Taxes, "Tax Strategists" and Private Practice

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NotFrankUnderwood

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Hey y'all,
Did a quick search around the forums, but didn't find anything recent about the subject. I'm about to start a PP gig in California which is purely 1099 work. I was told from the get-go that I would need to incorporate, but didn't really get that much guidance beyond that. I ended up findng a CPA (recommended by someone at the group) who is planning to charge me "a couple thousand" to prepare my taxes at the end of the year. We had a 45 minute conversation where he gave me basic advice on starting an S-corp, tracking expenses, setting up an office space for deductions, IRA etc. He says he's just a tax shop, and doesn't do anything else (payroll, expense handling etc). His reasoning made sense and he claimed he could save me ~18k in taxes (and even more when I become partner) which sounded very nice, but at the same time "a couple thousand" for what seems like mostly formulaic work seems a bit pricey (especially since I have to do everything myself!). I've read a little bit about it on WCI, but I'm loath to dive further unless it's realistic that I can viably perform taxes myself without taking a full on course on the subject. So, for the 1099 guys people out there, do you do your own taxes or have a CPA?
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I’m 1099 and meeting with my financial advisor tomorrow about the same sort of topics. Also just started new job. I can message you or post on here what I find out. Have no idea how this stuff works.
 
Bias warning:. I'm married to a CPA that does this sort of thing.

Short answer: It's worth it.

Long answer: Yes, doctors are generally smart enough to figure this stuff out and do a decent job. But there is value in NOT having to do it on your free time, as they will be able to do it in much less time, plus having a CPA that can argue on your behalf in court is a nice safety net.
 
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There are non-guys posting around here 🙂
I used a CPA for the first time this year and it was well worth the expense!
It wasn't a few thousand since my 1099 income wasn't that much this year, but she definitely saved me money and it was helpful for the piece of mind. Will be using her going forward for sure.
 
Even if you get the exact same answer, chances are it isn’t worth your time.

Now if you enjoy it, or want to learn, go for it. For me, a “few thousand dollars” is worth not spending that time. It is a deep hole to go down that shifts yearly.

Turbo tax will retrospectively grab everything, but the foresight a good CPA can offer will help you plan your expenses to “make sense.”

My lady didn’t offer much before the first year, some generic advice. After year 1 though she sent me a nice email with 6 bullet points of things I maybe should consider. None would have been impossible myself, but she led me to water on a number of things I hadn’t actually paid much attention to. She hasn’t “saved me 50k” or anything like that outright, but she has led me to take actions which have done at least that over time.
 
I use a CPA. Used to get ripped off with my last one but have since switched and have a cheaper one. About 2-3k a year.
I am not smart enough to figure this stuff. Got plenty of other stuff I need to learn and don’t need to add extra stress into my life. They went to school for this, I went to medical school.

If I ever get audited, I am off the hook.
 
AdmiralChz said:
This is the key, here. My CPA fee includes audits?
Click to expand...

Mine charges about $250 per year “audit insurance” premium as an optional fee. Never paid it. Never been audited.

Would only consider doing my own taxes if I was 100% W-2.
 
chocomorsel said:
I use a CPA. Used to get ripped off with my last one but have since switched and have a cheaper one. About 2-3k a year.
I am not smart enough to figure this stuff. Got plenty of other stuff I need to learn and don’t need to add extra stress into my life. They went to school for this, I went to medical school.

If I ever get audited, I am off the hook.
Click to expand...

You are “off the hook” for the CPAs fees for representing you to the IRS, (If your deal with them includes this service).

You are not “off the hook” for any additional taxes owed, interest, and penalties.
 
dr doze said:
You are “off the hook” for the CPAs fees for representing you to the IRS, (If your deal with them includes this service).

You are not “off the hook” for any additional taxes owed, interest, and penalties.
Click to expand...
All the more reason for them to do a good job and avoid mess or else I take my business elsewhere. And no referrals.
They have an incentive to do a thorough and non messy job. There business often depends on referrals.
 
