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Warren Buffett, Small Captives and the IRS "Dirty Dozen"

What does Warren Buffett have to do with small captive insurance companies and the IRS “dirty dozen” list? Until this week, my answer would have been, “very little.” However, after addressing the IRS placing small captive insurance companies (CICs) on its “dirty dozen” list in last week’s edition of Captivating Thinking, the Oracle of Omaha, as Buffett is affectionately known, provided even more evidence in support of our already overwhelming arguments against the Service’s pronouncement.

Remember that the IRS has often attempted to argue that only “core insurance” or replacing third party commercial insurance constitutes real insurance. In their “dirty dozen” write-up, they suggested, insurance “policies [that] cover ordinary business risks or esoteric, implausible risks,” are not real insurance. As we noted last week, the esoteric and implausible threats they describe are often the existential threats that can completely wipe out small and mid-market companies (examples include cyber attacks, business interruption, terrorism, pandemic disease outbreaks, power grid failure, biological and nuclear attacks, etc.)

Last week, we noted the both the U.S. Tax Court and FEMA (Ready.Gov) disagree with the IRS on what constitutes real risk and real insurance. And, this brings us to Warren Buffett, the billionaire mega-investor who released his 31 page annual shareholder report this week. His report was summarized by Liz Claman of Fox Business Network, and she pointed out that while the report was characteristically optimistic about America and Berkshire Hathaway’s future, she was struck by Buffett’s biggest worry. In her words:

And those fears? It’s not all sweetness and light in Omaha. Buffett expressed his biggest worry in the letter: “There is, however, one clear, present and enduring danger to Berkshire against which Charlie and I are powerless. That threat to Berkshire is also the major threat our citizenry faces: a “successful” (as defined by the aggressor) cyber, biological, nuclear or chemical attack on the United States. That is a risk Berkshire shares with all of American business.”
Buffett may be an optimist but if he’s anything, he’s reasonable. And having covered him for years, I’m guessing Iran and ISIS have him up at night, drinking Cherry Coke and … thinking. Thinking more.

Notice what Liz says…”if he’s anything, he’s reasonable.” We agree. Ready.gov and the U.S. Tax Court agree as well. Perhaps Mr. Buffett would sleep better if he knew the IRS doesn’t consider his concerns to be real or insurable threats.


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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Submit your e-mail for more information, or schedule a quick phone call with me here.

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Preventing Financial Mistakes Independent Contractor Physicians Make: Reducing Your Tax Bill

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.

Incorporate: Form an Inc. / PA / PC / LLC

Aside from any possible asset protection benefits, the simple act of incorporating will save you money. This will allow you to receive some of your compensation in the form of dividends, rather than earned income. The simple math is that if you receive $100,000 in dividends, rather than as salary or Schedule “C” income, you will save $2,900 in taxes annually.

Establish a Regularly Scheduled Payroll

Setting up a regular payroll will allow you to establish a monthly budget that you will be able to adhere to. This process will also make sure that you are making your regularly scheduled tax payments. Failure to do cause you to deposit your “gross earnings” (Form-1099 earnings) into an account that will then be used to pay for your lifestyle. The saying goes, “If you deposit your gross dollars, you will spend your gross dollars”. There will be a day of reckoning, and that will typically arrive every year on April 15th when the funds are not there to make your tax payments and the related penalties. The cost of a payroll service is far less than the penalty charged by the IRS for not making quarterly payments.

Open a SEP-IRA

Unlike a 401(k) that you would have as an employee, you, as the owner of your physician corporation, are permitted to have a SEP-IRA. The difference is that the contribution to this account is an expense to the business, and not subject to FICA/Medicare taxes. A $50,000 annual contribution would save you at least another $1,450. Pay yourself first, and be able to pay yourself more.

Hire a Physician Business Manager

Hiring a physician business manager who has the experience to guide you through the process is well worth the expense. After all, the savings alone are greater than the annual cost. As a physician, you have spent countless hours honing you knowledge and skills. Why would you want to spend your valuable time doing accounting and filling out forms?

