taxation / incorporation for EM residents/graduates

[doctor7]

The advent of a new tax year has led me to think about how much the government is raping me. I wanted to start a thread on the benefits of tax planning for EM residents / graduates.

Given the pathetic salaries of residents, is it even worth the time to do careful tax planning (or even hire an accountant)? I've met residents getting refunds of 3K+ after using a certain accountant working out of the Empire State Building .

For the EM graduates, are any of you setting up a professional incorporation? If so, would there have been a benefit to do so while a resident?

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[USCDiver]

I am not an accountant but I have looked into the questions you are asking and while I know a little, hopefully someone will be along that knows a lot more.

My understanding of forming a PC is to keep your assets safe from lawsuit and taxation. You basically put all of your income into the corporation then pay yourself whatever salary you can get by on. Some other things can be purchased through the corp like cars and office space, etc under specific circumstances, but in EM we rarely meet those criteria. Alot of this also depends on the practice set up you enter when you leave, democratic group vs individual contractor. None of this is going to be worthwhile as a resident. You'll be paying yourself the whole sum of your salary and not sheltering any of it.

As for the accountant question, that depends on how complicated your tax return is going to be. If you're just getting your salary and paying rent to an apartment complex, you probably aren't going to save very much. On the other hand, if you're like me and you bought a house, had a bunch of capital gains taxes and had a roommate who was paying you rent for half the year, then the accountant can save you a bunch (I ended up owing Uncle Sam like $18 instead of the $1500 I had come up with when I did it myself with TurboTax). Well worth the $250 fee he charged.

 

[spyderdoc]

No benefit to incorporate as a resident since you are a salaried employee. If you moonlight doing IC work where you get gross checks, then it may be worth it. Most of the benefit of incorporating have to do with "fringe benefits", remimbursements for "business" related expenses, and retirement planning.

I worked in the Kaiser system for 3 yrs after residency, and didn't incorporate since I was an employee. Since I left Kaiser, I just inc'd myself. It is not cheap to do. It cost me about $2k to do the set up and "board meeting" with minutes.

The supposed benefits are that the corp can pay about $42k in pre-tax money toward my SEP. But I do think that you can do a SEP as a non-inc'd IC as well.

I reimburse myself for certain business related expenses, such as my cell phone bill, fax line, etc.

I am learning about auto reimbursement. I think I will be able to buy a car under my corp, but I will have to report some of that as imputed income, so I don't know if it will really help me that much...

I will give myself fringe benefits, such as my life insurance policy, that will be paid from the corp. You CANNOT do disability thru the corp or if you become disabled, you will have to pay tax on the income that you receive from the insurance. So, you have to pay dor DI out of your pocket.

The disadvantage of inc'ing is the associated expenses, and a potential "double taxation". Yo uhave to try to make it so your corp has close to a zero income/profit at the end of the year, or you will get taxed on that money, which doesn't sound so bad, but it will be when you [ay yorself that money later and get taxed again as personal income...

I am still learning about all this, since I just did it a month ago...I will keep you all posted.

Any other help/input would be very helpful to me as well.

Oh yeah, plus you got to get a payroll service to pay youself a salary and do the deductions. I am doing Quickbooks payroll, soo far so good.....About $35/mo.

Good luck!
Mark

 

[doctor7]

thanks for all the responses so far. i feel much more informed. btw, i plan to be drawing some additional income from a non-hospital source. this has led me to consider the incorporation...especially with the benefits of deducting business expenses (home office, car, food, etc.).

for the normal salaried job (as a resident or attending), is it possible to have the teaching hospital or kaiser pay your corporation instead of directly to you?

 

[spyderdoc]

thanks for all the responses so far. i feel much more informed. btw, i plan to be drawing some additional income from a non-hospital source. this has led me to consider the incorporation...especially with the benefits of deducting business expenses (home office, car, food, etc.).

for the normal salaried job (as a resident or attending), is it possible to have the teaching hospital or kaiser pay your corporation instead of directly to you?

Kaiser will not write a check to a corporation. Teaching institutions may vary depending on who is writing the paychecks.