The Way it is Part 3 - money

KHE · Jul 29, 2007

I was really only going to post the two postings I already did about the field, but my private message box has been slammed with a bunch of questions and responses, and many of them center around student loans and loan debt and what effect this will have on your future. This is my take on it....but as always....one man's opinion.

Obviously student loan debt can be very daunting. When you look at the bottom line number, it can make your heart skip a beat. But this is what I suggest:

One of the common questions is how much loan should you take out. My response is to take out as much loan as you want.

Obviously, you don't need to live in a penthouse apartment but you don't want to be living in some hovel. My advice to prospective students is to NOT skimp on your living quarters. Throughout college and graduate school, I lived in a number of different apartments and some of them were certainly better than others. I can honestly say that there aren't too many things worse than going home after a long day of getting slammed at school to some crappy, filthy, uncomfortable apartment. Again...don't skimp on your living quarters.

Also, for many of you entering school you are likely going to be moving to a city that you have never lived in before. The majority of you are going to want to experience some of the things that those cities have to offer. That doesn't mean you have to go out clubbing to every hot spot every weekend, but again...you aren't going to want to hole up in your apartment and never enjoy or experience your new city. So don't be afraid to budget in some money for fun and recreation.

When you are done school I recommend that you stretch out your student loans to the maximum possible limit. Many people get this idea that they want to pay their loan back in 10 years. Don't do that. Take the 30 year repayment schedule. Many of you are now saying "Gee, KHE! Think of all that extra INTEREST I'll be paying. Why wouldn't I want to pay it off in 10 years?" This is why....

The key to this whole thing is CASH FLOW. It's not your assets or your liabilities. It's cash flow. If you have $130k loan at 6.9%, your monthly payment is going to be about $1500 on a 10 year repayment schedule. But if you pay it off over 30 years, your monthly payment is aroung $850. That frees up $650 per month that you can use to live off, save, PURCHASE A PRACTICE, etc. etc. Not only that, $850 per month seems like a decent chunk of money now, but in 25 years, $850 will be much less due to inflation.

By paying off student loans early, you are essentially getting that % return on investment. So if you have $1, and you put it towards a 6.9% student loan, you have just earned 6.9% return on your investment. (It's actually less for most of you, because student loan interest is tax deductable below certain income thresholds)

However, if you take that $1 and invest it in a retirement account, you can expect a MUCH higher rate of return than 6.9% over your lifetime. If you invest it in a practice, you will not only gain a return on your investment when it comes time to sell your practice years from now, you will also be using that dollar to create something (a practice) that will generate you a MUCH higher income than working for some commercial dump or as an associate in private practice forever.

So again...stretch the student loans out as long as you can. If you decide years from now you want to pay them off early...go ahead. But in the early going..cash flow is the key. Don' wrap up all your income in a student loan payment.

"But KHE! Banks won't loan me money to buy or start a practice if I have so much debt. Shouldn't I pay off as much debt as soon as I can?"

The answer is no...not really. It is true, that when I came out of school, I was denied loans to start a practice by a number of banks because they said I had too much debt. The mistake I made was in going to a bank for a loan in the first place. Most banks, and in particular the SBA are essentially asset based lenders. So unless you have a large amount of assets, or a HUGE downpayment then they aren't going to want to deal with you.

However, there are many companies and banks out there that specialize in cash flow lending. That is...they will finance you very large sums of money to purchase a practice based on the cash flow of the practice, and your own personal cash flow situation. If you have a monstrous student loan payment every month, your new practice might not make enough money in the early going to service both the practice loan, and the student loan and you may find yourself with a denied loan application. However, if your student loan requirement is low (because you stretched it out) then your new office is much more likely to "make it" because there will be enough cash flow in the early years to service all of the debt. As cash flow increases, you can decide whether you want to pay it off early or not.

So again....spread that student loan payment out over the LONGEST POSSIBLE TIME.

jefguth · Jul 30, 2007

KHE said:
The key to this whole thing is CASH FLOW. It's not your assets or your liabilities. It's cash flow. If you have $130k loan at 6.9%, your monthly payment is going to be about $1500 on a 10 year repayment schedule. But if you pay it off over 30 years, your monthly payment is aroung $850. That frees up $650 per month that you can use to live off, save, PURCHASE A PRACTICE, etc. etc. Not only that, $850 per month seems like a decent chunk of money now, but in 25 years, $850 will be much less due to inflation.

