Tax deductions

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New attending here. Wanted to tap the wisdom of my EM veterans. I am an IC with a LLC taxed as an S-Corp. What all should I be deducting as business expenses for maximal tax savings?
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1) consult a CPA.
2) Cell phone,
3) home internet
4) maybe part of your car
5) EM subscriptions
6) CME
7) scrubs (but not work clothes)
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First of all, why are you an LLC? Unless you are pulling over 400k, you are probably better suited to just be a sole prop. Accountants want you to be an LLC to increase complexity and to generate more revenue for themselves.
 
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TheSingularity said:
First of all, why are you an LLC? Unless you are pulling over 400k, you are probably better suited to just be a sole prop. Accountants want you to be an LLC to increase complexity and to generate more revenue for themselves.
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Not true and its not hard for an EM doc especially a new young hungry one to make over 400k. No issue being a sole prop but LLC offers some benefits (state dependent). Can have some tax advantages depending on how you pay yourself. Can save on Medicare taxes at the very least.
 
EctopicFetus said:
Not true and its not hard for an EM doc especially a new young hungry one to make over 400k. No issue being a sole prop but LLC offers some benefits (state dependent). Can have some tax advantages depending on how you pay yourself. Can save on Medicare taxes at the very least.
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Meh.

If you make < 400k and pay yourself a a reasonable profit share from the LLC (one that is not going to flag you with the IRS), its pretty hard to make it worthwhile.

My accountant did the math for me (for income ~380k) and I would have saved maybe 1k/yr. Not worth it to me for all the added complexity. Sole prop so much easier - and he agreed. I feel like he's incentivised financially to push for LLC too.
 
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TheSingularity said:
First of all, why are you an LLC? Unless you are pulling over 400k, you are probably better suited to just be a sole prop. Accountants want you to be an LLC to increase complexity and to generate more revenue for themselves.
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I make >$400,000
 
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TheSingularity said:
Meh.

If you make < 400k and pay yourself a a reasonable profit share from the LLC (one that is not going to flag you with the IRS), its pretty hard to make it worthwhile.

My accountant did the math for me (for income ~380k) and I would have saved maybe 1k/yr. Not worth it to me for all the added complexity. Sole prop so much easier - and he agreed. I feel like he's incentivised financially to push for LLC too.
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From my own math (could very well be wrong), I'm saving ~$10-15K a year
 
TheSingularity said:
OP you working for a CMG? I highly suggest you don't.
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That's a whole different conversation. Let's stay on topic.

I formed an S-corp for the new job. We will see how things go, but most folks I talked to say they save about $5,000-$6,000 a year this way. Not much, but enough to make it worth your while and have a CPA manage it. That's a nice vacation each year.
 
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Fox800 said:
That's a whole different conversation. Let's stay on topic.

I formed an S-corp for the new job. We will see how things go, but most folks I talked to say they save about $5,000-$6,000 a year this way. Not much, but enough to make it worth your while and have a CPA manage it. That's a nice vacation each year.
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Check out White Coat Investor. Most financially astute people say it's not worth it.

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TheSingularity said:
Check out White Coat Investor. Most financially astute people say it's not worth it.

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Bottom line though is that you should have a CPA do the calculation for your circumstance. Remember to factor in cost of s Corp return and payroll management .

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I concluded after 2 years of doing an S-corp that it wasn't worth it. The fees I had to pay to the payroll company, as well as the accountant ate up most of the savings. I found I still had to do a ton of paperwork and paperwork for local taxes, UI, and modified business tax. Just not worth the time/effort at the end of the day to save a little bit.
 
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GeneralVeers said:
I concluded after 2 years of doing an S-corp that it wasn't worth it. The fees I had to pay to the payroll company, as well as the accountant ate up most of the savings. I found I still had to do a ton of paperwork and paperwork for local taxes, UI, and modified business tax. Just not worth the time/effort at the end of the day to save a little bit.
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Only difference is if you have ownership in something. Then the K1s and other things make it fairly complex to begin with.
 
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Again it all depends. Also, especially if you make a lot you could hire your wife and/or kids to help manage your career. There are some benefits there. To be clear I am a w-2 employee with some 1099 income that is paid to me as an individual but that number is tiny (under 10k).

I think you need an accountant. The more you make the more you will make it worthwhile.
 
