You have graduated medical school, and have completed your internship and residency. You are now ready to reap the financial rewards of all your hard work. What no one has told you along the way is that the decisions you make right now will dictate where you are financially in the next 25 years. Make the right decisions by hiring a business manager and setting up a physician pension, and you can find yourself reducing your number of monthly shifts, and increasing your leisure activities. Make the wrong decisions, and you could find yourself living paycheck to paycheck, servicing a mounting debt load and paying off a tax lien. Not to scare you, but this is a true story of a close family member who made the wrong decisions when he finished his residency.
Avoid Tax Liens
Tax liens are something you never want to deal with, and they are the result of a physician either not properly paying quarterly estimated tax payments, or, simply spending everything as the checks come in. Underpaying your taxes will ALWAYS wind up costing you in penalties. As a physician, the IRS knows you make a significant amount of money, and they do not want to wait. Establish a Physician Corporation and start yourself out by paying the business expenses allowed, and make file your payroll tax payments and returns on time. The physician business expenses will reduce some of your income and the regular salary will keep you from overspending.
Do not attempt to put money in a savings account in hopes that it will be sufficient come tax time. It is seldom enough, and as was the case with my family member, the account became a convenient source of extra funds for his soon to be ex-wife. A business manager could have taken the financial strain off of this relationship.
Payroll deductions are allowed to include funding your retirement accounts. After all, you don ́t want to work shifts forever. You as an officer of your corporation are allowed to have a pre-tax salary deferral to your 401(k) plan and an after tax contribution to your Roth 401(k) plan. What most don ́t know exists is the Physician Pension Plan. Yes, you can establish a pension for yourself that is an expense to the business, essentially reducing your taxable income, and maximizing your annual savings. Your business manager can help you establish the correct type of plan, and the appropriate funding level to meet your needs.
Judgment Proof Your Assets
Aside from taxes, most of our physician clients ask questions about strategies to protect their assets from judgment. There are countless companies who will gladly take your money and set up a captive insurance company, or create an elaborate offshore trust system to shield your assets from judgment. I have even known physicians to place all of their assets in the name of their spouse. All things considered, the least expensive and most effective method for a physician to protect their assets is to extensively fund their retirement. Physician retirement plans are not subject to civil judgment or garnishment in virtually all states. Physician retirement plans are also exempt from bankruptcy. Ask your business manger for more details. As a new physician, reading the above sections has hopefully given you a list of things to do now to prevent what could be years of paying off debts and living paycheck to paycheck. By the way, the close family member who this case study is based on just paid off his tax lien, and is now on his way to saving for his retirement. He has been an ER Physician for 8 years. Hiring a physician business manager today will save you more in annual taxes than you pay for their services. Don ́t try to go at it alone in order to save some money today. It just may cost you in the long run.
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)