This is a very important concept that I think needs to be reiterated. If too much of your monthy income (your CASH FLOW) is going towards servicing student debt, or financing an expensive car, the consequence is that you may not have enough cash left over after those payments to do things like purchase a practice, or even a decent home. Why, b/c when you try to pay something off in 5 or 10 years your payments are naturally higher, leaving less room for payments on other things. For example, instead of having a $1000/mo car payment, you could afford to purchase a home worth an additional $160,000!

ICO has an elective course in finance/debt management. In it the instructor goes through a couple of real live examples of former students and their finances. One particularly scary scenario was that of a student that had elected for a 10yr repayment schedule. In addition, shortly after graduating this OD decided to lease or finance a new car (Audio s4, or BMW 3, or something like that). Anyways, the payments were like $1000/mo. Consequently, at the end of the month, after paying students loans, and the car lease, she did not have enough cash flow left over to get a mortgage on a condo in city she was working in. Long story short, new OD living with parents full-time! 😱

cunikki · Jul 30, 2007

you guys sound like the game! 🙂 at my school at least... we have a bunch of practice management classes... and the first one centered around the book 'rich dad, poor dad' as well as playing this cash flow game that went with the book or was made by the author or something. : ) anyways i guess if you are reading this and havent read the book you should get on that... there are tons of kids in my class who do crazy stuff with their money and some that have fun but are still reasonable and some that wont spend a dime... i would like to think that the middle set will make it just as well as those that wont spend a dime 🙂 its all about the cash flow.... 🙂

asmaka19 · Jul 30, 2007

KHE.......I see ur point but I still don't feel comfortable with the idea of having debt when you have enough money to be paying more than the min. just because you never know when hard times are going to hit and you're not going to be able to make those payments-it's not in my nature to be a saver and put money aside. If I'm not paying off something, I'm finding something to spend it on!

Anyway, do you think considering the cost of attending a school is important? In the long run did it matter to you that you attended a school you really wanted to go to or do you sometimes wish you went to a school that would have left you in less debt?

I'm currently have this big dilemma with what schools to apply to and this will be the first time I'll have to take out student loans; since my state doesn't have an opto school I qualify to pay in-state tuition at a couple of neighboring schools but I have no enthusiasm to go to those schools. The schools I'm most interested in I know I'm going to be taking out about 3 times as much in loans. My parents think I should just attend the school that will leave me in less debt (I really wasn't even planning on applying to those schools), they say whatever school I end up attending I'll end up liking, I'm not sure that's the case.

Any opinions on the matter?????

DrEyeBall · Jul 30, 2007

I suggest you read "the Millionaire Next Door".

Great book about how the "average" millionaire never makes all tons of money. They save, they don't buy fancy cars, they don't lease cars, they don't own multiple homes.

The "good debt" debate could go on forever. Stretching loans out for many years sure makes the payments lower, it also significantly increases what you end up paying in the end. That example of the person who had to live at home is a perfect one. SHe should have kept driving her old car, lived in an apartment until she could have afforded a condo and paid off her loans.

The only thing that should get paid before your loans is your retirement account.

Ben Chudner · Jul 30, 2007

cunikki said:
you guys sound like the game! 🙂 at my school at least... we have a bunch of practice management classes... and the first one centered around the book 'rich dad, poor dad' as well as playing this cash flow game that went with the book or was made by the author or something. : ) anyways i guess if you are reading this and havent read the book you should get on that... there are tons of kids in my class who do crazy stuff with their money and some that have fun but are still reasonable and some that wont spend a dime... i would like to think that the middle set will make it just as well as those that wont spend a dime 🙂 its all about the cash flow.... 🙂

Robert Kiyosaki wrote the book and created the game in case anyone is interested in doing further research.

posner · Jul 30, 2007

This post should made a 'sticky'. I too have been responding to several PMs lately about this very issue. KHE has said what I have attempted to say to each of you, only more succinctly. If I may add something more...$800-$900 per month for a student loan may sound like a big payment, I remember wondering how I could possibly afford a student loan. However, when you are a starving student, any amount of monthly obligation sounds like a ton. No matter what type of job you land out of school, you can be sure you will be making more money than you did as a student. So, you can relax a little.