I’m a 100-% W2 employee but have a few small side gigs (AirBNB, invested in a franchise gym). I’d done my own taxes my entire life, and even had a seasonal job preparing taxes so know my way around pretty well.

However... as long as those are going on, I’ll use a CPA every year. $995 last year.
 
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There are a multitude of gray areas in the tax code. You need an expert to help guide you in what areas to avoid and how to push the limits in other areas.

I would spend more time learning about investing strategies, real estate, etc than trying to do your own taxes as a 1099
 
chocomorsel said:
I use a CPA. Used to get ripped off with my last one but have since switched and have a cheaper one. About 2-3k a year.
I am not smart enough to figure this stuff. Got plenty of other stuff I need to learn and don’t need to add extra stress into my life. They went to school for this, I went to medical school.

If I ever get audited, I am off the hook.
Click to expand...
Not really, read the line where you sign and say that you verify everything submitted. That said my CPA earns his 2-5k tenfold every year with my returns.
 
Ronin1 said:
Not really, read the line where you sign and say that you verify everything submitted. That said my CPA earns his 2-5k tenfold every year with my returns.
Click to expand...
The only thing I can honestly, knowingly verify is the income and expenses. How they arrive at other figures is their business and expertise.
So I am suppose to verify that their work is correct? Kinda like a surgeon supervising a CRNA? Yeah, no.
 
So 2kish is really the going rate? Even for a fresh grad? It kind of feels like an “I’m going to overcharge you because you [may one day be] wealthy” situation. But, oh well, sound like it’s hard enough that it’s probably not worth my time.
 
chocomorsel said:
The only thing I can honestly, knowingly verify is the income and expenses. How they arrive at other figures is their business and expertise.
So I am suppose to verify that their work is correct? Kinda like a surgeon supervising a CRNA? Yeah, no.
Click to expand...
You sign the return so you are on the hook. Make sure you agree with all the deductions and/or schemes cocked up by your accountant. Be a pig not a hog. The IRS does not play
 
NotFrankUnderwood said:
So 2kish is really the going rate? Even for a fresh grad? It kind of feels like an “I’m going to overcharge you because you [may one day be] wealthy” situation. But, oh well, sound like it’s hard enough that it’s probably not worth my time.
Click to expand...

The ones I’ve used have an hourly fee schedule. My W2 returns ran about $600-650 and my W2 + K1 return was $900-$950. 2K seems reasonable if it’s an initial S-Corp set-up etc. The projections and planning they give you are where they really earn their salt.
 
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Ronin1 said:
You sign the return so you are on the hook. Make sure you agree with all the deductions and/or schemes cocked up by your accountant. Be a pig not a hog. The IRS does not play
Click to expand...
And how am I supposed to agree to crap I don’t understand.
I ask for an explanation. They walk me through it. They do the calculations. That’s all I got.
 
NotFrankUnderwood said:
Hey y'all,
Did a quick search around the forums, but didn't find anything recent about the subject. I'm about to start a PP gig in California which is purely 1099 work. I was told from the get-go that I would need to incorporate, but didn't really get that much guidance beyond that. I ended up findng a CPA (recommended by someone at the group) who is planning to charge me "a couple thousand" to prepare my taxes at the end of the year. We had a 45 minute conversation where he gave me basic advice on starting an S-corp, tracking expenses, setting up an office space for deductions, IRA etc. He says he's just a tax shop, and doesn't do anything else (payroll, expense handling etc). His reasoning made sense and he claimed he could save me ~18k in taxes (and even more when I become partner) which sounded very nice, but at the same time "a couple thousand" for what seems like mostly formulaic work seems a bit pricey (especially since I have to do everything myself!). I've read a little bit about it on WCI, but I'm loath to dive further unless it's realistic that I can viably perform taxes myself without taking a full on course on the subject. So, for the 1099 guys people out there, do you do your own taxes or have a CPA?
Click to expand...

I use quickbooks to keep track of payroll and quarterly, annual tax form filings and tax payments. It costs me $79/month. I am not a big fan of financial advisors or overpriced CPAs.
 