Don’t let yourself get caught in the tax trap of missing filing deadlines, and not making payroll tax payments at the appropriate time. Take the steps necessary early, rather than having to deal with tax liens and legal bills later. Remember, it is easier to start out with a lower salary, and gradually increase it, rather than to start out spending it all, and having to cut back.

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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Submit your e-mail for more information, or schedule a quick phone call with me here.

Small Business Mistakes You Can Easily Avoid: Incorporate / Payroll Taxes / Accounting

Working for oneself is one of the “American Dreams,” but if you don’t follow certain steps, this could become your nightmare. Regardless of why you are breaking out on your own, the most important this is that you have done it. Now, the key is to not make the mistake of not properly filing the proper tax returns, and to make the necessary tax payments.

Inc. / PA / PC / LLC

Going to the Secretary of State website and filing your documents is relatively easy, unless you are a licensed professional, in which case, there may be additional steps. What is typically overlooked is that once you file with the state, and establish your entity, you then have to request an EIN number so that you can file your taxes correctly, and there may be other forms/documents required as well. The steps most often overlooked are board meetings and minutes. If you don’t behave like a corporation, you don’t get the protection of a corporation.

Regularly Scheduled Payroll

If you are the only employee in your small business, how and when you pay yourself is really up to you; however, if you have employees, they will expect to be paid on a regularly scheduled basis. What goes along with paying employees is the handling of their appropriate deductions and withholding amounts, as well as the appropriate employer matches to Social Security and Medicare taxes. Failure to appropriately handle these funds has caused long lasting tax problems for small and large business owners.

Payroll Tax Payment and Reporting

Regardless of how often you pay yourself and/or your employees, the state and federal government demand that reports get filed, along with the appropriate tax payments on a strict schedule. Failure to file these reports and make timely payments can result in severe penalties, which unfortunately revert back to the owner of the business. Learn early on what these amounts are, and when these reports are due, and you will be thankful you did.

Small Business Accounting

Odds are that unless you are an accountant, you did not start your business to spend all of your time bookkeeping. While your primary focus is that of either developing your products and/or services, or marketing them, failure to spend the requisite amount of time taking care of the business accounting and bookkeeping can negate the potential tax savings that can come your way, simply because you own a small business.

Costs and Efficiency

It doesn’t matter if you are an Independent Contractor Physician, Attorney, IT Professional or a Salesman who has decided to break away from “Corporate America” and go it alone, every small business owner knows that you get to keep more money if you can figure out how to do more with less expense. Spend your time doing what makes you money, and let someone else focus on doing the things that don’t make you money, i.e., payroll, tax reporting etc.

Don’t let yourself get caught in the tax trap of missing filing deadlines, and not making payroll tax payments at the appropriate time. Take the steps necessary early when you are still building your business, rather than having to deal with tax liens and legal bills when your business is successful.

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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Submit your e-mail for more information, or schedule a quick phone call with me here.

The Importance of Incorporation for Independent Contractors, Physicians, & Doctors

As an independent contractor physician, the most painful consequence of failing to properly establish yourself as a corporation is the annual overpayment of income and self employment taxes. Making the decision to incorporate not only reduces your annual tax burden, but significantly increases the amount of retirement savings you can set aside each and every year.

As a physician, you have spent countless hours in the classroom and clinical training, and have finally reached the point at which you are finally reaping the financial rewards for all of your hard work, only to find out that you have to give more than half of everything you make to the government via income and self employment taxes. Read on to learn how to reduce your tax bill, and pay yourself first.

Physician Corporation

Make sure you Incorporate properly, and file the correct forms in a timely manner. Most document filing services will file and charge you for the forms you request. What you really want is someone who will tell you the correct forms for your circumstances, assist you in completing them, and file them in a timely, cost effective manner. This is definitely a case of getting what you pay for, but you also do not get what you do not pay for. Unfortunately, not filing a correct form in a timely manner could cost you tens of thousands of dollars annually.

