Finishing EM residency, starting a 1099 job (quarterly taxes, itemizing) - what are my CPA needs?

theWUbear

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I am an EM resident and a big follower of the white coat investor. I am finishing residency and starting a 1099 job in the middle of nowhere and getting paid middle-of-nowhere money (will earn >400,000, maybe >500,000, pre-tax).

It will of course be my first time having to deal with life of being 1099. There are the possibilities of becoming an LLC or an S corp, but from what I've read there is no advantage for a sole proprietor to do either of those things.

So, all I need is a CPA to assist me with quarterly tax estimates/payments and going through the process of learning what is able to be deducted as a business expense and what is not (i.e., whatever % of my phone bill, of my rent (for the 'home office' section), etc. etc.).

White Coat Investor has vetted a few national CPA firms that routinely work with physicians. These firms work on a one time annual fee to provide tax planning for a year. One of them costs $5,000.

Is it reasonable to spend $5,000 per tax year on a CPA firm as a high earning 1099 physician? Would you suggest there is no need for me to utilize a premium, national physician-only CPA firm and that being a 1099 contractor is a simple task for a local CPA that may be cheaper? How much do you pay for CPA services? Is it reasonable for me to want help with this the first year out to learn best what is deductible and what is not instead of doing it on my own from day 1?
 

Tenk

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I pay like just under $1,000 a year for my cpa to do my taxes. He answers any questions (which are very few) I have throughout the year for free. $5,000 is a rip off. No way I’d pay that.
 
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Listen2Savage

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I am an EM resident and a big follower of the white coat investor. I am finishing residency and starting a 1099 job in the middle of nowhere and getting paid middle-of-nowhere money (will earn >400,000, maybe >500,000, pre-tax).

It will of course be my first time having to deal with life of being 1099. There are the possibilities of becoming an LLC or an S corp, but from what I've read there is no advantage for a sole proprietor to do either of those things.

So, all I need is a CPA to assist me with quarterly tax estimates/payments and going through the process of learning what is able to be deducted as a business expense and what is not (i.e., whatever % of my phone bill, of my rent (for the 'home office' section), etc. etc.).

White Coat Investor has vetted a few national CPA firms that routinely work with physicians. These firms work on a one time annual fee to provide tax planning for a year. One of them costs $5,000.

Is it reasonable to spend $5,000 per tax year on a CPA firm as a high earning 1099 physician? Would you suggest there is no need for me to utilize a premium, national physician-only CPA firm and that being a 1099 contractor is a simple task for a local CPA that may be cheaper? How much do you pay for CPA services? Is it reasonable for me to want help with this the first year out to learn best what is deductible and what is not instead of doing it on my own from day 1?
how hard is it to find jobs like this?

there's currently a sky is falling vibe on sdn and its really freaking me out as an applicant this year
 
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Porfirio

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It was worth every penny I paid my CPA starting out. They helped with how to start my LLC, how to file S-Corp, how to approach payroll, them doing the payroll, how to structure investments and business expenses to reduce taxes, good IRS auditable books for taxes/payroll. It was worth close to $5,000 to me. I had no headaches. It left me plenty of time to study for written boards, and I felt it was worth it.

$5,000 after year 1, hell no. Once you set your life on autopay and get use to living below your income means then you don’t need the CPA to do as much work. Find a different CPA and use ADP for payroll or whatever you want. The hard part is the first year and learning what to do.

Greatest piece of advice: don’t spend thousands of dollars and learn nothing for it.
 
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hundreddaysoff

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I am an EM resident and a big follower of the white coat investor. I am finishing residency and starting a 1099 job in the middle of nowhere and getting paid middle-of-nowhere money (will earn >400,000, maybe >500,000, pre-tax).

It will of course be my first time having to deal with life of being 1099. There are the possibilities of becoming an LLC or an S corp, but from what I've read there is no advantage for a sole proprietor to do either of those things.

So, all I need is a CPA to assist me with quarterly tax estimates/payments and going through the process of learning what is able to be deducted as a business expense and what is not (i.e., whatever % of my phone bill, of my rent (for the 'home office' section), etc. etc.).

White Coat Investor has vetted a few national CPA firms that routinely work with physicians. These firms work on a one time annual fee to provide tax planning for a year. One of them costs $5,000.

Is it reasonable to spend $5,000 per tax year on a CPA firm as a high earning 1099 physician? Would you suggest there is no need for me to utilize a premium, national physician-only CPA firm and that being a 1099 contractor is a simple task for a local CPA that may be cheaper? How much do you pay for CPA services? Is it reasonable for me to want help with this the first year out to learn best what is deductible and what is not instead of doing it on my own from day 1?

