Paying 35k/year taxes on 300k income... tax evasion or genius?

[B52slinger]

Assuming I'm a 1099 contractor. By utilizing solo 401k + cash balance plan which allows total of 151k yearly PRE-tax investment thus reducing total state + federal taxes to just 35k/year. 300k pre-tax becomes 265k post-tax which puts the 300k 1099 earner on par with a 500k W2 earner in CA (where you'd be paying over 200k/year in taxes!!!! yikes)

Is this legal or is it tax evasion?

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[clozareal]

It's genius. It does change depending on age though so if you're making $300k and you're 40 years old, it's a total of $180k you can tax defer to retirement and pay taxes on $120k. They're pretty much like a 401k because it's pre-tax dollars and has asset protection as an ERISA account (not at risk to creditors).

However, you have to take the distribution as a lump sum instead of an annual distribution like a 401k. At that time, you get taxed on the entire amount as regular income tax so your income bracket will be really high that year.

 

[B52slinger]

It's genius. It does change depending on age though so if you're making $300k and you're 40 years old, it's a total of $180k you can tax defer to retirement and pay taxes on $120k. They're pretty much like a 401k because it's pre-tax dollars and has asset protection as an ERISA account (not at risk to creditors).

However, you have to take the distribution as a lump sum instead of an annual distribution like a 401k. At that time, you get taxed on the entire amount as regular income tax so your income bracket will be really high that year.

Thanks very much for participating in this thread!!!
I have a question though: how low can the post-investment income get? Could a 32 year old making 200k as a 1099 contractor for example put in the 151k limit leaving only 49k left? Or would that be forbidden?

I have heard "reasonable salary" mentioned in discussion of 1099 taxes and would assume 49k/year would be not a reasonable salary for a doctor from the IRS's perspective though not sure if that's relevant here.

 

[jbomba]

For those with an s Corp, what is the effective tax rate you end up paying?

 

[thumbz]

Yep, the reasonable salary is what is gonna get you when you get audited.

They'll pull their average from somewhere for a fulltime psychiatrist (or whatever doctor you end up being) for the number of hours worked and tell you what you should have been paying yourself.

Also, remember that for a solo 401k you can only contribute the yearly limit (22,500) plus 25% of your self employment income (up to a total of $67k). So in your example you would need to pay taxes on a $200k salary in order to have the extra $50k to put into your solo 401k (round numbers to make the math easy). Remember that self employment tax is 15% as you pay both the employer and employee side.

So, in reality, no - you won't be able to limit your tax liability as strongly as you want to. At least not with methods I'm aware of. I'm admittedly ignorant of cash balance plans and how that would help you, so it very well could be possible.

 

[qwerty89]

Radiologist here. Also have an s-corp in CA. Unfortunately for me, I am part of a general partnership and therefore cannot do a solo CBP.

You are in the perfect place for tax savings. solo practice s-corp high income earner.

Pay yourself a reasonable salary (200k is fine. SS taxes max out around 150k so you are really only paying a bit more medicare tax. you pay income tax on distributions either way). Take the rest as a distribution. Set up a CBP with schwab or pay a bit more an have some place like Emparion to set it up (~1750-2000 a year, fully deductible). Max that out for your age (mid 30s is between 80-90k to well over 200k decades later). Then max out employee solo 401k contribution of 22,500. Then max out your employer 401k contribution (limited to 6% NOT 25% of income when used with a CBP; i.e. 200k income you can put 12k only). To make up the difference you can do a mega backdoor roth. Consider using an HSA to further reduce taxable income. Deduct office expenses, home office deduction, CME costs, mortgage interest deduction, charitable donations, etc.

After 5-7 years of the CBP. Close it and then transfer funds to a 401k. Then start a new one.

Then take advantage of the PTE elective tax to be able to bypass the SALT deduction cap put in place in 2017 by Trump. This alone is a huge advantage over W2 income in CA.

If you can get your taxable income below the limits for the Qualified Business Income deduction then you get another 20% deduction. That is why the CBP is great because it lowers your income below the threshold.

Emparion has a good example of the combo solo 401k and CBP here. Go down to example #1 "The Combo"

 

[clozareal]

Thanks very much for participating in this thread!!!
I have a question though: how low can the post-investment income get? Could a 32 year old making 200k as a 1099 contractor for example put in the 151k limit leaving only 49k left? Or would that be forbidden?

I have heard "reasonable salary" mentioned in discussion of 1099 taxes and would assume 49k/year would be not a reasonable salary for a doctor from the IRS's perspective though not sure if that's relevant here.

It's a complicated question on how much you can contribute. You would have to get actuaries involved and it's more complex because each actuary might say something different. The calculation depends on how old you are vs how much you have in there (younger + more in account = less you can contribute). There is a lifetime limit of $2.9 million.