Physician Self Employment Taxes

Set up your payroll and pay business expenses on a regular schedule. By having your business expenses and monthly payroll done on a regular schedule, you will reduce the chance that something gets overlooked, which could result in late charges and unnecessary penalties. In addition, paying yourself a fixed monthly salary will put you in the habit of saving more, and make the actual running of your business more streamlined.

Physician Retirement Accounts

Use all possible retirement plan vehicles to their maximum benefit. While the most common retirement accounts include IRA’s and Roth IRA’s, as a corporation, the options are expanded significantly, allowing you to not only save a significant amount toward your retirement, you can also shelter these funds from taxes and judgments as well.

Physician Investment Advisor

Hire a professional to manage your assets based upon your personal goals and objectives. You are a professional, which has taken many years of education and training. Hire a professional to manage your assets, as this will decrease the likelihood of the pitfalls met by many a part time investor, but when hiring a professional, hire someone who gets paid over time, not paid by what you invest in. Only use a Registered Investment Advisor, and never pay a sales commission.

Physician Corporation Compliance

Keep your corporation filings current to maintain these and many other advantages that are open to you. In order to have the advantages of being a corporate entity, you must behave like a corporate entity, which includes the filing of monthly reports and holding board meetings. Failure to complete these will open you up to personal judgment and potentially hefty IRS penalties.

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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Click here to submit your e-mail for more information.

6 Ways Independent Contractors, Physicians and Employees Lower Taxes, Protect Assets, & Fund Retirement

As an Independent Contractor Physician, when you are at work, you are complete control. In order to have that complete control on the rest of your life, you need to first look at the way you are earning your money, how it is being paid to you, and what you are doing with that money. There are several ways to change the amount of money you keep, which can result in you actually working less to earn the same amount of money, and it doesn’t matter how long or short the period of time you have been practicing. If you would like to learn how you, as a Physician can lower taxes and protect assets, keep reading.

Nice Assets

With some young doctors, purchasing expensive homes, cars, boats, and other toys seems to takeprecedence over saving for a rainy day. For a young physician starting out in a specialty with an early burnout rate, this is especially dangerous. What if you could have an extra 15% of your income? Not only would it make paying for these assets easier, it could be the easiest way to fund your retirement. and it doesn’t matter if you are the owner/partner in a practice, or if you are an employee.

Become Your Own Employer

Whether your are the owner/partner of a practice, an Independent Contractor Physician or employee, lower taxes comes from changing your compensation structure. This is the first step in taking control of your taxes. Becoming your own employer can be as easy a forming a physician corporation or an LLC. This allows you to pay some expenses direct from the business, and collect dividends on the profits.

Pay Yourself First

As the owner of your Physician Corporation, you get to determine how you compensate yourself. By paying yourself first, we are referring to the funds that will go into your retirement accounts. These funds are not taxed until you actually withdraw the money to spend it, so by putting as much as possible in to tax advantaged retirement accounts, you are effectively reducing the amount of income taxes you will pay annually, in addition to reducing your payroll tax expenses as well.

Social Insecurity

Everyone has to pay Social Security and Medicare taxes. What everyone does not have to do is overpay them. By reducing your Physician Salary to one that that is reasonable, you can reduce the Medicare taxes you pay, and eliminate the additional matching portion that your Physician Corporation would pay as well. For years citizens have been asking for the ability to invest their own social security funds, because few think it will be there when it comes time to collect. We can show you how to make it happen today.

Physician Pension

We have now arrived at the most important piece of information. The Physician Pension is not only the vehicle that will single handedly reduce your income taxes by nearly $50,000 per year, but it is the vehicle that will dictate how many years you work, how many hours you work each week, and even give you the flexibility to retire after just 15 or 20 years of work, rather than the typical 30 years. Your Physician Pension allows you to pay, as a business expense, a contribution that, given the right investment strategy, can allow you to take a salary of up to $195,000 each year in retirement. As an added incentive to take advantage of a Pension Plan, retirement plans are exempt from civil judgment in most states. This means that not only would you be adding to your net worth, but your Physician Pension protects assets. This is much more cost effective than most any other asset protection strategy.