TL;DR No, the big national CPAs would be overpriced in this simple case. My local CPA does this for $500 or less.

If you understand most of WCI's posts, I doubt there's a need for a big national CPA firm or even a CPA at all if you're staying self-employed (ie sole proprietor). You can fill out your own 1040ES (90% Safe Harbor rule will probably apply since you just finished residency) to figure your own estimated payments. Then you just fill out the 1040 and about 5 different schedules each year by following the instructions. I just estimated my 2019 taxes last month and the whole thing took me a couple hours in LibreOffice.

For docs in our income range (400--500k), in theory one could save ~5k/y gross on Medicaid tax by classifying as S-corp. I tried this when I was in your shoes a couple years ago, without a CPA, and it was a big mistake. The constant extra payroll paperwork and everything is not worth an extra 5k and I ended up needing to hire a local CPA anyway to redo my 1120S because I screwed it up myself the first time. Even so, CPA only charged $500 all-in to do all the forms. I since reclassified as self-employed for 2019 and that was my best decision ever.

I'm retaining my CPA this year just to look over my tax draft, mostly because I don't exactly understand how the 199A math is supposed to work in the phase-out range (~315--415k taxable income if married). Once I learn this from her I'll probably just do it myself starting next year.

Random related tip: it is worth paying an actuary ~$1k/y to run a cash balance plan for you if you're trying to sock away a ton of money pretax for retirement. You can easily save >100k pretax this way between your 401(k) and CBP.
 
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CliveStaples

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Random related tip: it is worth paying an actuary ~$1k/y to run a cash balance plan for you if you're trying to sock away a ton of money pretax for retirement. You can easily save >100k pretax this way between your 401(k) and CBP.

Similar position here, looking to make about 400k+ in my first year out of residency pre-tax starting in July. The wife's uncle is a CPA and will be running our taxes but I've debated broaching the S-corp thing with him because I'm not sure the savings will justify the potential headache.

Something I haven't read much about (not sure if WCI touches on it very much) is the potential benefit of a cash balance plan. Have any light reading one should look at before diving head first?
 
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Not hard to find them. Just more difficult to get one compared to lower paying jobs.

May I ask the number of shifts/hours this pay range requires you to work? You mentioned these jobs are still out there - what did you do to separate yourself apart to get this job? Did the quality of your residency program matter? Or did you do something else to make them offer this to you rather than other applicants? If I was willing to work literally anywhere in the country, is this a feasible range to make once I’m out in a couple years?
 

dpmd

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Depends on your comfort level. I have been doing my own taxes since high school when I had to go to the post office to get paper forms and pubs. I still do my own but use turbotax now for the ease of use. Spend some time on irs.gov perusing applicable publications and you will find out what is deductible and anything else you are uncertain of (read the part about estimated tax payments and what you have to do yo avoid underpayment penalties to find our why above someone said it is unlikely you have to worry about it the first year) If you want more handholding then a local CPA is probably good enough.
 
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cyanide12345678

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I am an EM resident and a big follower of the white coat investor. I am finishing residency and starting a 1099 job in the middle of nowhere and getting paid middle-of-nowhere money (will earn >400,000, maybe >500,000, pre-tax).

It will of course be my first time having to deal with life of being 1099. There are the possibilities of becoming an LLC or an S corp, but from what I've read there is no advantage for a sole proprietor to do either of those things.

So, all I need is a CPA to assist me with quarterly tax estimates/payments and going through the process of learning what is able to be deducted as a business expense and what is not (i.e., whatever % of my phone bill, of my rent (for the 'home office' section), etc. etc.).

White Coat Investor has vetted a few national CPA firms that routinely work with physicians. These firms work on a one time annual fee to provide tax planning for a year. One of them costs $5,000.

Is it reasonable to spend $5,000 per tax year on a CPA firm as a high earning 1099 physician? Would you suggest there is no need for me to utilize a premium, national physician-only CPA firm and that being a 1099 contractor is a simple task for a local CPA that may be cheaper? How much do you pay for CPA services? Is it reasonable for me to want help with this the first year out to learn best what is deductible and what is not instead of doing it on my own from day 1?

You don't need a cpa to assist you with quarterly taxes if you're just a 1099, unless you have very complex taxes or you become an s corp. It's pretty simple and easily done online. I had quickbooks, entered all my expenses as i went along, tracked milage automatically, and quickbooks basically tells you what quarterly taxes you need to pay.

5k per year is ridiculous by the way for an accountant.