+1 for quickbooks. Here is everything you need to know. Step by Step. Long post incoming, sorry:
1) incorporate as an s-corp. It costs $800 in california. I used legal zoom when I did it. They take care of everything and send you a nice folder and stuff, but its a waste of money. Its literally like a one page form to incorporate. Legal zoom will try to get you to use them as a registered agent for a recurring fee. Make sure they dont its useless.
2) Open a quickbooks online account, get the full service payroll. I think in total its like 80/month.
3) Open a separate business checking account and credit card. I like the chase business INK because I like the ultimate reserve points. You can transfer the points to your personal UR account and they usually have a big point sign up bonus. You can get the signup bonus for the personal and business cards too.
4) Pay yourself a "reasonable salary". This is debatable, but 200k/year is enough.
5) From here, quickbooks with full service payroll takes care of everything. They run monthly payroll (you can make any changes you want easily), make all your tax deposits and file quarterly forms. They will also generate a W2 at the year end. It also can link to your business accounts and automatically track expenses and revenue. It also can generate profit and loss statements which is really convenient if you are trying to buy a house.
6) At the end of the year, or quarterly, whichever you want, you can transfer more cash to your personal account as a distribution.
7) I use a CPA to file my actual return, because Turbo tax doesnt file business taxes unless you pay extra. In that case Id rather use a CPA. They charge me 625 for the business return and 325 for my personal return.
8) I have a SEP IRA account for my retirement fund. You can contribute 25% of your salary up to 54,000/year. This is why i recommend 200ishk/year for salary. This allows you to max your retirement contribution. Its a pre tax deduction on your business. I make the contribution all at once in february/march for the previous year, after I do my taxes to make sure the numbers all work.
9)Malpractice insurance, licensing stuff, CME, credentialing, all that goes on the business credit card. I fill up a gas tank on the business card once a month. Cell phone on the business card. New computer? business card. Out to dinner with another anesthesiologist or surgeon? Business card. 50% of the cost of meals are deductible if its business related. Car mileage is only deductible if driving from one hospital to another, and you need to keep a log of miles. Generally not worth it. Some people deduct a home office, but Im told its a high audit risk and generally not worth it. Get receipts and throw them all in a shoebox in your closet.

It seems overwhelming, but its not bad, especially once you get it all set up and quickbooks takes care of everything. The hardest part for me was trying to figure out tax deposits and how much, which is why quickbooks works well. One thing to know though is that a lot of CPAs are crap. Ive been through several, including ones that tell me they specialize in small business and physicians. The last one literally had no idea how to take a deduction for my SEP IRA account. Theres literally a line on the first page of the business return for it. I had to send my CPA the IRS documentation. So keep an eye on em, and double check everything they tell you. PM me if you have more questions.
 
What does that mean "pay yourself a reasonable salary"? Where does that money come from? Maybe this is a basic question, but I don't understand that part.
 
MirrorTodd said:
What does that mean "pay yourself a reasonable salary"? Where does that money come from? Maybe this is a basic question, but I don't understand that part.
Click to expand...
Again, my wife is the CPA, not me, but here's my basic understanding. Someone please correct me if I'm wrong.

You incorporate into an S-Corp. Then the S-Corp is what contracts with the hospital/group/whatever for your services.
The checks from the hospital/group/whatever go to the S-Corp, which is yours, but then the S-Corp pays your salary, handles your retirement, etc. Essentially you are an employee of the S-Corp, not a direct contracted individual. It can have some advantages as stated above by ASA6, not just with taxes but also somewhat with liability depending on how you initially set up the corporation.

Keep in mind that obviously you need to be doing enough business through the S-Corp to make it worthwhile. If you do mostly W-2 work, with some 1099, I'm sure there's a point somewhere that it wouldn't work well.
 
MirrorTodd said:
What does that mean "pay yourself a reasonable salary"? Where does that money come from? Maybe this is a basic question, but I don't understand that part.
Click to expand...

This only applies if you are an S-corp. which is something that may or may not be optimal depending on your point of view.
 
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