EctopicFetus said:
Again it all depends. Also, especially if you make a lot you could hire your wife and/or kids to help manage your career. There are some benefits there. To be clear I am a w-2 employee with some 1099 income that is paid to me as an individual but that number is tiny (under 10k).

I think you need an accountant. The more you make the more you will make it worthwhile.
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Agree with the above, what I am going to try and do for this year. Im in a community property state, so apparently can do a qualified joint venture with the wife, have her put in about 500 hours of work a year (scheduling, cme, etc), and then she gets a proportion of my llc pay and can open a solo 401k, Decided to get solar panels this year also since its 30% tax savings for this year. Had to take out a solar loan but its something like 3 % interest so, minimal and worth it in the long run.
 
sylvanthus said:
Agree with the above, what I am going to try and do for this year. Im in a community property state, so apparently can do a qualified joint venture with the wife, have her put in about 500 hours of work a year (scheduling, cme, etc), and then she gets a proportion of my llc pay and can open a solo 401k, Decided to get solar panels this year also since its 30% tax savings for this year. Had to take out a solar loan but its something like 3 % interest so, minimal and worth it in the long run.
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You don't need a corporation to be able to do this, just fyi.
 
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TheSingularity said:
Check out White Coat Investor. Most financially astute people say it's not worth it.

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Click to expand...

Jim (white coat investor) himself switched to S corp. He himself says that he thinks he should have done it a little while ago.

Also.... LLC doesn't give complexity. Llc isn't a tax status. You can be taxed as a sole proprietor when an LLC, you choose the tax designation. Last year my LLC as sole proprietor was essentially just a pass through entity.

S corp is what brings in the complexity. The increased complexity is not an issue if you have an accountant do your taxes and handle the added complexity. I plan on switching to S corp next year (~450k income). I'll save roughly 2k after paying the accountant and payroll. Infact, it will make my life easier because someone else will deal with my taxes.

Plus, the accountant cost is also a business deduction ;)
 
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Sole proprietor counts as pass through
cyanide12345678 said:
Jim (white coat investor) himself switched to S corp. He himself says that he thinks he should have done it a little while ago.

Also.... LLC doesn't give complexity. Llc isn't a tax status. You can be taxed as a sole proprietor when an LLC, you choose the tax designation. Last year my LLC as sole proprietor was essentially just a pass through entity.

S corp is what beings in the complexity. The increased complexity is not an issue if you have an accountant do your taxes and handle the added complexity. I plan on switching to S corp next year (~450k income). I'll save roughly 2k after paying the accountant and payroll. Infact, it will make my life easier because someone else will deal with my taxes.

Plus, the accountant cost is also a business deduction ;)
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TheSingularity said:
Sole proprietor counts as pass through

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Click to expand...

Exactly. One if your earlier posts questioned why he is an LLC as it increases complexity. LLC doesn't, you can be a sole proprietor as LLC with basically no complexity whatsoever.
 
Deductions Ive made so far.

Mileage
Contract review lawyer
Accountant
Car maintenance expenses
License fees etc
20 percent of my cell phone and internet cost
Electronics (laptop last year)

Quarterly tax payment fee (i use a 3 percent credit card to pay taxes. Cost of using credit card is 1.87 percent. I get back 3 percent on the card. And then i deduct the 1.87 percent fee as a business expense)
Disability insurance
Cme stuff

I use QuickBooks for all my expenses and mileage tracking. Makes everything a breeze. Have an upcoming sit down with an accountant in a couple of weeks. Curious to see if he takes out any deductions or adds anything that I'm missing.
 
I meant LLC as s Corp. But why would you ever be LLC as sole proprietor? This makes the least sense.
cyanide12345678 said:
Exactly. One if your earlier posts questioned why he is an LLC as it increases complexity. LLC doesn't, you can be a sole proprietor as LLC with basically no complexity whatsoever.
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Anyone have an extra baby for me to adopt? Ugh, I've made $500k so far and will make $120k more before end of year and I'm pretty sure these next 2 months pay are going straight to tax. I dont have enough to deduct, I guess, I can max out my SEP-IRA and buy a small property?

I rent because of this job, can I deduct that rent?

I paid 26% tax last year, how much are you all paying?