Hire an Expert

You have gone to school for several years, completed Internships, Residency, and perhaps even a number of fellowships to attain the level of expertise you possess. When it comes to establishing your Physician Corporation and setting up your Physician Pension, make certain that you are working a Physician Business Manager who has the expertise you require. What you want is someone thorough and detailed, not a document filing service and a broker who is looking to sell you something, rather than actually managing your assets for your well being. Keep in mind that the ideas discussed above are just a sample of the various tax savings that are available to Physicians. You work hard for your money, and should look for every viable avenue to minimize your tax burden, but make sure you work with a professional. We take care of the areas of business you hate to do, so you can do what you love to do.

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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Click here to submit your e-mail for more information.

5 Tips for Independent Contractors: Biz Start-up, Outsource Accounting, Reducing Self Employed Taxes

As an Independent Contractor, you literally have the best of both words. Not only do you get to determine how much money you want to make, and how hard you want to work, but also you can never be laid off. The downside to this, is that there are things that you have to do that can actually take as much or more of your time to complete than you actually spend generating income, and unfortunately, failure to perform these regular tasks can result in quite the headache, resulting in tax liens and perhaps even the loss of your business. If you are interested in maximizing the time you spend creating income, and reduce the time you spend on the other business related activities, while reducing self-employment taxes, read on.

Start Your Own Business

As the owner of a business, the IRS allows you a variety of tax advantages. The best way to take advantage of these is to step outside your role as an Independent contractor, and formalize the way you conduct business. This will enable you to shield yourself from potential personal liability, and allow you to take a salary and profits, rather than self-employed income. This alone will reduce your annual tax bill, and allow you to keep more of what you work hard to earn. You can even deduct that new laptop or iPad as a business expense. What typically stops people from going the next step is they do not know how to incorporate.

Incorporate

When you start a new business, there are many ways you can go about incorporating. You can simply go to one of the hundreds of websites that offer to help you incorporate online. They will give you the minimum that you ask for, and will leave you to pick up the rest of the pieces along the way. Honestly, the process is not that difficult, but like most things, it can become complicated quickly if you do not follow the proper steps. This is your business we are talking about. Don´t trust your business to the lowest bidder. You may get exactly what you pay for.

Outsource Accounting

As an Independent Contractor, you are an entrepreneur. This means you must be versatile and play a number of roles, from chief salesperson and bookkeeper to head marketer and bill collector. Doing your own small business taxes and accounting does not make you any money. Outsourcing your accounting will cost you less than hiring someone part time, and give you the expertise of having your own in-house accountant.

Hire a Corporation Service Company

As the owner of your small business, you have many important decisions to make. One of the most important ones you can make is to hire a corporation service company. Not only will they assist you in making sure certain things don´t fall through the cracks, but they can also provide you with someone to talk over other important decisions. You are in business to make money. Make the right choices early on, and you won´t regret them later.

Fund Your Retirement

Retirement plans can be extremely confusing to Independent contractors and small business owners. What you need to know is that there are options available to you that will allow you to put away more money for retirement than you may have known, and also that by doing this, you are not only reducing self employment taxes, but also your income taxes. The key is to start your own pension plan, and work with someone who has your best interests in mind.
You have either just set your inner entrepreneur free, or you are about to do so.

While this can be a scary time for some, you have the ability and the drive to make it a success. Be thoughtful and deliberate about each and every decision you make, and about every dollar you spend. Make sure that before you commit to something, it should either make you money, or free up your time to allow you to spend time making more money. Also, don´t be someone else´s guinea pig when it comes to your future. Work with professionals who are working with you, not just for your money. Remember, as the owner of the business, you are the one in control, so take the wheel, and enjoy the ride.