Reasonable salary would only apply if you are paying yourself a salary, which wouldn't apply if your 1099 was a sole proprietor. Sole proprietors aren't considered an employee in the traditional sense. You pay yourself distributions from the profits of your business (and thus pay self-employment taxes). Reasonable salary applies if you have a corporation. There's lots of ways to determine what constitutes a reasonable salary, which is what you should ask your accountant about. Some people use RC Reports (one of the best), BLS, OES, and less reputable ones like glassdoor, indeed, salary.com, but even then it doesn't take into account the nature of the work, the hours worked, your responsibilities, and local markets.

 

[clozareal]

Radiologist here. Also have an s-corp in CA. Unfortunately for me, I am part of a general partnership and therefore cannot do a solo CBP.

You are in the perfect place for tax savings. solo practice s-corp high income earner.

Pay yourself a reasonable salary (200k is fine. SS taxes max out around 150k so you are really only paying a bit more medicare tax. you pay income tax on distributions either way). Take the rest as a distribution. Set up a CBP with schwab or pay a bit more an have some place like Emparion to set it up (~1750-2000 a year, fully deductible). Max that out for your age (mid 30s is between 80-90k to well over 200k decades later). Then max out employee solo 401k contribution of 22,500. Then max out your employer 401k contribution (limited to 6% NOT 25% of income when used with a CBP; i.e. 200k income you can put 12k only). To make up the difference you can do a mega backdoor roth. Consider using an HSA to further reduce taxable income. Deduct office expenses, home office deduction, CME costs, etc.

After 5-7 years of the CBP. Close it and then transfer funds to a 401k. Then start a new one.

Then take advantage of the PTE elective tax to be able to bypass the SALT deduction cap put in place in 2017 by Trump. This alone is a huge advantage over W2 income in CA.

If you can get your taxable income below the limits for the Qualified Business Income deduction then you get another 20% deduction. That is why the CBP is great because it lowers your income below the threshold.

Emparion has a good example of the combo solo 401k and CBP here. Go down to example #1 "The Combo"

I disagree with some of this as a solo practitioner. I think you should max out your 401k (employer + employee side) first, backdoor Roth IRA, then a cash balance plan since a CBP would have higher costs associated with it as you mentioned and has less flexibility. I think the calculation is different if you were part of a group, which I haven't thought much about since I don't plan to be part of a group myself.

You can't take the PTET tax deduction if you don't have a corporation as a pass-through entity (sole proprietors).

But otherwise, good advice.

 

[B52slinger]

Radiologist here. Also have an s-corp in CA. Unfortunately for me, I am part of a general partnership and therefore cannot do a solo CBP.

You are in the perfect place for tax savings. solo practice s-corp high income earner.

Pay yourself a reasonable salary (200k is fine. SS taxes max out around 150k so you are really only paying a bit more medicare tax. you pay income tax on distributions either way). Take the rest as a distribution. Set up a CBP with schwab or pay a bit more an have some place like Emparion to set it up (~1750-2000 a year, fully deductible). Max that out for your age (mid 30s is between 80-90k to well over 200k decades later). Then max out employee solo 401k contribution of 22,500. Then max out your employer 401k contribution (limited to 6% NOT 25% of income when used with a CBP; i.e. 200k income you can put 12k only). To make up the difference you can do a mega backdoor roth. Consider using an HSA to further reduce taxable income. Deduct office expenses, home office deduction, CME costs, etc.

After 5-7 years of the CBP. Close it and then transfer funds to a 401k. Then start a new one.

Then take advantage of the PTE elective tax to be able to bypass the SALT deduction cap put in place in 2017 by Trump. This alone is a huge advantage over W2 income in CA.

If you can get your taxable income below the limits for the Qualified Business Income deduction then you get another 20% deduction. That is why the CBP is great because it lowers your income below the threshold.

Emparion has a good example of the combo solo 401k and CBP here. Go down to example #1 "The Combo"

Wow. Much appreciated, thanks very much for your help!!

 

[qwerty89]

I disagree with some of this as a solo practitioner. I think you should max out your 401k (employer + employee side) first, backdoor Roth IRA, then a cash balance plan since a CBP would have higher costs associated with it as you mentioned and has less flexibility. I think the calculation is different if you were part of a group, which I haven't thought much about since I don't plan to be part of a group myself.

You can't take the PTET tax deduction if you don't have a corporation as a pass-through entity (sole proprietors).

But otherwise, good advice.

Yeah I agree with that order. 401k first. If you can and are willing to put more away (by a significant margin) for retirement, THEN get a CBP. No point in getting a CBP to put in less than 50K IMO. Especially since you are then limited to 6% instead of 25% for employer contributions.