Before long, the student loan payment will be nothing more than another bill, such as an electric bill, gas, telephone, etc. In my opinion, I believe you should borrow as little as possible to get you through your schooling. Don't cut your own throat, but you dont need the fancy pad with the sprawling palm tree covered swimming pool area. Maintaining the student mentality as long as possible will help when making the transition from student to new doctor. Make sure you have A PLAN. Salt away your pennies for practice opportunities, and refrain for a couple years before making large consumer purchases(new car, 60" plasma, etc).

Now for some numbers. Let's just say you get out and can only find a gig spinning dials for $325/day. While I would agree that is not a great deal, it still works out to be $6500/month(assuming a couple weeks of vacation). Depending on your tax situation, you should find yourself with $5000-$5200/month take home. Subtract your student loan payment of $850, car payment of $350(which you may not actually need depending on your situation), and rent of $1300-$1500/month(this may vary widely depending on your area), you are left with at least $2300-$2500 per month. Again, this is not big money, but you wont starve to death either. Many of you may be thinking to yourselves that this hardly sounds like it was worth all the schooling and debt....I would agree entirely if you were stuck in the above scenario for many years. This is also why I have always said that you dont want to be average...if you are there are far better professions that require less debt and schooling you ahould be considering.

Posner

posner · Jul 30, 2007

asmaka19 said:
KHE.......I see ur point but I still don't feel comfortable with the idea of having debt when you have enough money to be paying more than the min. just because you never know when hard times are going to hit and you're not going to be able to make those payments-it's not in my nature to be a saver and put money aside. If I'm not paying off something, I'm finding something to spend it on!

Anyway, do you think considering the cost of attending a school is important? In the long run did it matter to you that you attended a school you really wanted to go to or do you sometimes wish you went to a school that would have left you in less debt?

I'm currently have this big dilemma with what schools to apply to and this will be the first time I'll have to take out student loans; since my state doesn't have an opto school I qualify to pay in-state tuition at a couple of neighboring schools but I have no enthusiasm to go to those schools. The schools I'm most interested in I know I'm going to be taking out about 3 times as much in loans. My parents think I should just attend the school that will leave me in less debt (I really wasn't even planning on applying to those schools), they say whatever school I end up attending I'll end up liking, I'm not sure that's the case.

Any opinions on the matter?????

You have to read Cash Flow Quadrant(I think this is the title of the Kiyosaki book). A dollar today is always worth more than a dollar tomorrow. This is why the very rich own nothing and control everything. Debt is not evil. In fact, you ought to take a look at Donald Trump's balance sheet! High interest comsumer debt is not good, but low interest debt on an investment in your future that will give back several times over is a smart move.

Posner

Ben Chudner · Jul 30, 2007

posner said:
You have to read Cash Flow Quadrant(I think this is the title of the Kiyosaki book). A dollar today is always worth more than a dollar tomorrow. This is why the very rich own nothing and control everything. Debt is not evil. In fact, you ought to take a look at Donald Trump's balance sheet! High interest comsumer debt is not good, but low interest debt on an investment in your future that will give back several times over is a smart move.

Posner

Kiyosaki wrote Cash Flow Quadrant as well. He touches on the principle in Rich Dad Poor Dad but goes into much more depth in the second book. His basic philosophy is that your money should work for you. You should invest in assets that result in passive income. He will change your thinking about assets if you read the book. For example, he challenges the idea that your house is an asset. He believes that the house you live in is a liability because you acquire new expenses such as utilities, taxes, etc. It only becomes an asset when you are ready to sell it. On the other hand, a rental property is an asset immediately because you acquire passive income in the form of rent. I am not saying he is right or wrong, but that is what his books are basically about. Just an aside, he was the inventor of the velcro wallet that Ocean Pacific (OP) made popular.

still_confused · Jul 30, 2007

you guys read rich dad poor dad???? that is biggest bunch of crap in the world, in fact, its more full of it then me! I would never attend a class that uses that waste of trees for teaching.

I read that book and at first it seemed great, but after a while and reading other books i realized why. It was a book to sell not to help anyone but Mr Kiyosaki.