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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Click here to submit your e-mail for more information.

5 Things Every New Physician Should Do to Lower Taxes and Protect Assets

When speaking with physicians, whether it is one on one, or in a group setting, two topics of conversation are a virtual constant, taxes and asset protection. Notwithstanding the litigious environment we live in, I can clearly see why physicians want to do whatever possible to protect their assets. Reducing taxes is something everyone wants to do.

Even if someone pays very little in taxes, they still want to pay less, so it only make sense that physicians want to keep more of what they make, especially after paying insurance and education costs. So if you would like protect your assets and pay less in taxes, read on.

Form a Physician Corporation

Establishing a Physician Corporation will allow you to pay various expenses from the corporation. Since these expenses are paid before you take your salary, they are deductible from your overall income, and are not taxed at all. Owning a Physician Corporation will also enable you to take advantage of other options which are only available to corporations. Pay Yourself a Salary – Of course you want to make as much money as possible, but in the end, it is really about how much you get to keep. By paying yourself the lowest possible salary, your overall tax burden will be lower, because you will not have to pay FICA taxes on the dividends you take from your Physician Corporation.

Contribute to Retirement Accounts

Your retirement accounts aid you in both reducing your taxes and protecting your assets. From a tax perspective, retirement plan contributions are not subject to income or FICA taxes, so the more you can contribute, the lower your tax bill. As it pertains to protecting your assets, in most states, retirement accounts are not subject to levy as payment in the event of a civil judgment. Therefore, the more you contribute to these plans, the more assets you have protected. Create a Physician

Pension

As the owner of your Physician Corporation, you are able to establish a Physician Pension for yourself. This does two things. First, it allows you to fund a retirement vehicle for yourself as an expense to the business. These funds are not taxed, and do not require you to take a significant salary in order to make the contributions. Second, as a retirement account, these funds are also protected from civil judgment in most states.

Hire a Physician Business Manager

At first glance, you may be saying to yourself that this is an unnecessary expense. With some additional time, you will come to realize that it takes some expertise and experience, and hiring a professional is well worth it. Protecting your assets and reducing your taxes is a full time job that takes expertise and experience. It also requires a disciplined approach that experience tells us is best implemented by someone other than yourself. After all, our experience has told us that more often than not, assets need to be protected from one ́s own spending habits, and perhaps those of a spouse or possible ex-spouse. Your Physician Business Manager will give you the facts; they will not tell you simply what you want to hear. While you may not always like the answer, you will appreciate the candor, and will always know that your best interests are always the first priority.

Trying to manage a significant income and sizeable assets on your own can be a daunting task and if not done properly can wind up unnecessarily costing you tens of thousands of dollars. After all, earning a significant income comes with a great deal of personal responsibility. If you feel like it may take more time and effort than you personally want to invest, don ́t be afraid to outsource it to a professional who will always look out for your best interests. You are a professional, and people look to you as an expert. You should not be hesitant in doing the same.

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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Click here to submit your e-mail for more information.

Legislative Changes to 831(b) are a Net Positive for Business Owners

In a flurry of legislative activity in mid-December of 2015, Congress passed and President Obama signed a so-called “Tax Extenders” bill titled H.R. 34. This created a stir in the captive insurance industry both before and after passage, as H.R. 34 included Section 262 titled, “MODIFICATIONS TO ALTERNATIVE TAX FOR CERTAIN SMALL INSURANCE COMPANIES.” These modifications impact small captive insurance companies (CICs) that make an 831(b) tax election.

These small captive insurance companies are often described as micro-captives or 831(b) captives. Both of these names are really a misnomer. “Small” captives are real insurance companies that usually serve small and mid-market companies in the same way that “large” captives serve larger companies. 831(b) is simply a tax election designed to encourage small and mid-size companies to improve their risk management posture by owning their own insurance company. Small captives are good for small business and good for America.

What Is A Captive Insurance Company?