My job doesn't allow LLCs and S-corp sounds painful.
 
petegriffin said:
Anyone have an extra baby for me to adopt? Ugh, I've made $500k so far and will make $120k more before end of year and I'm pretty sure these next 2 months pay are going straight to tax. I dont have enough to deduct, I guess, I can max out my SEP-IRA and buy a small property?

I rent because of this job, can I deduct that rent?

I paid 26% tax last year, how much are you all paying?

My job doesn't allow LLCs and S-corp sounds painful.
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First mistake is having a sep ira instead of a solo 401k as you currently cannot do a backdoor Roth IRA.

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cyanide12345678 said:
Deductions Ive made so far.

Mileage
Contract review lawyer
Accountant
Car maintenance expenses
License fees etc
20 percent of my cell phone and internet cost
Electronics (laptop last year)

Quarterly tax payment fee (i use a 3 percent credit card to pay taxes. Cost of using credit card is 1.87 percent. I get back 3 percent on the card. And then i deduct the 1.87 percent fee as a business expense)
Disability insurance
Cme stuff

I use QuickBooks for all my expenses and mileage tracking. Makes everything a breeze. Have an upcoming sit down with an accountant in a couple of weeks. Curious to see if he takes out any deductions or adds anything that I'm missing.
Click to expand...

Be careful deducting disability insurance. If you deduct the premium now, then the benefit is taxable if you end up needing it.

Vice versa, if you pay for it with post-tax dollars (as I do) then the benefit is non-taxable. Might want to change it up.
 
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Fox800 said:
Be careful deducting disability insurance. If you deduct the premium now, then the benefit is taxable if you end up needing it.

Vice versa, if you pay for it with post-tax dollars (as I do) then the benefit is non-taxable. Might want to change it up.
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Agreed
 
I definitely have to touch base with my accountant about this. But if I'm a w2 employee of my own S corp, couldn't my S corp deduct the cost of buying employee disability insurance as a business expense. Isn't that just a business expense of the business. I mean, the government only taxes profits, the cost of benefits of employees is technically a business expense. Shouldn't that be different from an individual buying their own disability insurance and then deducting that, which obviously can lead to paying taxes on that money later on in the event of a disability.

But businesses, unlike individuals get to deduct expenses, then they get taxed on the profits.

Also, it also might make mathematical sense to deduct the cost due to changes in tax bracket. For example:

I currently have 10k monthly benefit at roughly 2400/yr. My tax bracket is 35%.

so if i don't deduct anything 120k/yr for $2400.

If i deduct the cost, the true cost to me is 65% - $1560. The benefit is 120k minus taxes at 22 percent (income bracket dropped due to income decrease) - So 93.6k

so now if i really want, i can get 15k monthly benefit for $3600/yr. Deduct the cost, so basically true cost $2340 for benefit of $136800 post tax (180k with 24 percent tax bracket).

so basically in short ...i could get 120k untaxed benefit for $2400/yr. Or i could get $136800 post tax for $2340 post business expense deductions.

so in reality, by deducting cost at a higher marginal tax rate, i can buy more and come out with a lower cost per dollar benefit since my benefit will be taxed at a lower rate.

also, i know i simplified things. Infact the difference is going to be even bigger because the cost deduction of current premiums is at my marginal rate (small amount that doesn't change my marginal rate), while the benefit will basically be taxed at my effective tax rate (larger amount that basically defines income once disabled).

I think it makes sense, feel free to prove me wrong. I'm post shift and sleepy so the math is crude and the numbers may be off. But like i said, i have an appointment with an accountant to go through the finer details.

Edit: Also....are you damn certain that in 10-20 years if you ever became disabled that the irs won't come for it's share? What if you never need that disability income and then you lost 30 years of deductions? Why not just take the money now when you can, instead of wait for some possible theoretically money that may never happen?
 
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cyanide12345678 said:
Deductions Ive made so far.

Mileage
Contract review lawyer
Accountant
Car maintenance expenses
License fees etc
20 percent of my cell phone and internet cost
Electronics (laptop last year)

Quarterly tax payment fee (i use a 3 percent credit card to pay taxes. Cost of using credit card is 1.87 percent. I get back 3 percent on the card. And then i deduct the 1.87 percent fee as a business expense)
Disability insurance
Cme stuff

I use QuickBooks for all my expenses and mileage tracking. Makes everything a breeze. Have an upcoming sit down with an accountant in a couple of weeks. Curious to see if he takes out any deductions or adds anything that I'm missing.
Click to expand...