Please dont destroy your career by basing it on that book (which is actually impossible since robert suggest we dont finish school).

Robert Kiyosaki is a fraud.

oh im not the only one, this dude thinks so too.

http://www.johntreed.com/Kiyosaki.html

posner · Jul 30, 2007

still_confused said:
you guys read rich dad poor dad???? that is biggest bunch of crap in the world, in fact, its more full of it then me! I would never attend a class that uses that waste of trees for teaching.

I read that book and at first it seemed great, but after a while and reading other books i realized why. It was a book to sell not to help anyone but Mr Kiyosaki.

Please dont destroy your career by basing it on that book (which is actually impossible since robert suggest we dont finish school).

Robert Kiyosaki is a fraud.

oh im not the only one, this dude thinks so too.

http://www.johntreed.com/Kiyosaki.html

I dont think anyone was suggesting that Kiyosaki was the second coming of Christ. I was merely pointing out that one could learn a few things from people such as Kiyosaki about business. Sadly most health care professionals a sorely lacking in this area.

Also, John T Reed is a self absorbed schmuck, and self-proclaimed guru. However, he too has some "interesting" ideas on wealth building in his newsletter. In the end, his intentions are the same as Robert Kiyosaki...to make money.

Posner

KHE · Jul 30, 2007

asmaka19 said:
KHE.......I see ur point but I still don't feel comfortable with the idea of having debt when you have enough money to be paying more than the min. just because you never know when hard times are going to hit and you're not going to be able to make those payments-it's not in my nature to be a saver and put money aside. If I'm not paying off something, I'm finding something to spend it on!

Anyway, do you think considering the cost of attending a school is important? In the long run did it matter to you that you attended a school you really wanted to go to or do you sometimes wish you went to a school that would have left you in less debt?

I'm currently have this big dilemma with what schools to apply to and this will be the first time I'll have to take out student loans; since my state doesn't have an opto school I qualify to pay in-state tuition at a couple of neighboring schools but I have no enthusiasm to go to those schools. The schools I'm most interested in I know I'm going to be taking out about 3 times as much in loans. My parents think I should just attend the school that will leave me in less debt (I really wasn't even planning on applying to those schools), they say whatever school I end up attending I'll end up liking, I'm not sure that's the case.

Any opinions on the matter?????

If you have the money to pay off the debt, then in most cases I would say go ahead and do that, but with student loans it is generally not a good idea.

Again...if (after you make your minimum payment for the month) you have $1.00...what is the most efficient use of that dollar? Is it to pay off a student loan and thereby lock in a 6.9% return on investment...or is it to invest it in something else that gives you a much higher return than 6.9% like a practice, or real estate, or a retirement vehicle or some other business? 99 times out of 100....the answer is to NOT put it towards the student loan, especially since more often than not...a substantial portion of your student loan interest is going to be tax deductable thereby lowering the effective rate (and therefore the effective return on your investment) down even lower than 6.9%.

If it's not in your nature to be a saver...don't worry. You're not alone. The key is to have a certain amount of money every month automatically drawn from your account to put towards these other investment vehicles. Obviously, you need to do this in conjunction with an accountant and/or a financial advisor to determine which is the best situation for you.

Regarding the cost of schooling....I think you should attend a school that you would be happy and comfortable attending. But if it's down to a choice between two schools you think are pretty close....obviously go with the less expensive one.

KHE · Jul 30, 2007

cunikki said:
you guys sound like the game! 🙂 at my school at least... we have a bunch of practice management classes... and the first one centered around the book 'rich dad, poor dad' as well as playing this cash flow game that went with the book or was made by the author or something. : ) anyways i guess if you are reading this and havent read the book you should get on that... there are tons of kids in my class who do crazy stuff with their money and some that have fun but are still reasonable and some that wont spend a dime... i would like to think that the middle set will make it just as well as those that wont spend a dime 🙂 its all about the cash flow.... 🙂

I don't know what the game is and I have never read Rich Dad/Poor Dad. My understanding is that the "Rich Dad" in that series of books never actually existed or if he does, he exists in a way that is completely different from the stories in the book. I have read some of that guys columns on Yahoo finance and more often than not they leave me uncomfortable because the tone of them is very "holier than thou." Almost as if if you don't do things his way...you are an idiot at best, and destined to be a destitute fool.