With all these deductions your adjusted income probably qualifies for the federal tax rebate for an electric vehicle lol.

Also as an s-corp there is a California Franchise tax of 1.5%.

 

[calvnandhobbs68]

You can't take the PTET tax deduction if you don't have a corporation as a pass-through entity (sole proprietors).

Sole proprietors, LLCs and S corps can all take the pass through tax deduction.

 

[clozareal]

Sole proprietors, LLCs and S corps can all take the pass through tax deduction.

I think it depends on which state you’re a part of. I’m talking about the pass through entity elective tax where you deduct your state taxes on your federal income which only S corps qualify for in my state. There’s although the QBI that qwerty89 mentioned above that’s also a pass through tax deduction which you can do if you’re a sole proprietor but your AGI has to be below a certain amount.

 

[calvnandhobbs68]

I think it depends on which state you’re a part of. I’m talking about the pass through entity elective tax where you deduct your state taxes on your federal income which only S corps qualify for in my state. There’s although the QBI that qwerty89 mentioned above that’s also a pass through tax deduction which you can do if you’re a sole proprietor but your AGI has to be below a certain amount.

Got it, yes if you're talking about the state pass through taxes that's true (my state doesn't have a state pass through tax to even try to elect though). But yeah, the federal pass through tax deduction is pretty wide reaching which is what I believe @qwerty89 was referring to and you can absolutely do that as a sole prop...it's pretty restrictive for single (182K) but pretty nice for married filing jointly (364K) and gets calculated after contributions to retirement accounts.

 

[clozareal]

The PTET tax is pretty great because it allows your corporation to pay your state taxes on your behalf, which can exceed the $10k limit for SALT set by the 2017 TCJA bill. How much you save by doing this is the difference in how much you pay in SALT under the corporate PTE elective tax vs the individual $10k deduction cap on SALT multiplied by the marginal federal tax rate to get your federal tax savings.

As an example, if your pass-through business pays $30,000 in state taxes under the PTE elective tax, the difference between the actual taxes paid and the SALT deduction cap is $20,000 ($30,000 - $10,000). If your marginal federal tax rate is 24%, your estimated federal tax savings would be $4,800 ($20,000 x 0.24).

For the QBI, if you meet the income threshold, then it’s 20%. Much more simple, but more complex if it’s over the first threshold since there’s a phase out income threshold (although doctors are excluded from this phase out).

 

[qwerty89]

Got it, yes if you're talking about the state pass through taxes that's true (my state doesn't have a state pass through tax to even try to elect though). But yeah, the federal pass through tax deduction is pretty wide reaching which is what I believe @qwerty89 was referring to and you can absolutely do that as a sole prop...it's pretty restrictive for single (182K) but pretty nice for married filing jointly (364K) and gets calculated after contributions to retirement accounts.

Fun story. Those limits only apply to certain professions (including doctors). Real estate investors on the other hand...
This guy has good videos about this stuff.

It's a joke how much high income W2 income earners such as physicians get taxed compared to real estate.

 

[comp1]

We really need to tax personal investment income at similar or greater rates than "earned" income instead of almost half. That said, we're all still doing quite well, relatively. Apropos of nothing, I didn't understand most of anything the OP said. I max out my 401k and do the backdoor Roth, but the rest of it is Greek as an average employed W2 receiver.

 

[splik]

Is this legal or is it tax evasion?

remember there is a difference between tax evasion (which is what al capone, martha stuart, and the trump organization got in trouble for) and tax avoidance, which is legal. contributing to a cash balance plan or other defined benefit plan, or having a mega back door roth are examples of tax avoidance, which are perfectly legal as they are written into the tax code. It is very sensible to minimize your tax liability as a high income earner. It is really no different to having a 401k. Tax avoidance mechanism reflects the government using nudges to manipulate behavior they want to encourage.

 

[B52slinger]

Radiologist here. Also have an s-corp in CA. Unfortunately for me, I am part of a general partnership and therefore cannot do a solo CBP.

You are in the perfect place for tax savings. solo practice s-corp high income earner.

Pay yourself a reasonable salary (200k is fine. SS taxes max out around 150k so you are really only paying a bit more medicare tax. you pay income tax on distributions either way). Take the rest as a distribution. Set up a CBP with schwab or pay a bit more an have some place like Emparion to set it up (~1750-2000 a year, fully deductible). Max that out for your age (mid 30s is between 80-90k to well over 200k decades later). Then max out employee solo 401k contribution of 22,500. Then max out your employer 401k contribution (limited to 6% NOT 25% of income when used with a CBP; i.e. 200k income you can put 12k only). To make up the difference you can do a mega backdoor roth. Consider using an HSA to further reduce taxable income. Deduct office expenses, home office deduction, CME costs, mortgage interest deduction, charitable donations, etc.