Simply put, businesses or their owners can choose to OWN THEIR OWN INSURANCE COMPANY. A captive insurance company is a licensed, closely-held insurance company. Captives are formed to provide insurance protection to businesses and related entities. They are usually owned by the business, business owners or other related parties. Businesses pay premiums as an ordinary business expense to their captive insurance company(ies). The captive issues insurance policies to the company. Captive policies are priced by an actuary. When the business files an insured claim, the captive pays it.

Like commercial insurance companies, captives also accumulate loss reserves. Reserves can be invested in accordance with the captive’s Investment Policy Statement (IPS). The IPS is usually approved by the domicile that licenses the captive.

What Is An 831(b) Tax Election?

Small captive insurance companies, as define d in Section 831(b) of the Internal Revenue Code, may elect to pay no federal income taxes on their underwriting profits each year. Underwriting profit is simply calculated as premiums received less claims paid.
Prior to H.R. 34, “small” captives were defined as having premium revenues of less than $1.2 million annually. Starting in 2017, thanks to H.R.34, this increases to $2.2 million and adjusts for inflation each year thereafter.

What Has Changed With The Passage Of H.R. 34?

In addition to adding an additional reporting requirement for small captive insurance companies, H.R. 34 makes essentially two changes to the existing 831(b) election. First, it increases the maximum premium revenue that a CIC can receive and still be eligible to make an 831(b) election, a big “win” for taxpayers. Second, it adds a “diversification” requirement that impacts either ownership structure or risk distribution. To meet the “diversification” requirement to be eligible for an 831(b) election, a small captive must meet one of two new tests starting in 2017.

What Is The Specific Language Of H.R. 34 Regarding “Diversification” Requirements?

”(i) IN GENERAL.-An insurance company meets the requirements of this subparagraph if no more than 20 percent of the net written premiums (or, if greater, direct written premiums) of such company for the taxable year is attributable to any one policyholder.

”(ii) ALTERNATIVE DIVERSIFICATION REQUIREMENT.-

An insurance company meets the requirements of this subparagraph if-

”(I) such insurance company does not meet the requirement of clause (i),

”(II) no person who holds (directly or indirectly) an interest in such insurance company is a specified holder who holds (directly or indirectly) aggregate interests in such insurance company which constitute a percentage of the entire interests in such insurance company which is more than a de minimis percentage higher than the percentage of interests in the specified assets with respect to such insurance company held (directly or indirectly) by such specified holder.

What Does That Mean in Plain English?

Essentially, to be eligible to make an 831(b) election, a captive insurance company must meet one of two tests starting in 2017.

The second test is rather “clean” and straightforward. It simply means that the ownership of the captive insurance company (as a percentage) must closely mirror the ownership of the parent company (ies). Many captives managed by CIC Services, LLC meet this test already. Others may be able to meet this test with slight ownership adjustments to their captives or parent companies or insured companies.

The first test is a bit more complicated, as it states a captive may not receive more than 20% of net premiums from one policy holder. This language requires business owners to either share a common captive insurance company making an 831(b) election (also known as a “group” captive), or it will require more “cross-insurance” or re-insurance than most small captive structures currently employ. Our initial assessment (and the assessment of other industry experts) is that risk distribution or re-insurance pools utilized by small captive insurance companies can be modified to meet this second test, and this will likely be the preferred approach of most clients.

CIC Services, LLC is thoroughly scrutinizing this new legislation and be proactively contacting its clients to discuss beneficial ways of complying with the new rules. Again, the new rules do not take effect until 2017, so there is plenty of time to consider options and get things right.

What Is CIC Services, LLC’s Perspective On H.R. 34?

Unlike many of the nay-sayers in the industry who have wrung their hands and gnashed their teeth at the changes (CLICK HERE), we see H.R. 34 as a net positive for small captive insurance companies and the small and mid-size businesses they serve.

Consider the following analogy.

