Taxes on Investments: A 2025 Guide for Physicians

If you’re earning good money as a physician, your investments might be growing—but so are your tax risks.

And while most investment income is taxable, the smartest doctors take control of what gets taxed, when, and at what rate. That’s the difference between coasting and building serious, tax-smart wealth.

Let’s break it all down—with 2025 updates in mind.

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Tax Basics: What Gets Taxed and How

Every investment decision has a tax consequence. Whether it’s stocks, bonds, real estate, or ETFs, here’s how it breaks down:

Stocks

• Dividends and capital gains are your two big levers.

• If you hold for more than one year, you may qualify for the 0%, 15%, or 20% long-term capital gains rates.

• But high earners often face an extra 3.8% Net Investment Income Tax (NIIT) if your Modified Adjusted Gross Income (MAGI) goes over $200,000 (single) or $250,000 (MFJ).

📌 Related: Doctor Tax-Saving Strategies for 2025

Tactics That Work:

• Buy and hold to avoid short-term capital gains.

• Donate appreciated stock held longer than a year.

• Use step-up in basis to eliminate gains for heirs.

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Bonds

Interest from most bonds is taxed as ordinary income—every year.

Types of Bonds:

• Corporate Bonds: Fully taxable.

• U.S. Treasuries: Taxable federally, but exempt from state/local taxes.

• Municipal Bonds (Munis): Federal tax-exempt, and often state-exempt if bought in-state.

Be cautious of private-activity munis, which may trigger the Alternative Minimum Tax (AMT).

📌 Bonus: Consider self-insurance strategies that reduce reliance on fixed-income portfolios.

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Funds and ETFs

Mutual funds and ETFs pass through all their income to you—dividends, interest, and gains.

Best Practices for Taxable Accounts:

• Favor broad U.S. stock index ETFs (lower turnover = fewer taxable events).

• Municipal bond funds are great for higher earners needing tax-free income.

• Avoid high-churn active funds that generate frequent gains.

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Real Estate and REITs

Direct Rentals

• Rental income = ordinary income after expenses.

• Depreciation shelters cash flow—for now.

• When you sell, watch for 25% depreciation recapture + capital gains.

📌 Tip: Learn about Real Estate Professional Status to offset income more aggressively.

Primary Residence

• Sell and exclude up to $250K (single) or $500K (married) in capital gains if you meet the 2-out-of-5-year rule.

REITs

• Dividends usually aren’t “qualified” but are eligible for the 20% pass-through deduction (§199A).

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Asset Location: Where to Hold What

Smart doctors don’t just pick investments—they put them in the right places.

Taxable Accounts

• U.S. stock index ETFs

• Treasuries (for state tax relief)

• Muni bonds

Tax-Advantaged Accounts (401(k), IRA, HSA)

• REITs

• High-yield bonds

• Actively managed bond funds

• Anything that throws off ordinary income

📌 Strategy: Use a Mega Backdoor Roth to shift growth assets into tax-free territory.

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Reduce Tax Drag: Physician Edition

You’re busy. But these moves cut your tax bill while you sleep.

• Max out tax-deferred space first: HSA, solo 401(k), defined benefit plans.

• Harvest tax losses (carefully). No wash sales.

• Donate appreciated assets for a double win.

• Plan estimated payments—avoid IRS penalties using Safe Harbor rules.

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Forms You’ll See

• Schedule B: interest and ordinary dividends

• Schedule D + Form 8949: capital gains/losses

• Schedule E / K-1: rentals, partnerships

• Form 1040: qualified dividends and tax totals

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Your 2025 Investment Tax Reference

📌 Bonus Strategy: Structure Your Business to Save on Taxes

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One-Page Action Plan for Physicians

✅ Keep index funds in taxable, REITs in retirement accounts
✅ Use Treasuries and munis based on your tax bracket
✅ Track depreciation and consider 1031 exchanges
✅ Make sure you’re aligned with Safe Harbor tax estimates
✅ Work with a tax advisor to structure your investments for maximum efficiency

📌 Resource: How to Pay Yourself from Your Business

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Why a Tax Advisor Pays for Itself

Doctors who work with expert tax advisors don’t just “stay compliant”—they build tax-smart wealth.

A great advisor helps you:

• Analyze which assets belong in taxable vs. tax-deferred accounts

• Leverage qualified tax strategies (like 1031s, Roth conversions, or tax-loss harvesting)

• Time asset sales to avoid unnecessary tax hits

• Stay ahead of law changes and IRS updates

The goal? More freedom. Less friction. And more money staying with you.

📌 Learn more at PhysicianTaxSolutions.com

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FAQs

1. What’s the best investment to hold in taxable accounts?
Broad U.S. stock index ETFs. They generate fewer taxable events.

2. What tax forms report capital gains?
Schedule D and Form 8949.

3. Do REITs qualify for the lower 15% dividend rate?
No. But they may qualify for the 20% §199A deduction.

4. Can I avoid capital gains tax by gifting appreciated shares?
Yes—if you donate shares held over a year to charity.

5. Should doctors invest in muni bonds?
Yes—especially if you’re in a high federal + state tax bracket.

6. What’s the Net Investment Income Tax (NIIT)?
A 3.8% surtax on investment income if MAGI exceeds $200k (single) or $250k (married).

7. Do tax advisors help with investment placement?
Yes—they’ll recommend which assets belong in taxable vs. tax-deferred accounts.

Ready to talk strategy? Start here.

Visit contact physiciantaxsolutions.com to schedule a consultation and learn how we can help you take control of your tax strategy today.

This post serves solely for informational purposes and should not be construed as legal, business, or tax advice. Individuals should seek guidance from their attorney, business advisor, or tax advisor regarding the matters discussed herein. physiciantaxsolutions.com assumes no responsibility for actions taken based on the information provided in this post.