After 5-7 years of the CBP. Close it and then transfer funds to a 401k. Then start a new one.

Then take advantage of the PTE elective tax to be able to bypass the SALT deduction cap put in place in 2017 by Trump. This alone is a huge advantage over W2 income in CA.

If you can get your taxable income below the limits for the Qualified Business Income deduction then you get another 20% deduction. That is why the CBP is great because it lowers your income below the threshold.

Emparion has a good example of the combo solo 401k and CBP here. Go down to example #1 "The Combo"

Do you know if as an S-corp, I can still deduct half of my self-employment tax from my income?
So instead of 7.65% I can pay 3.8% of my total income as self-employment tax essentially? Thanks!!

 

[clozareal]

Do you know if as an S-corp, I can still deduct half of my self-employment tax from my income?
So instead of 7.65% I can pay 3.8% of my total income as self-employment tax essentially? Thanks!!

The self employment-tax applies only to the reasonable salary portion of your income in an S-corp. The other portion comes as a distribution which are NOT subject to self-employment tax, as they are not considered wages or earned income. You will still owe income tax on the distributions.

You'll have to do an S-corp analysis to see if incorporating (distribution+savings on self-employment tax but also factoring in cost to file as an S-corp, doing more stringent bookkeeping which may cost money, and time it takes to incorporate and extra administrative tasks) will yield greater savings than staying as a sole proprietor. People don't factor in the extra cost of accounting, payroll, and extra admin time to stay organized into that calculation which sometimes makes it a wash. The way it becomes worth it is if your distribution increases, meaning you make more money.

 

[the5thelement]

As a solo physician independent contractor making <$300,000 it wasnt worth the extra hassle to form a S-corp. I have simplified everything - Sole proprietor - $67,500 saved for retirement per year-$40,500 ROTH (401k post tax), $27000 (401k pre tax).

 

[calvnandhobbs68]

As a solo physician independent contractor making <$300,000 it wasnt worth the extra hassle to form a S-corp. I have simplified everything - Sole proprietor - $67,500 saved for retirement per year-$40,500 ROTH (401k post tax), $27000 (401k pre tax).

Yeah there's basically no tax advantage to being a solo LLC vs sole prop with an EIN unless you're planning on adding more employees under a practice, in which case you need to setup a LLC or S corp. That's the reason I'm sole prop right now too.

S corp is just another layer where as noted above tends to be a wash unless you're at really high income levels you can cut down to a "reasonable salary" and then distributions when you factor how much you have to pay an accountant to setup and then do payroll, make sure you follow proper accounting practices, etc.

 

[sloh]

Yeah there's basically no tax advantage to being a solo LLC vs sole prop with an EIN unless you're planning on adding more employees under a practice, in which case you need to setup a LLC or S corp. That's the reason I'm sole prop right now too.

S corp is just another layer where as noted above tends to be a wash unless you're at really high income levels you can cut down to a "reasonable salary" and then distributions when you factor how much you have to pay an accountant to setup and then do payroll, make sure you follow proper accounting practices, etc.

Even my accountant said the S-Corp was too much of a hassle. Discontinued it. Basically just doing SEP-IRA and shoveling the rest into index funds.

 

[jbomba]

Yeah there's basically no tax advantage to being a solo LLC vs sole prop with an EIN unless you're planning on adding more employees under a practice, in which case you need to setup a LLC or S corp. That's the reason I'm sole prop right now too.

S corp is just another layer where as noted above tends to be a wash unless you're at really high income levels you can cut down to a "reasonable salary" and then distributions when you factor how much you have to pay an accountant to setup and then do payroll, make sure you follow proper accounting practices, etc.

Essentially if you're making over 200k (which could pass as reasonable salary), I would guess S corp makes sense? Certainly above 300k would make sense I would imagine.

 

[forchinet121]

Essentially if you're making over 200k (which could pass as reasonable salary), I would guess S corp makes sense? Certainly above 300k would make sense I would imagine.

Isn’t that the exact opposite of what they just said?

 

[jbomba]

Isn’t that the exact opposite of what they just said?

no?

 

[calvnandhobbs68]

Essentially if you're making over 200k (which could pass as reasonable salary), I would guess S corp makes sense? Certainly above 300k would make sense I would imagine.

Not necessarily because it's pretty expensive to setup and run a S corp. You pay an accountant quite a bit more to setup corporation itself, do payroll and do taxes (which are more complicated than just individual income taxes) every year. So you have to compute that vs the incremental tax benefit. Accountants will sometimes try to push you to S corp because they make more money.