In the glory days of college basketball, Dean Smith’s Tar Heels would run the stall with a 2 point lead and 15 minutes left in the 2nd half. At the same time, massive centers like Ralph Samson, Hakeem Olajuwon, and Patrick Ewing would park near the basket and shield off defenders. These monster centers would take a pass down low and make an easy short jumper or shoot a close skyhook. The game was often slow and a bit cumbersome.

What happened? Basketball changed by making a few new rules. They added a shot clock and made the 3 second lane wider, forcing teams to adapt their style of play. However, they also added the 3 point line! These rule changes combined to open up the game, making it far more exciting for players and fans.

Congress essentially did the same thing for small CICs making an 831(b) election. The new rules on diversification are manageable. Yes, they will likely require adjusted risk sharing arrangements and possibly new ownership structures (in the worst cases), but the benefits far outweigh the costs. Basketball teams easily adapted to the new rules, and most small captives will also. In fact, many small captives comply with the new rules already and require no adjustment at all.

And everyone will directly or indirectly benefit from the higher 831(b) limits. Raising the maximum premium level from $1.2 million to $2.2 million for CICs making an 831(b) election (and indexing it to inflation) is like adding a 3 point line. For some clients, it’s more like adding a 4 point line!

What Additional Perspective Can CIC Services, LLC Provide On H.R. 34?

What is most striking about H.R. 34 is not what it says, but what it doesn’t say. In 2015, The I.R.S. and the Self Insurance Association of America (SIIA) specifically asked Congress to ban trust ownership of captives and to ban captives from investing in life insurance. However, after thoughtfully considering the issue, Congress declined both requests in favor of the new rules discussed above, which are much more reasonable. We can now say with confidence that both Congress and the Courts are skeptical of the IRS’s claims of rampant abuse of captive insurance structures.

When Does H.R. 34 Take Effect?

The amendments apply to taxable years beginning after December 31, 2016. This provides a full year for captives and their corresponding risk distribution pools to restructure to meet the new requirements. In the weeks ahead, CIC Services, LLC will be publishing additional perspective on H.R. 34 and providing guidance to captive owners and prospective captive owners on complying with the new legislation. In the meantime, readers can rest confident that the benefits of captive insurance companies to small and mid-market businesses are greater than ever and rest on even stronger legal footing.

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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Click here to submit your e-mail for more information.

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Avoid Physician Recruiting Mistakes: Best Answers to Independent Contractor vs. Employee Questions

There are literally hundreds of physician practice groups nationwide, looking to sign up Emergency Physicians, Radiologists and Anesthesiologists who have either recently completed Residency, or those who have been practicing for years. What many of you may not be aware of is that you should really weigh the offers you receive based on being an employee, or whether or not you should contract as an Independent Contractor Physician. Failure to do this could wind up costing you thousands in additional taxes, and also a reduction in the amount of retirement money you can put away. While being an Independent Contractor may not sound like the best option, read on to see why you should give it strong consideration.

Business Expenses

As a physician, you have expenses related to the way you practice. These expenses could include your telephone, auto related travel, and perhaps even some overnight travel depending on where you practice. These are in addition to your regular continuing education costs. As an Independent Contractor, you would be able to pay these expenses pre-tax, rather than after tax. Based on the typical physician ́s salary, that would save you in excess of 35% for all of these expenses. The tax savings will really add up over time.

Health Insurance Options

As a health care provider, you understand health insurance costs better than most, so why should you only have the choice of the carrier offered by the physician practice group? The other side of that question is that if you want to purchase coverage from another provider, you have to pay for it with after tax income. Why not purchase the type of coverage you want, and pay for it with pre-tax dollars, rather than take someone else ́s choice?

Physician Retirement Plans

As an employee, the IRS limits the amount you are allowed to contribute to a 401(k) plan to $49,000, and in most cases, if the practice group has an option at all, it typically contains mutual funds you don ́t want to own. As an Independent Contractor, you can establish a physician pension for yourself, and contribute over $100,000 per year, and you also get to decide where to invest those funds. Increased

Hourly Rate

As an Independent Contractor, the practice group will not be responsible for matching your Social Security and Medicare taxes every pay period, resulting in a greater hourly rate for you, which can then be used to fund “business” expenses and your Physician Retirement Plans.