One way or the other...it doesnt really matter. What matters is the following:

If you have a $1.00...what is the most efficient way to spend that dollar. I'm here to tell you that 99 times out of 100 it's NOT by putting it towards your student loans and that's why you should be spreading your student loans over the maximum repayment schedule allowable.

Ben Chudner · Jul 30, 2007

still_confused said:
you guys read rich dad poor dad???? that is biggest bunch of crap in the world, in fact, its more full of it then me! I would never attend a class that uses that waste of trees for teaching.

I read that book and at first it seemed great, but after a while and reading other books i realized why. It was a book to sell not to help anyone but Mr Kiyosaki.

Please dont destroy your career by basing it on that book (which is actually impossible since robert suggest we dont finish school).

Robert Kiyosaki is a fraud.

oh im not the only one, this dude thinks so too.

http://www.johntreed.com/Kiyosaki.html

Just like Posner, I was not endorsing Kiyosaki. I was merely providing information about him so that those who were interested in learning more would know where to look. Whether or not I believe he is a genius or a fraud is irrelevant, as I think anyone interested in investing their money should decide for themselves what advice to listen to.

Sight5 · Jul 31, 2007

To a mod: I think having Khe's "THe way it is" series as a sticky would be a good idea.

Ryan_eyeball · Aug 1, 2007

KHE said:
I don't know what the game is and I have never read Rich Dad/Poor Dad. My understanding is that the "Rich Dad" in that series of books never actually existed or if he does, he exists in a way that is completely different from the stories in the book. I have read some of that guys columns on Yahoo finance and more often than not they leave me uncomfortable because the tone of them is very "holier than thou." Almost as if if you don't do things his way...you are an idiot at best, and destined to be a destitute fool.

One way or the other...it doesnt really matter. What matters is the following:

If you have a $1.00...what is the most efficient way to spend that dollar. I'm here to tell you that 99 times out of 100 it's NOT by putting it towards your student loans and that's why you should be spreading your student loans over the maximum repayment schedule allowable.

You can only deduct that student loan interest up to a adjusted gross income of around $135k a year married filing jointly. My wife wouldn't even have to make a $1 and I'm still way over. I'm beginning to see that by being over 150k a year you lose a lot of tax benefits, like student loan interest deductions, and IRA's. Maybe its time for some time off.

jefguth · Aug 1, 2007

Ryan_eyeball said:
You can only deduct that student loan interest up to a adjusted gross income of around $135k a year married filing jointly. My wife wouldn't even have to make a $1 and I'm still way over. I'm beginning to see that by being over 150k a year you lose a lot of tax benefits, like student loan interest deductions, and IRA's. Maybe its time for some time off.

Incorporate your practice and retain net profits beyond 135K in the corporation?

KHE · Aug 1, 2007

jefguth said:
Incorporate your practice and retain net profits beyond 135K in the corporation?

Depending on the type of entity you incorporate as, you may come out way worse. Some corporate entities will cause you to be taxed on the profits at the corporate level and then AGAIN on a personal level when you take the money out.

Other types of corporations are what is known as "pass through" entities where your profit from the corporation flows directly to your personal return for the year you earn it whether you take it out of the business or not.

If Ryan_Eyeball is doing that well for himself the first couple of years out of school then he really doesn't need the student loan interest deduction. The point I was trying to make is that throwing as much money as possible at student loan debt may not always be the wisest use of that money and in fact, it's usually not.

jefguth · Aug 1, 2007

Are there any corporate structures in the USA that would make that possible without incurring additional taxes above what he would otherwise pay? I was just thinking of what would be possible as a professional corp in Canada.

posner · Aug 1, 2007

jefguth said:
Are there any corporate structures in the USA that would make that possible without incurring additional taxes above what he would otherwise pay? I was just thinking of what would be possible as a professional corp in Canada.