Sole prop or even solo LLC requires zero to minimal upfront cost. You can file as an LLC in most states on your own with a few simple forms and do the taxes yourself in Turbotax every year. You don't have to file literally anything different to be a sole prop, you literally just say you're a sole proprietor and set your "business name" as your name on your income taxes.

 

[jbomba]

Not necessarily because it's pretty expensive to setup and run a S corp. You pay an accountant quite a bit more to setup corporation itself, do payroll and do taxes (which are more complicated than just individual income taxes) every year. So you have to compute that vs the incremental tax benefit. Accountants will sometimes try to push you to S corp because they make more money.

Sole prop or even solo LLC requires zero to minimal upfront cost. You can file as an LLC in most states on your own with a few simple forms and do the taxes yourself in Turbotax every year. You don't have to file literally anything different to be a sole prop, you literally just say you're a sole proprietor and set your "business name" as your name on your income taxes.

FWIW, I got my s corp set up for 2500. I'm anticipating income in 750k range, so I'm imaging at this level it makes sense for sure.

 

[drechie]

FWIW, I got my s corp set up for 2500. I'm anticipating income in 750k range, so I'm imaging at this level it makes sense for sure.

Can you share your recipe to 750?

 

[jbomba]

Can you share your recipe to 750?

Sure.

12 hours of outpatient a week. I started this as a moonlighting job in residency. I average 410/hr in collections, I get a 70% cut. With some admin pay works to 300/hr. I will continue this while I focus on opening my own cash practice and building clientele. So about 3600 a week taking my current rate. I'm also paid 12k a year to go to a weekly case conference at this clinic. I'll do a full 8 hour day one day a week plus a couple 2 hour days after my inpatient gig.

I will do inpatient psych four days a week, 8 hrs a day. This pays 32*245/hr or about 7800 a week. I will cover 10-12 patients and have a resident. I'll only do this 3/4 weeks a month.

One week a month when I am away from the inpatient gig I do coverage at another facility. Essentially I am on all day long however I can leave when I'm done and I'm told calls are minimal. This is paid hourly so 16*240*7 days. This works out to 323k a year.


So that's ~177k for the clinic job. 265k for the inpatient job working 34 weeks a year. 323k for the once a month job. I am also getting student loan reimbursement from the county inpatient job. All in that's 765k for 46 weeks of work a year. Average week is 44 hours. I'll be there to see my kid off in the morning and be having dinner every night. 3/4 weekends are free. The one week a month is long hours but I'm told the bulk are done sitting at home, so we'll have to see how this one goes. It's possible I cut this job down to 3-4 days a month, but even then income would be about the same because I'd be able to do more weeks of my inpatient job.

As an early career psychiatrist trying to save some money this doesn't strike me as a back breaking schedule, busy sure, but not unsustainable for 4-5 years. Will be happy to update cash practice as that develops too.

Edit: I will add the long term goal is 20 hours of cash/select insurance a week which should boost my hourly take home about 100-150/hr. I'd pair this with a day of ER coverage a week; 260/hr. And then the 3-4 days a month of the 16 hr day job which id probably knock out over a long weekend. That set up would be more chill and still bring in 700k a year.

 

[forchinet121]

Sure.

12 hours of outpatient a week. I started this as a moonlighting job in residency. I average 410/hr in collections, I get a 70% cut. With some admin pay works to 300/hr. I will continue this while I focus on opening my own cash practice and building clientele. So about 3600 a week taking my current rate. I'm also paid 12k a year to go to a weekly case conference at this clinic. I'll do a full 8 hour day one day a week plus a couple 2 hour days after my inpatient gig.

I will do inpatient psych four days a week, 8 hrs a day. This pays 32*245/hr or about 7800 a week. I will cover 10-12 patients and have a resident. I'll only do this 3/4 weeks a month.

One week a month when I am away from the inpatient gig I do coverage at another facility. Essentially I am on all day long however I can leave when I'm done and I'm told calls are minimal. This is paid hourly so 16*240*7 days. This works out to 323k a year.


So that's ~177k for the clinic job. 265k for the inpatient job working 34 weeks a year. 323k for the once a month job. I am also getting student loan reimbursement from the county inpatient job. All in that's 765k for 46 weeks of work a year. Average week is 44 hours. I'll be there to see my kid off in the morning and be having dinner every night. 3/4 weekends are free. The one week a month is long hours but I'm told the bulk are done sitting at home, so we'll have to see how this one goes. It's possible I cut this job down to 3-4 days a month, but even then income would be about the same because I'd be able to do more weeks of my inpatient job.

As an early career psychiatrist trying to save some money this doesn't strike me as a back breaking schedule, busy sure, but not unsustainable for 4-5 years. Will be happy to update cash practice as that develops too.

Do it for one year and report back, should be interesting to see how you view it then compared to now. Also is this in California?