I eventually got a tax accountant, mostly because this year i switched to s corp, which saves me about $4-5k in taxes this year and another 4k next year. The complexity is handled by my accountant, yes s corp makes things pretty complicated. I paid $1000 one time for set up of s corp and then my s corp taxes will cost $900 when i file taxes.

At >500k you may benefit from s corp. You can pay yourself a reasonable salary of $220 and bonus yourself 280k and save 2.9 percent on that money. That's a decent amount of tax savings, sure you'll pay another 1-2k for the complexity, but someone else will deal with it.
 
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TooMuchResearch

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Yes, it's feasible. Even the hospital employed jobs in my area have total compensation around 400k. You'll start lower initially with our group but after a few years will make up the difference.
May I ask the number of shifts/hours this pay range requires you to work? You mentioned these jobs are still out there - what did you do to separate yourself apart to get this job? Did the quality of your residency program matter? Or did you do something else to make them offer this to you rather than other applicants? If I was willing to work literally anywhere in the country, is this a feasible range to make once I’m out in a couple years?
 

cyanide12345678

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Depends on your comfort level. I have been doing my own taxes since high school when I had to go to the post office to get paper forms and pubs. I still do my own but use turbotax now for the ease of use. Spend some time on irs.gov perusing applicable publications and you will find out what is deductible and anything else you are uncertain of (read the part about estimated tax payments and what you have to do yo avoid underpayment penalties to find our why above someone said it is unlikely you have to worry about it the first year) If you want more handholding then a local CPA is probably good enough.

I second this. If you are simply just 1099 without complications who just wants to make a few business deductions then turbo tax will do the trick and it will get you a years worth of quickbooks for free. Plus you can get the turbo live and have a cpa or EA answer any questions and even review your entire completed form.

I totally did that until i became s corp. It's not that hard, turbo tax literally asks you about all your deductions.
 
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hundreddaysoff

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Similar position here, looking to make about 400k+ in my first year out of residency pre-tax starting in July. The wife's uncle is a CPA and will be running our taxes but I've debated broaching the S-corp thing with him because I'm not sure the savings will justify the potential headache.

Something I haven't read much about (not sure if WCI touches on it very much) is the potential benefit of a cash balance plan. Have any light reading one should look at before diving head first?

CBPs are definitely a black art. CPAs mostly don't seem to understand them and how different actuaries interpret Congress's rules about them seems to vary. Multiple people including one CPA told me I needed an S-corp to start a CBP, which is not true; self-employed will do just fine.

The "only" benefit I can see to a CBP for self-employed people is that you get to store a ton of money for retirement pretax. The older you are, the more you get to store. The exact amount you can store seems to vary by which actuary you ask, but here's a ballpark:


Unlike a 401(k), you can be "penalized" through forced catch-up contributions (that in reality are also pretax, so not necessarily even a penalty for you) if your CBP doesn't meet your preset return target (eg 4%). You can also be "penalized" with a 50% excise tax if your CBP investments return more than like 6--8% (due to a weird anti-corporate-raider law from the 80s; in reality the "penalty" only applies to the actual return if I understand correctly, not the principal). So most actuaries recommend you stick to safe, low-returning investments like bonds in a CBP. Eg, I chose 100% TIPS for my CBP.

Like a 401(k) or any other pretax plan, how much you gain from a CBP depends on your expected tax bracket in retirement. My top bracket is 32% now but I think I can get it down to 15% (or 17% or whatever Congress decides is fair for the middle class to pay in taxes after 2025) when I FIRE via a Roth ladder in 5-10 years. So, I'm basically sacrificing liquidity in order to keep that 32 - 15 = 17% of my gross income (from my top bracket) that would otherwise have gone straight to the IRS this year. When I FIRE, I'll close the CBP and roll it over into my 401(k), which will then be converted to my Roth over the next few years.

If that last paragraph makes sense to you, then you can see why I don't really care about big returns so much in my CBP. Stability of that money is much more important, at least until I FIRE.

Here's WCI's main post on CBPs:


Keep in mind that if you have employees or are a group practice, CBPs get much more hairy. If you are self-employed or a single-employee S-corp (ie, you are the only employee), then you can ignore a lot of the complexities in that WCI article.

So that's mostly what I know about CBPs. I got most of this info from two sources:

- Konstantin Litovsky, who wrote the above WCI article. If you Google him, you find tons of useful nuggets he has posted in forums. You can also email him and he will give you all the info you want. Seems like he runs a great integrated retirement operation, but I didn't go with him because he charges a big fixed fee only and I'm a big enough money nerd that I didn't need most of his services.

- mgks.com, the low-cost actuary I ultimately picked to run my CBP; just call them and they're happy to answer any questions
 
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