Simplified Income Verification

While income verification may not sound like something important, try applying for a home mortgage when you are being paid by multiple physician practice groups or hospitals. Other than your tax return, there is no way to verify your income, and technically, you would have no real employment history. This happened to a client who has been a Radiologist for 20 years, and works for 5 different hospitals. We were able to consolidate his income via a Physician Corporation, and set him up on a payroll system. He will never have to worry about employment verification again.

Taking the easy way out and becoming an employee may sound like the best route to take when joining a physician practice group, going the extra mile and weighing all of your options may not only create tax savings, but it may result in you making and keeping more in the long run. After all, it is not about how much money you make- it is about how much you actually get to keep. We can help you keep more. Call Us.

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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Click here to submit your e-mail for more information.

5 Tips: Accounting and Business Start Up for New Physicians; Minimizing Your Self Employed Income

A recurring theme when speaking with new Independent Contractor Physicians is minimizing the amount of taxes they have to pay. More often than not, the first thing they all do is to calculate how much they think they will make the first year, typically around $300,000, and then they do the math and figure that in the 35% tax bracket, they will pay $105,000 for income taxes, which unto itself is a large number. What they often forget is that they must also pay taxes on self-employed income, which will add another $21,943, bringing your total tax due to $126,943, and that is if you live in a state with NO income tax. There are ways to reduce this number, legally, so hire the right physician business manager, and keep more of what you earn.

Form a Physician Corporation

Establishing your physician corporation will allow you to opportunity to significantly reduce your earned income, resulting in a significant tax reduction. Simply file your PA or PC, apply for your EIN Number, file your appropriate IRS forms and establish a bank account. You can do this yourself, or you can work with a business manager. This does take some work, but it will pay for itself many times over with the reduction in annual taxes.

Physician Business Expenses

As a physician, there are regular expenses that you incur to maintain either state licensing requirements and/or Board Certification. Your Physician Corporation, along with certain other monthly expenses, can pay for these expenses. Considering that these are expenses that you would be paying anyway, the fact that you are having the Corporation pay for them with pre-tax dollars means that the expenses are 42% less than if you paid them with after tax dollars. In fact, even the expense for your Physician Business Manager is paid with pre-tax dollars.

Physician Salary

As an employee of your Physician Corporation, you are obligated to pay yourself a salary. What you are not obligated to do is pay yourself an inflated salary. Remember, what you pay yourself in salary; you must also pay self-employment taxes on as well. We recommend you pay yourself a reasonable salary, deduct for your 401(k), and withhold an appropriate amount of taxes to cover the bill that will arrive on April 15th.

Physician Pension Plan

Most physicians are unaware that they are eligible to have their corporation contribute to a Physician Pension Plan, as a direct business expense. This alone can assist in adding significant funds to your retirement account, while at the same time reducing the profits of your corporation that would be subject to both income and self-employment taxes.

Physician Corporation Dividends

As the owner of your Physician Corporation, you receive all of the profits at the end of each year, and these profits are paid to you in the form of dividends that are not subject to self-employment taxes. That saves you 12.4% on social security taxes and 2.9% Medicare taxes. Utilizing the above strategies, and assuming an annual income of $300,000, your tax bill (excluding state income tax) could very easily, (and more important, legally) be reduced from $126,943 to $81,090. You would experience an annual tax savings of $45,853, and you would add $100,000 to your retirement savings. The amount you would pay to a Physician Business Manager to put this entire plan to work would be a fraction of your annual cost savings, so do yourself a favor, and start yourself off on the right track with the right Physician Business Manager. You will thank yourself every April 15th.

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)

For a Limited Time, get FREE Incorporation with our Accounting/Payroll Services! Click here to submit your e-mail for more information.