 

[jbomba]

Do it for one year and report back, should be interesting to see how you view it then compared to now. Also is this in California?

Yep California.

My feeling is it's generally less than residency which hasn't been bad at all.

 

[psychmd03]

FWIW, I got my s corp set up for 2500. I'm anticipating income in 750k range, so I'm imaging at this level it makes sense for sure.

It might but it might not. Your tax person should still be able to give you a rundown. I ran this by my tax people and had them give me a few different scenarios and income levels IMO I would rather not save maybe in balance 10k for something that is going to eat up time, and create complexity. I would rather work two extra days and make that money up than have the head of tracking payroll etc.

 

[psychmd03]

Sure.

12 hours of outpatient a week. I started this as a moonlighting job in residency. I average 410/hr in collections, I get a 70% cut. With some admin pay works to 300/hr. I will continue this while I focus on opening my own cash practice and building clientele. So about 3600 a week taking my current rate. I'm also paid 12k a year to go to a weekly case conference at this clinic. I'll do a full 8 hour day one day a week plus a couple 2 hour days after my inpatient gig.

I will do inpatient psych four days a week, 8 hrs a day. This pays 32*245/hr or about 7800 a week. I will cover 10-12 patients and have a resident. I'll only do this 3/4 weeks a month.

One week a month when I am away from the inpatient gig I do coverage at another facility. Essentially I am on all day long however I can leave when I'm done and I'm told calls are minimal. This is paid hourly so 16*240*7 days. This works out to 323k a year.


So that's ~177k for the clinic job. 265k for the inpatient job working 34 weeks a year. 323k for the once a month job. I am also getting student loan reimbursement from the county inpatient job. All in that's 765k for 46 weeks of work a year. Average week is 44 hours. I'll be there to see my kid off in the morning and be having dinner every night. 3/4 weekends are free. The one week a month is long hours but I'm told the bulk are done sitting at home, so we'll have to see how this one goes. It's possible I cut this job down to 3-4 days a month, but even then income would be about the same because I'd be able to do more weeks of my inpatient job.

As an early career psychiatrist trying to save some money this doesn't strike me as a back breaking schedule, busy sure, but not unsustainable for 4-5 years. Will be happy to update cash practice as that develops too.

Edit: I will add the long term goal is 20 hours of cash/select insurance a week which should boost my hourly take home about 100-150/hr. I'd pair this with a day of ER coverage a week; 260/hr. And then the 3-4 days a month of the 16 hr day job which id probably knock out over a long weekend. That set up would be more chill and still bring in 700k a year.

Doesnt sound too bad to me those I hate OP and I also cant stand having to sit for 8 hours in one spot. Personally i would try to leverage more of the once a month gig and find another like that so you dont spend your day twidling your thumbs when you could be working on building your practice or having some fun. Either way solid set up

 

[sloh]

It might but it might not. Your tax person should still be able to give you a rundown. I ran this by my tax people and had them give me a few different scenarios and income levels IMO I would rather not save maybe in balance 10k for something that is going to eat up time, and create complexity. I would rather work two extra days and make that money up than have the head of tracking payroll etc.

Yup. It's hard to make the case for an S-corp for physicians in general. It's even HARDER to make a case for an S-Corp for physicians in California.

S Corp in California - The White Coat Investor Forum - Investing & Personal Finance for Doctors

I am hoping to take advantage of the tax benefits of being paid on 1099 by setting up an S Corp. From what I understand, there are some extra steps in order to do this in California. Does anyone have some input or a guide which might be helpful? I am hoping to use legal zoom.

forum.whitecoatinvestor.com

Also. Relevant thread in anesthesia forums. @chessknt

1099 help?

Hello there, I'm an MD working locums exclusively in MA, looking for help with setting up a corporate structure. Appreciate any names of attorneys or cpas with relevant experience, either in this thread or private message. Thanks! spd

forums.studentdoctor.net

S Corp in California - The White Coat Investor Forum - Investing & Personal Finance for Doctors

I am hoping to take advantage of the tax benefits of being paid on 1099 by setting up an S Corp. From what I understand, there are some extra steps in order to do this in California. Does anyone have some input or a guide which might be helpful? I am hoping to use legal zoom.

forum.whitecoatinvestor.com

Generally concur with SR as that is also my advice to clients and prospective clients. However, due to high demand, I have developed a 6-step plan for all of the 1099 doctors who don’t meet SR’s threshold and still want that s-corp and, thus, will continue interviewing tax preparers:

