Saving tax as a physician or dentist: the §7g lever alongside the practice

Physicians and dentists in private practice are among the most heavily taxed professions in Germany: The average annual surplus per practice owner was recently around €190,000 (Zi practice panel, reporting year 2022), many specialities sit well above that, and every additional euro is taxed at up to 44.3 %. Yet the strongest tax instrument for investments, the investment deduction (Investitionsabzugsbetrag, IAB) under §7g EStG, regularly fails in a well-running practice because of a single number: the profit cap of €200,000. The way out lies not in the practice but next to it: in a separate investment business with a profit cap of its own. How that works, where the trap for group practices sits and what the numbers say, in order.

Why do physicians and dentists in private practice pay so much tax?

Because the practice surplus is fully subject to income-tax progression as income from self-employed work (§18(1) no. 1 EStG): From around €68,000 of taxable income the top rate of 42% applies, from around €278,000 the wealth-tax surcharge rate of 45%, each plus the solidarity surcharge; at the top, around 44.3 %. Unlike capital income there is no flat-tax cap, and unlike a GmbH there is no retention: what the practice earns lands on your personal tax rate in the year it flows in.

The classic levers are quickly exhausted. Contributions to the professional pension scheme (Versorgungswerk) are deductible as basic provision only up to the cap of €30,826 (2026; €61,652 for joint assessment), and mandatory contributions plus voluntary top-ups usually use most of that in a well-running practice. Investments in your own practice (equipment, refurbishment, digitalisation) make business sense but are limited as a pure tax instrument: they cost real money for assets the practice actually has to need. Where the remaining legal levers for high earners rank by effect is set out in Legally reducing your tax: the most effective strategies. That leaves the lever with the largest single effect: §7g EStG.

Can I use the investment deduction although my practice makes more than €200,000 profit?

Yes, because the €200,000 profit cap of §7g EStG applies per business, and an energy direct investment is a separate, newly founded commercial business with a cap of its own. The practice itself indeed cannot form an investment deduction in good years: if its profit in the year of formation exceeds €200,000, the IAB is ruled out there, and that affects a substantial share of physicians and dentists in private practice. But the business acquiring the energy asset is a different one: a sole proprietorship, or a limited-partner stake in a GmbH & Co. KG that acquires a battery storage system or a photovoltaic plant. This business starts without legacy profits, its profit cap is reliably met, and the IAB, special depreciation and declining-balance depreciation work through loss offsetting against your personal top tax rate. All requirements are covered in Investitionsabzugsbetrag: all §7g EStG requirements, and who can use it; the full mechanics with numbers are shown in IAB under §7g EStG: example calculation for battery storage.

With a stake in a project company, the profit cap applies at the level of the company, not at your personal level; project companies are therefore structured so that their profit in the formation year stays below the cap. Your practice profit is irrelevant to the investment business's cap, and vice versa.

What is the commercial infection rule, and why does it concern group practices?

The infection rule (Abfärbung) of §15(3) no. 1 EStG says: if a freelance partnership, such as a group practice (Berufsausübungsgemeinschaft) organised as a GbR or a partnership company, also carries on a commercial activity or receives commercial income from participations, all of the partnership's income is deemed commercial. The freelance practice becomes a commercial business for tax purposes, with all the follow-on questions. For the partnership's own commercial activity, the Federal Fiscal Court has drawn a de-minimis line (3% of net revenue, at most €24,500 per year; BFH, judgments of 27 August 2014, among them VIII R 6/12). For commercial participation income, however, this de-minimis line does not apply: even a small stake held by the partnership in a commercial project company infects all income for income-tax purposes (BFH, judgment of 6 June 2019, IV R 30/16); under the same decision the requalified practice is spared trade tax, but the income-tax requalification and its consequences remain.

Solo practices are not affected: the infection rule applies only to partnerships. If you run your practice alone, you simply have two separate businesses side by side, the freelance practice and the commercial investment business; the practice remains freelance in every respect. The investment business itself is commercial, but remains largely neutral in the overall burden thanks to the trade-tax allowance of €24,500 for sole proprietorships and partnerships and the crediting of trade tax against income tax (§35 EStG).

