When a physician is transitioning from receiving a modest salary as an Intern/ Fellow / Resident to being paid as a board certified physician, there are a myriad of financial mistakes that are often overlooked, but that can be very easily prevented. This critical point is the time to make these decisions, and not after the consequences have reared their head.
As a New Physician, you are about to reap the financial rewards after years late nights of both studying and residency. Before you go any further, take a few moments to contemplate your current financial position, and how it is about to change. Also, look into the future and think about just how hard you plan to work, and for how long. Depending on your specialty, your time spent working may be shorter than you think.
As a small business owner, regardless of the product or service you offer, your time is the most precious commodity you have. Since you only have a limited number of hours in each day, managing the amount of time you spend on various projects is critical. You want to make certain that these hours are as productive as possible, meaning they generate the greatest level of income possible.
Now that your Internship and Residency are coming to a close, you are now looking forward to being out on your own, doing what you love to do. You are about to reap the rewards, both emotional and financial for the years of hard work you have put in. Right now, before you make any type of financial decisions, realize that the decisions you make right now can have a dramatic impact on a physician’s financial situation for many years to come. If you do not take the proper steps, and file the appropriate paperwork at the scheduled times, you can find yourself paying significantly more in income taxes and also subject to IRS fines and penalties, and heaven forbid tax liens. Take the proper steps now, and start by hiring a physician business manager.
Forming a Corporation
While you can form a corporation online, and obtain you EIN number, most document filing services fall short of completing everything that must be done. You still must have a board meeting, issue shares, and determine your tax treatment. If you are going to form a physician corporation, do it correctly, and do it completely. If you are not sure about what to file, don´t be afraid to use a professional. You will be thankful when it comes to filing your first tax return.
Annual Corporation Filings
The day you form your corporation is only the beginning. You have annual filings that must be made, and you also have a requirement to act like a corporation. Acting like a corporation means you have documented board meetings, and these meetings are held on a regularly scheduled basis. If for some reason you are ever involved in litigation, these are the documents that are requested first, and are regularly used to “pierce the corporate veil.”
You cannot be in control of your business if you don’t know what is going on. With bad numbers, or no numbers, you are flying blind, and it happens all of the time. Why? For one thing, it is a common — and disastrous — misconception that an outside accounting firm hired primarily to do the taxes will keep watch over the business. In reality, that is the job of the chief financial officer, so if you don´t want to go back to school to get another degree in Finance or Accounting, don´t be shy in outsourcing these duties.
You must remember that you are not only a physician, but you are also an employee of your Physician Corporation. This is important in that you are able to utilize your Physician Corporation to pay certain business related expenses, and fund your retirement accounts, prior to actually taking your salary. The net effect of this is a significant reduction in your annual tax bill. You are however, required to pay quarterly withholding taxes, in addition to matching Social Security and Medicare taxes. You may think that you can simply set money aside to cover this at the end of the year, but past experience has shown, this is not something you want to do.
As a physician, your retirement planning is more than just saving for the future. It is also the primary means for reducing your tax burden, in addition to a method of sheltering your personal assets from civil judgment. Be certain to take this seriously. You do NOT want to work with someone who is simply selling you products, and has no firsthand experience working with physician pensions. You have many more options than the average broker knows about, so be sure and work with a professional who has done this before, and really specializes in situations such as yours.
Now that we have gone through the various areas to pay close attention to, don´t let them keep you up at night. Each of the items covered above has a very specific procedure to make certain they are done completely and correctly. The main point is that while there are dreadful consequences for failing to take the proper steps, the rewards for actually taking those steps can be extremely rewarding financially. The moral of this is that while you don´t want to overpay for document filing, you do want to work with someone professional – someone who has experience. You also want to seek out someone you can trust to know that they are looking out for your best interests over the long term.
My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Small Business Owners and Entrepreneurs.
We specialize in Corporation filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts.
We are not simply a document filing service; we are here to help you with the part of the business that you have to do, so you can focus on what you love to do.
Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients.
Email us with any questions or call us at: 1-800-517-0CFO (1-800-517-0236)