1. Ask your prospective tax preparer how many of their doctor clients with 1099 they recommend set up an S-corp. If 50%+, keep going
2. Ask your prospective tax preparer what s/he recommends you should pay yourself on W2 through your S-corp.
   • If the answer is $75k or less, keep going
   • Btw, this has no relationship to your value as a full-time physician who may have paid multiples of that for training alone - it is ALL ABOUT TAXES
3. Ask your prospective tax preparer if you can write off expenses in an S-corp that you cannot write off as a sole proprietor
   • If the answer is yes, keep going
4. Ask your prospective tax preparer what they charge for preparing your tax returns (personal and corp) and tax advice annually
   • If the answer is (having trouble here, use your good judgment) say, $3,000 or less annually and that gets you year-round, contemporaneous advice, keep going.
   • Again, it is ALL ABOUT THE TAXES
5. Ask your prospective tax preparer if any of their clients have ever been audited by the IRS
   • Make a side bet with me about the answer. I get to choose zero, though.
   • Followup question: ask your prospective tax preparer how they would justify paying a full-time physician an under-market rate in an audit.
     • Would they be able to represent you in an audit? Would there be a “separate fee”? Watch for facial twitches.
6. Finally, ask your prospective tax preparer if there is any up-front “setup fee”. If $5k - $15k, this person may be a prime candidate for your short (or perhaps long) list. DO NOT include this amount in your cost-benefit analysis of using an S-corp. That would spoil the fun! Quick one-time jab then you will forget all the pain and be on to saving taxes with an s-corp!

Note that SR’s (and my) threshold for most other states is $350k - $400k, depending on the cost of advice and your threshold for more tax complexity.

 

[jbomba]

Doesnt sound too bad to me those I hate OP and I also cant stand having to sit for 8 hours in one spot. Personally i would try to leverage more of the once a month gig and find another like that so you dont spend your day twidling your thumbs when you could be working on building your practice or having some fun. Either way solid set up

Yeah I'm imagining a lot of down time. My plan is to start to do tele appts from my office at the hospital an hour or two a day.

If they don't like it they can find someone new - I know they need me a lot more than I need them.

 

[clozareal]

jbomba, that schedule sounds miserable. I'd rather try for a cash practice, charge $500/hr which is not unreasonable in many areas, work 31-32 clinical hours a week for 48 weeks to make $750k. The only issue is getting 31-32 hours worth of work. This seems much better than doing 52 hours of inpatient+outpatient work not including admin per week.

 

[sloh]

jbomba, that schedule sounds miserable. I'd rather try for a cash practice, charge $500/hr which is not unreasonable in many areas, work 31-32 clinical hours a week for 48 weeks to make $750k. The only issue is getting 31-32 hours worth of work. This seems much better than doing 52 hours of inpatient+outpatient work not including admin per week.

Do you think this is easily achievable in SoCal?

 

[clozareal]

Do you think this is easily achievable in SoCal?

Depends on where in SoCal. OC or SD I tend to see closer to $300-400/hr. Parts of LA $500/hr is completely reasonable. I've seen much higher than this. I've also seen insurance paying $500/hr easily in LA so some clinics/groups are opting to do insurance because of it. Medicare pays close to this in LA if you do two 99214+90833 per hour (about $428/hr). Picking your market and where to open your office will determine much of this. Location, location, location.

EDIT: If you'd like to do some market research, go to PsychologyToday, search for psychiatrists in that city, open up a bunch of profiles and go to their websites, look for their fees that can be public on their website or you have to download their practice policies document to see.

 

[jbomba]

jbomba, that schedule sounds miserable. I'd rather try for a cash practice, charge $500/hr which is not unreasonable in many areas, work 31-32 clinical hours a week for 48 weeks to make $750k. The only issue is getting 31-32 hours worth of work. This seems much better than doing 52 hours of inpatient+outpatient work not including admin per week.

well its only 32 hours of inpatient and 12 hours of outpatient, so 44 hours a week. I've been doing this outpatient job for about 8 months now too. Theres very little admin as office support is fantastic. I dunno, I guess I just dont see this as being worse than residency work.

But to your point, I agree fully. This is my set up while I build up a private practice of cash pay. I have some unique referral sources most fresh out of residency docs don't have so I think I may have a leg up. I just don't like doing more than ~20ish hours of outpatient a week as I get too bored. I think 20 hours of outpatient and 16 hours of psych ER would be the perfect combo for me. Particularly given I could do this over 3.5 days each week.

 

[LeaveNoTrace]

Yep, the reasonable salary is what is gonna get you when you get audited.

They'll pull their average from somewhere for a fulltime psychiatrist (or whatever doctor you end up being) for the number of hours worked and tell you what you should have been paying yourself.

Also, remember that for a solo 401k you can only contribute the yearly limit (22,500) plus 25% of your self employment income (up to a total of $67k). So in your example you would need to pay taxes on a $200k salary in order to have the extra $50k to put into your solo 401k (round numbers to make the math easy). Remember that self employment tax is 15% as you pay both the employer and employee side.