Does the investment turn into a second job alongside the practice?

No. A direct investment is set up as a passive capital and tax structure: professional asset management takes over the technical and commercial operation of the plant, from direct marketing of the electricity through maintenance and insurance to the annual reporting for your tax return. Your own time is concentrated in the decision phase: project selection, financing, subscription. How that path runs from the first conversation to closing is shown in From first enquiry to closing: how a direct investment works step by step; what happens after closing over 20 to 30 years of operation, and what the reporting looks like, is described in What happens after closing: reporting, asset management and why a partner is not a broker.

The paperwork also stays manageable: with a limited-partner stake, the company handles the profit determination and your personal tax return takes over the assessed figures. Where the IAB and depreciation are actually entered is shown in The IAB in your German tax return: where and how to actually claim it. There is no conflict with professional law: holding a commercial stake outside the practice is different from carrying on a commercial activity inside the practice; that is what the separation described in the previous section is for.

What does it deliver in concrete tax terms? The worked example

Starting point: a specialist physician in private practice with taxable income of €300,000, in the 45% band (44.3 % including solidarity surcharge). She invests €300,000 as a limited partner in a project company acquiring a grid-scale battery storage system; the IAB is formed in the year before acquisition, special and declining-balance depreciation apply in the acquisition year:

A good 40% of the investment volume flows back as tax relief in the first year in this constellation; the individual positions and the pitfalls behind them are broken down in IAB under §7g EStG: example calculation for battery storage. Since energy projects are typically financed 60 to 75% through the asset itself, the actual equity deployed is far below the nominal amount; how tax refund and project financing net out to the effective input is shown in How much equity is actually required?. Whether special and declining-balance depreciation are taken in full in year one or stretched is a question of individual tax planning; the trade-off is covered in Sonder-AfA §7g (5) vs. declining-balance AfA §7 (2): which combination, when?. All variants presuppose a business the tax office recognises; what that depends on is shown in Liebhaberei and profit intention: when the tax office cancels the tax lever.

What applies to employed physicians, pharmacists and the MVZ-GmbH?

Employed senior physicians can use the §7g lever too, just not through their salary: as for all employees, access runs through a small business of their own or directly through the commercial limited-partner stake, which itself creates business income; the routes are described in Investitionsabzugsbetrag: all §7g EStG requirements, and who can use it. For pharmacists the answer is shorter: a pharmacy is a commercial business for tax purposes anyway; the logic of separate businesses, each with its own profit cap, applies there unchanged. If, on the other hand, you have organised your work through an MVZ-GmbH or another corporation, you face a different threshold question: there an IAB works at the level of the GmbH against roughly 30% corporate and trade tax instead of up to 44.3 % personal marginal rate, and the profit cap applies to the GmbH itself. Whether to invest privately or through the company is compared in Invest through your GmbH or privately? The honest tax comparison. How the same mechanics look for business owners and managing directors is shown in Saving tax as a business owner or managing director: the §7g lever alongside your company.

How does this fit with the pension scheme and the eventual sale of the practice?

The three building blocks occupy different levels and do not compete. The professional pension scheme is basic provision: plannable, but capped as a tax instrument by the special-expenses maximum, which a well-running practice usually exhausts already. The §7g lever works beyond that, in annually adjustable doses: the IAB can be formed anew every year, so a one-off tax effect can grow into a diversified energy portfolio over several years; the strategy is described in Using the investment deduction every year: building a portfolio over multiple years. And at the end of professional life there is one more special case with particularly large leverage: in the year the practice is sold, the capital gain, the reduced tax rate and the IAB meet; how that combination computes is shown in Selling a practice or business: optimising the tax and reinvesting the proceeds sensibly.

Whether the structure fits your situation depends on the form of your practice, income and liquidity, and on a project that stands on its own even without the tax effect. That is exactly what we examine in a no-obligation first conversation: tax effect, effective equity input and project risk, discussed against your numbers and in coordination with your tax advisor. We do not give return promises.