Which credit card gives 3% back? Or are you calculating it in airline miles?
 
Pudortu said:
Which credit card gives 3% back? Or are you calculating it in airline miles?
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Alliant signature. It's 3 percent for the first year, I'm still enjoying that time. 2.5 percent after. 99 annual fee. Makes up for it if you pay 100k in taxes :)
 
cyanide12345678 said:
Alliant signature. It's 3 percent for the first year, I'm still enjoying that time. 2.5 percent after. 99 annual fee. Makes up for it if you pay 100k in taxes :)
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How much does the IRS charge in fees if you pay your tax bill with a credit card?


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bravotwozero said:
How much does the IRS charge in fees if you pay your tax bill with a credit card?


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Click to expand...

1.87% fee. Getting back 3% this year, 2.5% next. Then deducting the 1.87% fee as a business expense which the IRS allows, so essentially get a 35 percent discount on that fee on top of the differential. That's an extra $1500-2000 in my pocket.
 
cyanide12345678 said:
1.87% fee. Getting back 3% this year, 2.5% next. Then deducting the 1.87% fee as a business expense which the IRS allows, so essentially get a 35 percent discount on that fee on top of the differential. That's an extra $1500-2000 in my pocket.
Click to expand...

What card are you using to get 3% back? Most cards I know will only give 1.5% on general purchases. Right now the Chase Freedom has 3% back on purchases up to $20K so you must be using a card with temporary bonus spend.
 
GeneralVeers said:
What card are you using to get 3% back? Most cards I know will only give 1.5% on general purchases. Right now the Chase Freedom has 3% back on purchases up to $20K so you must be using a card with temporary bonus spend.
Click to expand...

Alliant signature visa
 
I use the fidelity visa. 2% cash back on everything and no cap or annual fee.
also there is no need to only deduct a portion of phone. That’s old school tax law. Now u can deduct it all. off topic but if you make a good bit of money as a 1099 you should seriously consider a defined benefit plan for yourself. You can put a boatload of money in your retirement on top of the normal ~55k. In your early 40s it is over 100k. Some expenses with it but saving 35+% is well worth it IMO.
 
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EctopicFetus said:
I use the fidelity visa. 2% cash back on everything and no cap or annual fee.
also there is no need to only deduct a portion of phone. That’s old school tax law. Now u can deduct it all. off topic but if you make a good bit of money as a 1099 you should seriously consider a defined benefit plan for yourself. You can put a boatload of money in your retirement on top of the normal ~55k. In your early 40s it is over 100k. Some expenses with it but saving 35+% is well worth it IMO.
Click to expand...

I've stopped using my citi double cash now mostly because of the alliant.

I really do want to educate myself more about defined benefit plan, I've looked into it very superficially. Once these board exams are done, it's the next thing I'm going to look into. The only problem i have is that i don't know if I'll continue being 1099 after a couple of years when I'm job hunting again.
 
cyanide12345678 said:
I've stopped using my citi double cash now mostly because of the alliant.

I really do want to educate myself more about defined benefit plan, I've looked into it very superficially. Once these board exams are done, it's the next thing I'm going to look into. The only problem i have is that i don't know if I'll continue being 1099 after a couple of years when I'm job hunting again.
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Then u stop the db plan. WCi has a post on them.
 
cyanide12345678 said:
I've stopped using my citi double cash now mostly because of the alliant.

I really do want to educate myself more about defined benefit plan, I've looked into it very superficially. Once these board exams are done, it's the next thing I'm going to look into. The only problem i have is that i don't know if I'll continue being 1099 after a couple of years when I'm job hunting again.
Click to expand...

You mention board exams, which makes me think you're young. A DB plan really shouldn't start until your 50's.
 
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petegriffin said:
Anyone have an extra baby for me to adopt? Ugh, I've made $500k so far and will make $120k more before end of year and I'm pretty sure these next 2 months pay are going straight to tax. I dont have enough to deduct, I guess, I can max out my SEP-IRA and buy a small property?

I rent because of this job, can I deduct that rent?

I paid 26% tax last year, how much are you all paying?

My job doesn't allow LLCs and S-corp sounds painful.
Click to expand...