We are incorporated and I rather like our situation. KHE refers to the double taxation debacle that can befall you if you dont know how to play the game. We are a C-corp that was started in 1977, so we have a few benefits that dont usually come with the traditional S-corp. Also, we own both of our buildings which allows us to move money through the properties without having to take as big of a hit on taxes. Furthermore, we hold all of the equipment outside the corporation as well in another "company" that leases it to the corporation. As a result we can run another schedule C at the end of the year and further reduce our tax liability. We pay ourselves somewhat modestly on the payroll through the corp and try to maximize the passive income. This has allowed me to bring in a substantial amount of money on a monthly basis, yet keep my tax liability quite low(thus further allowing me to take advantage of tax credits and deductions). If you want to pay an exorbitant amount of taxes, then go ahead and just run everything through your payroll.

It is not what you make, it's what you keep. Our situation is not necessarily the best way of doing it, but it has served us well. We also have a great accountant that steers us in the right direction while making sure we tow the grey line. Look at many of the larger corporations...they pay very little in taxes(as a total percentage of income). Good luck

Posner

Ryan_eyeball · Aug 1, 2007

KHE said:
Depending on the type of entity you incorporate as, you may come out way worse. Some corporate entities will cause you to be taxed on the profits at the corporate level and then AGAIN on a personal level when you take the money out.

Other types of corporations are what is known as "pass through" entities where your profit from the corporation flows directly to your personal return for the year you earn it whether you take it out of the business or not.

If Ryan_Eyeball is doing that well for himself the first couple of years out of school then he really doesn't need the student loan interest deduction. The point I was trying to make is that throwing as much money as possible at student loan debt may not always be the wisest use of that money and in fact, it's usually not.

Its hard to find tax deductions while working as an Independent contractor. Yeah Walmart or whoever will show you that $100k job, but you will be taxed at around 34%. Posner made comparisons to S-corps and C-corps, and its all about how even you can come out at the end of the year without paying to much to uncle sam. Never pay your taxes early, its a free loan to the government when that money can be earning you money instead.

Ryan_eyeball · Aug 1, 2007

posner said:
We are incorporated and I rather like our situation. KHE refers to the double taxation debacle that can befall you if you dont know how to play the game. We are a C-corp that was started in 1977

I liked the LLC route so that's what I went with. They have pass through income, but taxed higher. Does the C-corp have high liability protection also? Its been awhile since i've looked at all the differences

KHE · Aug 1, 2007

Ryan_eyeball said:
Its hard to find tax deductions while working as an Independent contractor. Yeah Walmart or whoever will show you that $100k job, but you will be taxed at around 34%. Posner made comparisons to S-corps and C-corps, and its all about how even you can come out at the end of the year without paying to much to uncle sam. Never pay your taxes early, its a free loan to the government when that money can be earning you money instead.

You need to be talking to a CPA because if you are paying 34% then something is not right. I just pulled out my tax return from last year and on it, my accountant has a cover sheet that reviews my previous 5 year history. The highest effective tax rate I had over that period was 16% and I don't get that creative with deductions and write offs.

Regarding the different types of corporate entities, they all have their own pros and cons and to be honest with you, no one on this forum (myself included) is qualified to give you advice on which one you should go with. Talk to a CPA and a financial planner.

posner · Aug 1, 2007

A good accountant is worth every penny. Like KHE, my effective tax rate has never been over 18%. Last year was 14%, but I took a few rather large deductions that I wont normally have available to take.

Posner

Elfego Baca · Aug 5, 2007

Ryan_eyeball said:
posner said:

We are incorporated and I rather like our situation. KHE refers to the double taxation debacle that can befall you if you dont know how to play the game. We are a C-corp that was started in 1977

I liked the LLC route so that's what I went with. They have pass through income, but taxed higher. Does the C-corp have high liability protection also? Its been awhile since i've looked at all the differences

Click to expand...

My understanding is that in California, where Posner is located, professional business operating as corporations must do so as PC's, not C-corporations as the way Posner suggests that his office is set up. The reason is to prevent doctors' personal assets from being completely shielded from the consequences of their own professional negligence. In a PC (or LLC, which is not available to California OD's), a doctor is not personally liable for the malpractice of other doctors in the practice, but still is personally liable for his own negligence.

KHE · Aug 5, 2007

Elfego Baca said:
Ryan_eyeball said:

My understanding is that in California, where Posner is located, professional business operating as corporations must do so as PC's, not C-corporations as the way Posner suggests that his office is set up. The reason is to prevent doctors' personal assets from being completely shielded from the consequences of their own professional negligence. In a PC (or LLC, which is not available to California OD's), a doctor is not personally liable for the malpractice of other doctors in the practice, but still is personally liable for his own negligence.