So, in reality, no - you won't be able to limit your tax liability as strongly as you want to. At least not with methods I'm aware of. I'm admittedly ignorant of cash balance plans and how that would help you, so it very well could be possible.

It would be best to consult a lawyer.

 

[B52slinger]

well its only 32 hours of inpatient and 12 hours of outpatient, so 44 hours a week. I've been doing this outpatient job for about 8 months now too. Theres very little admin as office support is fantastic. I dunno, I guess I just dont see this as being worse than residency work.

But to your point, I agree fully. This is my set up while I build up a private practice of cash pay. I have some unique referral sources most fresh out of residency docs don't have so I think I may have a leg up. I just don't like doing more than ~20ish hours of outpatient a week as I get too bored. I think 20 hours of outpatient and 16 hours of psych ER would be the perfect combo for me. Particularly given I could do this over 3.5 days each week.

I'd rather have variety and consistent employed income personally. Doing only cash practice for a living sounds like a drag...

 

[jbomba]

I'd rather have variety and consistent employed income personally. Doing only cash practice for a living sounds like a drag...

Same. I think a shift based job in addition to private practice would be the best set up for me personally.

 

[clozareal]

It depends on your personality. The ebb and flow of income from private practice gives people too much anxiety and they would rather know exactly how much they are getting every 2-4 weeks from an employed job. Some people don't want to take on a leadership position, administrative duties, marketing, or owning anything. They'd rather work in a team where that responsibility is distributed. Some people don't want to do only outpatient and consider it boring. They'd rather have a mix of inpatient, ER, consult, outpatient, IOP/PHP, residential, groups, etc.

It's about knowing yourself and what best fits for you. I couldn't do ER or inpatient work anymore. The acuity makes me feel acute myself. I'd rather do the slow work of psychotherapy. Give me 20-30 therapy cases a week ± medications and I'd be happy.

 

[WisNeuro]

It depends on your personality. The ebb and flow of income from private practice gives people too much anxiety and they would rather know exactly how much they are getting every 2-4 weeks from an employed job. Some people don't want to take on a leadership position, administrative duties, marketing, or owning anything. They'd rather work in a team where that responsibility is distributed. Some people don't want to do only outpatient and consider it boring. They'd rather have a mix of inpatient, ER, consult, outpatient, IOP/PHP, residential, groups, etc.

It's about knowing yourself and what best fits for you. I couldn't do ER or inpatient work anymore. The acuity makes me feel acute myself. I'd rather do the slow work of psychotherapy. Give me 20-30 therapy cases a week ± medications and I'd be happy.

You can still pretty easily achieve this in PP. You're generally setting your "reasonable" salary figure at a certain point. Set payroll to yourself for every 2 weeks or a month, and you know your monthly take home. Then after taxes are done, you pay yourself dividends from the amount leftover that doesn't have to go through payroll taxes.

 

[clozareal]

You can still pretty easily achieve this in PP. You're generally setting your "reasonable" salary figure at a certain point. Set payroll to yourself for every 2 weeks or a month, and you know your monthly take home. Then after taxes are done, you pay yourself dividends from the amount leftover that doesn't have to go through payroll taxes.

Ah yes, you're right. I was referring to sole proprietorship and not other business structures.

 

[WisNeuro]

Ah yes, you're right. I was referring to sole proprietorship and not other business structures.

I know CA is weird, but in most places you can still be a sole prop llc, but elect to be taxed as an s-corp.

 

[whopper]

If this is legal and done correctly I'd say genius.

Of course I believe in paying my fair share but the tax code is so freaking complicated as it is who is to say it's fair or not? Also several of the very things that give you deductions are supposed to be good for society which is why they made them deductions.

Add to this I've worked in state government operations. Many of them are poorly managed, overspend due to mismanagement, heck if you want to go on what's fair IMHO several state agencies shut have incentives to punish those on government pay not doing their jobs.

It depends on your personality. The ebb and flow of income from private practice gives people too much anxiety and they would rather know exactly how much they are getting every 2-4 weeks from an employed job.

Agree. Private practice makes me much more money for most psychiatrists and I like it better but I know plenty of people that couldn't handle this cause they're too scared of taxes, don't know how to manage something, or their own current job is very good for them for whatever their situation is.

This is not a criticism. Some people just aren't good at managing things or leading things themselves. I suck at basketball and you don't want to see me wearing speedos and high heels. That's just a fact.

 

[clozareal]

If this is legal and done correctly I'd say genius.

Of course I believe in paying my fair share but the tax code is so freaking complicated as it is who is to say it's fair or not? Also several of the very things that give you deductions are supposed to be good for society which is why they made them deductions.

I'll pay my fair share of taxes, but I'm not leaving a tip.