run payroll, file quarterly payroll tax returns (Form 941), and file a separate business tax return (Form 1120-S). If your net income is below a certain threshold (often cited around $80,000-$100,000), the compliance costs and hassle can outweigh the tax savings. For pure teleradiology, the S-corp is a straightforward optimization. But for radiologists who own assets, the real power lies in more advanced structures.

Section 179 & Bonus Depreciation: The Supercharged Equipment Deduction

This is where the game changes for any radiologist involved in an outpatient imaging center or office-based lab (OBL). When your practice buys a major piece of equipment—an MRI, a PET-CT scanner, or an interventional angio suite—the tax code provides a massive immediate benefit. Most of us learned about depreciation as a slow, multi-year write-off. Section 179 and bonus depreciation turn that on its head.

Here’s how it works for equipment placed in service in 2026:

  1. Section 179 Deduction: This allows you to immediately expense the full cost of qualifying new or used equipment, up to a limit of $1.16 million. For a practice buying a $1.5 million angio suite, you can deduct the first $1.16 million directly against your practice income in year one.
  2. Bonus Depreciation: For the amount exceeding the Section 179 limit, bonus depreciation lets you deduct a large percentage of the remaining cost in the first year. While the bonus depreciation percentage is currently phasing down, it remains a powerful tool. Let’s say it’s at 40% in 2026. On that $1.5 million angio suite, after the $1.16M Section 179 deduction, you have $340,000 left. You could take 40% of that ($136,000) as a bonus depreciation deduction. The remainder is depreciated over its normal schedule.

The result is a colossal first-year deduction that can significantly reduce or even eliminate the partners’ taxable income for that year. For a new imaging center, this pass-through deduction can shelter a huge portion of the partners’ clinical income. Most of us got into medicine to practice clinically, not to become tax experts. Navigating these rules correctly often requires guidance from a specialist, which is where a physician-focused CPA referral can be invaluable to ensure the structure is sound and compliant.

The Trap: Be mindful of the Section 179 investment limit. The $1.16 million deduction begins to phase out dollar-for-dollar once total equipment purchases for the year exceed $2.9 million (2026 figures). If your group is planning a major build-out, timing the purchases across calendar years can be critical to maximizing this benefit.

The Equipment Leasing Entity: A Workaround for the QBI Deduction

The 2017 tax law introduced the Section 199A Qualified Business Income (QBI) deduction, which allows owners of pass-through businesses to deduct up to 20% of their business income. However, it came with a major catch for physicians: medicine is classified as a “Specified Service Trade or Business” (SSTB). This means the QBI deduction phases out completely for physicians with taxable income above approximately $394,000 (single) or $787,000 (joint) in 2026. Most practicing radiologists are well above this threshold and get no QBI benefit from their clinical practice income.

However, a sophisticated structuring strategy can sometimes reclaim a piece of this deduction. It involves separating the assets from the medical practice. Here’s the setup:

  • The Medical Practice (PracticeCo): This entity (e.g., an S-corp) employs the physicians and staff and bills for all clinical services. As an SSTB, its income does not qualify for the QBI deduction for high-income owners.
  • The Equipment Company (EquipCo): A separate entity (e.g., an LLC) is formed to own the expensive imaging equipment. EquipCo then leases this equipment to PracticeCo at a fair market rate.

The rental income generated by EquipCo is generally *not* considered SSTB income. Therefore, this income may be eligible for the 20% QBI deduction, even for high-income physician owners. The IRS has strict aggregation rules under §1.199A-4 that must be met, including common ownership requirements (50% or more). This is not a DIY strategy; it requires careful design by a CPA who understands the specific anti-abuse provisions. But when executed correctly, it can generate a significant tax deduction that would otherwise be lost.

The Trap: The lease between EquipCo and PracticeCo must be a legitimate, arm’s-length transaction with commercially reasonable rates. You can’t just invent a number to shift profit. The structure must have economic substance, and the entities must be properly maintained with separate books and records.