As noted by another poster, you don't need an LLC or S-corp to start a cash balance plan. You can start a CBP as a sole proprietor. You just need an EIN as well as an actuary to help you set it up. Depending on your age, you can likely put away another >=$80K tax-deferred in there, although it might be a bit late bureaucratically to get it for 2019.

My understanding is you can't deduct rent that you are paying because of your job.

Trying to keep mine at 24% tax, although it might go up to 32% this year as we're putting all our money toward a house at this point.

Agree w/ others that S-corp is way too much trouble for the theoretical ~$5K/y I could save. Switching back to sole proprietor was a bit of a pain in the butt but overall the best financial decision I made this year from the viewpoint of my sanity.
 
EctopicFetus said:
I use the fidelity visa. 2% cash back on everything and no cap or annual fee.
also there is no need to only deduct a portion of phone. That’s old school tax law. Now u can deduct it all. off topic but if you make a good bit of money as a 1099 you should seriously consider a defined benefit plan for yourself. You can put a boatload of money in your retirement on top of the normal ~55k. In your early 40s it is over 100k. Some expenses with it but saving 35+% is well worth it IMO.
Click to expand...
totally agree, my defined benefit plan is one of the best financial decisions I've ever made. mine costs me $2500/y (which is written off as a business expense), but has saved me hundreds of thousands of dollars in taxes.
For people making much more money than they spend, a DBP is an excellent option.
 
em1234 said:
totally agree, my defined benefit plan is one of the best financial decisions I've ever made. mine costs me $2500/y (which is written off as a business expense), but has saved me hundreds of thousands of dollars in taxes.
For people making much more money than they spend, a DBP is an excellent option.
Click to expand...

Which company do you have your defined benefit plan with? My new job has one, but I'm not eligible to join it for at least 24 months.
 
southerndoc said:
You mention board exams, which makes me think you're young. A DB plan really shouldn't start until your 50's.
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umm why? Im in my early 40s and The amount you can put in is based on age my max number for next year is over 110k. If you do it as a 1099 there are major advantages of doing it over your employer though it will cost you money.

if you have a good EM job and make 500K+ you would be paying 35% income tax plus medicare at 2.35% plus any state taxes you might have. So if you put 100k in there you would be saving at least 37.5K in taxes. Plus you can do your normal retirement 401k/PSP of 55k plus. So you could live on 350k and save 150k.

There is no magic about being 50. I participate in my groups DB plan and it is awesome!
 
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southerndoc said:
You mention board exams, which makes me think you're young. A DB plan really shouldn't start until your 50's.
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Strongly disagree. I’m 40 and my DBP has been huge. My marginal tax rate is just a hair under 50% and using a cash balance plan combined with our 401k/profit sharing plan has made it easy to put aside ~100k/yr pretax. If I waited until 50 I would have missed out on >$500k into the plan while paying an additional $250k in taxes.
 
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I think I’m doing this Emergency Medicine thing all wrong...

Hercules said:
Strongly disagree. I’m 40 and my DBP has been huge. My marginal tax rate is just a hair under 50% and using a cash balance plan combined with our 401k/profit sharing plan has made it easy to put aside ~100k/yr pretax. If I waited until 50 I would have missed out on >$500k into the plan while paying an additional $250k in taxes.
Click to expand...
 
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Hercules said:
Strongly disagree. I’m 40 and my DBP has been huge. My marginal tax rate is just a hair under 50% and using a cash balance plan combined with our 401k/profit sharing plan has made it easy to put aside ~100k/yr pretax. If I waited until 50 I would have missed out on >$500k into the plan while paying an additional $250k in taxes.
Click to expand...

I'm looking at the schwab defined benefit plan. How does age even come into play? What happens if next year I'm no longer 1099 and am back to w2?
 
Fox800 said:
Which company do you have your defined benefit plan with? My new job has one, but I'm not eligible to join it for at least 24 months.
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My actual money is in an account at Vanguard. I use a local pension/retirement consultancy in Houston for the paperwork and actuarial data, etc.

I also agree that wait to 50 is not only unnecessary but ill advised, for the exact reasons spelled out by Hercules and ectopic fetus. Im an IC and opened my at 38yo. My DBP maximum contributions have been a very manageable number 100-150k/y. One of my partners who is almost 60 has found his DBP minimums difficult to cover, like 250k and his max contribution this year was almost 400k.
 
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