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 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. Call us today and let’s discuss how we may be of service to you. Toll Free 800.517.0236