Cost Segregation: Front-Loading Depreciation on Your Building

For radiologists who own their outpatient imaging center or medical office building, cost segregation is one of the most powerful tax strategies available. When you buy or build a commercial property, the standard depreciation schedule is 39 years. A cost segregation study is an engineering-based analysis that dissects the building’s components and reclassifies them into shorter depreciation categories.

Think about your imaging center. The concrete foundation and steel frame (the “building shell”) are 39-year property. But what about the specialized electrical wiring for the MRI, the reinforced flooring for the CT scanner, the custom cabinetry, and the exterior landscaping? These are not part of the building shell. An engineering study can identify and reclassify these assets into 5, 7, or 15-year property. It’s common for a study on a $3 million imaging facility to reclassify 25-30% of the cost basis—or $750,000 to $900,000—into these shorter-lived categories.

The impact is dramatic. Assets reclassified into these shorter categories are eligible for bonus depreciation. This allows you to take a massive depreciation deduction in the first year of ownership, rather than spreading it thinly over 39 years. This creates a large “paper loss” from the real estate activity that can be used to offset other income, subject to passive activity loss rules.

The Trap: A cost segregation study must be performed by a qualified engineering firm. A simple estimate by an accountant is not sufficient to withstand IRS scrutiny. The study involves detailed analysis of blueprints, construction costs, and often a physical site visit. The cost of the study is typically a fraction of the first-year tax savings it generates.

Real Estate Professional Status (REPS): Making Rental Losses Active

The large paper losses generated by cost segregation and bonus depreciation are fantastic, but they are typically considered “passive losses.” Under the IRS passive activity loss (PAL) rules (§469), you can generally only use passive losses to offset passive income (like income from other rental properties). You can’t use them to offset your active W-2 or 1099 clinical income. This is a major limitation for high-income physicians.

Real Estate Professional Status (REPS) is the key to unlocking these losses. If you or your spouse qualifies for REPS, your rental real estate activities are no longer automatically considered passive. The losses can become non-passive, meaning they can be used to directly offset your active clinical income.

To qualify for REPS, an individual must meet two tests during the tax year:

  1. More than half of their personal services during the year are performed in real property trades or businesses.
  2. They perform more than 750 hours of services in those real estate activities.

For a busy radiologist, meeting these tests is nearly impossible. But for a spouse who works part-time, stays at home, or works in a real estate-related field, it’s often achievable. If one spouse qualifies and you file a joint tax return, the rental losses can offset the other spouse’s high physician income. A $200,000 paper loss from a commercial or residential rental property could wipe out $200,000 of your clinical income, potentially saving $70,000-$80,000 in federal income tax.

The Trap: You must keep a contemporaneous log of your time. The IRS is strict on this. You can’t just estimate your hours at the end of the year. A detailed calendar or log showing time spent on property management, tenant communication, repairs, and research is essential to substantiate the claim in an audit. Using a real estate investing calculator can help model the potential cash flow and tax implications before you even purchase a property.

Moving to a 1099 structure is more than a change in payment method; it’s a fundamental shift in your financial identity. By understanding and properly implementing strategies like S-corp elections, accelerated depreciation, and real estate professional status, you can exercise a level of control over your tax liability that is simply not possible as a W-2 employee. These concepts are interconnected and require careful planning, but the economic impact on your career and long-term wealth is profound. If you’re looking to map these strategies to your specific situation, you can talk to GigHz about your tele structure.

Free GigHz Tools That Pair With This Article

Three free tools that complement the material above:

  • ACR Appropriateness Criteria Lookup — Type an indication or clinical scenario in plain language and get the imaging studies the ACR rates for it, with adult and pediatric radiation levels. Built directly from 297 ACR topics, 1,336 clinical variants, and 15,823 procedure ratings.
  • GigHz Imaging Protocol Library — A searchable library of 131 imaging protocols with the physics specs surfaced and the matching ACR Appropriateness Criteria alongside. Plain-English narratives readable in 60 seconds, organized by modality.
  • GigHz Radiation Dose Calculator — Pick the imaging studies a patient has had and see total dose in millisieverts (mSv) with comparisons to natural background radiation, transatlantic flights, and chest X-rays. Useful for shared decision-making.

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