Click to expand...

This varies widely from state to state and is why you should consult an estate planner, and a CPA when setting up a corporation.

In some states, even you are a "corporation" you can still be help personally liable for malpractice because some states consider malpractice to be the same as an assault. So, if I were an employee of Microsoft and while meeting with you for some business transaction, I punch you in the nose I can be personally sued.

Conversely, if I am a doctor and I am seeing you and I committ malpractice, I can still be held personally liable even if I'm working for the corporation because some states view malpractice the same as the punch in the nose. The advantage of the corporation is "slip and fall" type things and if an EMPLOYEE punches someone in the nose.

I'm not sure what the legal mumbo jumbo or terms are surrounding this but again....it varies state to state.

I won't speak specifically to Posner's case, but often times doctors who own their building own it under the umbrella of a separate corporation from the practice entity. Then, the practice corporation leases space from the building corporation even though the doctor owns both corporations.

Rest assured...no one on this forum is qualified to offer up concrete advice on this because personal circumstances are always different. We can only speak in generalities. As always...consult your own trusted advistors.

posner · Aug 5, 2007

Elfego Baca said:
Ryan_eyeball said:

My understanding is that in California, where Posner is located, professional business operating as corporations must do so as PC's, not C-corporations as the way Posner suggests that his office is set up. The reason is to prevent doctors' personal assets from being completely shielded from the consequences of their own professional negligence. In a PC (or LLC, which is not available to California OD's), a doctor is not personally liable for the malpractice of other doctors in the practice, but still is personally liable for his own negligence.

Click to expand...

As I mentioned previously, our corporation(a C-corp to the best of my knowledge) was originally established in 1977. It is my understanding that we were grandfathered in when the corporate rules changed for doctors. I am certainly not an expert in this area, nor have I ever claimed to be. I know for certain we are neither an LLC nor an S-corp. I would be happy to find out the exact details of our incorporation if it would be helpful from our accountant this week. I own one of our office buildings/property and my partner owns the other location. Theses are held outside the corporation and we lease the office space to the corporation. WE do the same for all of our equipment; it is outside the corporation and leased back.

Posner

KHE · Aug 6, 2007

jamoles said:
How expensive are an accountant's services and how often do you work with them? Plus, one of you guys mentioned "advisers," as in plural. What other types of advisers are there and how are they useful? Further, how do you know if the people you are talking to can be trusted and are good at what they do? ( This is assuming no friends or family can make a recommendation.)

Other types of advisors:

Financial Planner - help you plan out and reach your financial goals
Attorney - contract negotiations, estate planning, real estate advice
Insurance Agent - find you the right product based on your personal needs

The fee for an accountant range widely. Most are in the $150-$250 per hour range. My own CPA charges me about $700 per year to do my return but with that I can call him up as often as I like at no charge. If he DOES anything for me he sends me a bill but to just shoot the breeze...no charge. Not all CPAs work this way. Some of them run the meter as soon as they pick up the phone, others have different arrangements.

Insurance Agents don't normally charge fees. They make commissions off of the products they sell you.

Financial planners either charge a flat rate, or a percentage of your portfolio. There are pros and cons of each way of payment.

As to how to find them, I asked some other ODs in the area who they use. I asked the state CPA association to recommend some people who had a lot of doctors as clients. Once you have one advisor that you trust, then you can ask THEM for recommendations on other advisors. For example...I really liked and trusted my accountant. So I asked him for a recommendation on a financial planner. Then I really liked that guy so when I needed an attorney, I asked for a recommendation and I ended up really liking the attorney. Most of the times, its just a gut feeling that you get once you meet them. Do they seem trustworthy and competent? It's almost like going to the doctor.

Last year was unusual because I purchased my practice so I spent a lot of money of lawyers and accountants. But normally, I would say I spend about $3000-$4000 per year total for everyone and I can honestly say that it has been worth every single cent.

posner · Aug 6, 2007

We usually spend $2500-$3000 per year on our accountant. He services are invaluable and I feel they are quite reasonably priced.

Posner

The Way it is Part 3 - money

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