3 tips on how to save major dollars right out of your residency and into your private practice

Congratulations! You’ve graduated from medical school and have completed your internship and residency programs. Now, you’re officially ready to reap the financial rewards of all your hard work. Here’s a secret no one has told you yet: this is the moment your financial decisions will affect the rest of your life, at least the next 25 years. Making the right decisions here can be a make or break situation. Did you hire a business manager? Did you set up a physician pension? Did you avoid both and are leading a life towards paycheck-to-paycheck living? Not to be too scary, but this is more normal than not, and we’re here to make sure this doesn’t happen to you. These three tips will help you start your finances off on the right foot and losing your footing along the way.  

Tip #1: Avoid Tax Liens  

Tax liens are easily avoidable, but also easily attainable. They accrue by physicians not paying quarterly estimated tax payments or simply not spending everything as the checks come in. As a physician, the IRS knows you make a lot of money, so underpaying your taxes is never a smart idea. A smarter idea would be to set yourself up as a Physician Corporation and pay the business expenses that are allowed and 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. Don’t think your savings account (or piggy bank) will be sufficient come tax time; only a business manager can confidently keep you safe from these financial threats.  

Tip #2: Set Up Your Physician Investments  

Payroll deductions can include funding your retirement accounts. After all, you don’t want to work shifts forever. You, as an officer of your corporation, can have a “pre-tax salary deferral” in your 401(K) plans, as well as a “post-tax contribution” to your Roth 401(K) plan. You’ve probably never heard of the Physician Pension Plan. You can establish a pension for yourself that is an expense to your business. Essentially, this will reduce your taxable income and maximize your annual savings. With a business manager, you will establish the right type of plan and the appropriate funding level to meet your needs.  

Tip #3: “Judgement Proof” Your Assets  

There are countless companies that 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. We’ve even known physicians to place all their assets in their spouse’s name. With 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 also exempt from bankruptcy (in case you didn’t know). With a business manager, you’ll learn more about this.  

With the proper team, you as a new physician can prevent yourself from years of paying off debts and living paycheck-to-paycheck. Hiring a business manager will save you more in annual taxes than you will ever pay in services. With My Pro CFO, you can a well-trained and knowledgeable professional on your team. With My Pro CFO, you will have business management who specializes in Corporate filings and ongoing Compliance, Accounting and Payroll and Investment Management. We will be with your every step of the way, so you don’t make silly mistakes that new physicians tend to make. You can speak to a Professional CFO today by visiting our website at
www.mypro-cfo.com and learning more about how we can your future simpler and much brighter. 

Forming a Physician Corporation

How to Form a Physician Corporation: A Step by Step Guide 

As a physician, you have either just signed with a contract group, or you have decided to do some shifts as a Locum Tenens. There is a chance that your contract group will require you to be an employee, but that is not often the case. Now you need to form a corporation. We are often asked why. The simple answer is that it draws a clear line between you the individual and you the professional. Another response is that as a corporation, you are afforded additional tax benefits that are not available to you via Schedule “C”. Your SEP IRA contribution for one. As a physician, your options are limited to either a PC (Professional Corporation), PA (Professional Association) or PLLC (Professional Limited Liability Company). There are subtle differences in each type of entity, but there are some specifics that you will need to keep in mind.

First and foremost, your state will most likely dictate what type of entity you can form; also, some states do not allow PLLC’s. Don’t just blindly form an entity without knowing the correct type of entity for you. Also, as a physician, forming a corporation will not insulate you from civil liability. For advice related to asset protection, call us. From this point forward, we will discuss the formation of a PC/PA. 

The creation of your entity: 

The formation process begins with a stop at the Secretary of State office, or the division of corporations. This is where you will find the forms for your specific state, along with the filing requirements and related fees. Filing requirements for professionals differ from state to state. For example, NY requires Physicians to verify their license status with the Education department before and after filing Articles of Incorporation. This is a two-step process and involves paying two separate fees. Find out if your state has this requirement or a similar process before you file any documents. Some online Incorporation sites do not take this step. Not only will you not get your incorporation filed, but you also may not get your money back. Just as a precaution, before you fill out any documents, make sure there isn’t another physician in your state with your name. This can most often be avoided by using a middle initial or middle name, but you will want to be sure. Once you have confirmed this, reserve your name. Send two copies of these documents to the state, and request a stamped copy be returned to you in a self-addressed stamped envelope. 

 Tax Status and Employer ID Number(EIN): 

Once you have completed the Incorporation process, you will need to become legal in the eyes of the IRS. First, you will need to request a Tax ID# or Employer Identification Number. This is essentially the social security number for your business. This can be obtained online, or via fax. Simply fill out the form and submit. Now you need to address the tax status of your entity. All new corporations are seen as “C” corporations until you request to be taxed as an “S” or “SubchapterS” corporation. The difference is simple and straightforward. Do you wish to be taxed on your income twice, or only once? Most of our clients are “S” corporations. The “S” election form can be found on the IRS website and must be filed with the IRS as soon as possible. You will receive a letter of acceptance once the IRS has approved your status. This must be completed prior to filing your first tax return. Our suggestion is to file this the same day you receive your EIN number. Send this certified mail to make sure you have proof. 

 Acting Like a Corporation:  

Now that you are a corporation, you will have to begin acting like one. What this means is that when you do something business-related, you will need to document it. First, you will need to establish Bylaws. This will be the blueprint for the way you run your corporation. Sample Bylaws can usually be found on the website for the state where you incorporated. It will define what title you will have, how many times a year your board will meet, and any means to alter the nature of your entity. You will also need to have regular meetings of your Board of Directors, yes, even if you are the only one. When you hold these meetings, you will also need to keep details of what you decided to do. Whether that is opening a bank account, or entering into a contract for employment. In these minutes, you will also document how you will be compensated by your entity, and any employee benefits you will receive. You will now have to keep all of these in one place. That is why you have a Corporate Book. A corporate book can be purchased online from a variety of vendors. Within this book, you will keep the certified copy of your Articles of Incorporation, the acceptance letter of your Subchapter “S” filing, the notification letter for your EIN number, a copy of your bylaws, and each and every set of minutes from all of your Board meetings. This is the first thing that will be requested if your corporation is ever sued. 

 Reducing Your Taxes: 

This is the primary reason you are putting yourself through this. The first reason is that as a Corporation, rather than a Sole Proprietor, you are able to make a SEP IRA contribution up to 25% of your salary versus only 20%. If you pay yourself enough to make the maximum contribution, that would be a salary of $220,000 in order to make a SEP contribution of $55,000. As a Sole Proprietor, you would only be able to contribute $44,000 at the same salary. Not contributing the additional $11,000just cost you an additional $3,850if you are in the 35% tax bracket. If your state has an income tax as well, you saved even more. Also, as a corporation, you can establish a Defined Benefit Plan for yourself. This can allow you to put away $100k or more annually, thus accelerating the tax savings. 

 Tax returns and Annual Reports: 

This is where your corporation will save you money, and make all of this worth it. Your corporation will have to file a tax return each year (Form 1120S), and you will receive a form K-1, which is the shareholder profit and loss, (think of it as your 1099 as an owner of your entity.) Regardless of whether or not your state has an income tax, you will still need to file tax returns for your corporation. No taxes will be due, as those will be paid on your personal return, but pay special attention to whether or not your state levy’s a “filing fee”.   

The state will also require an annual report from you, although some are every other year, you pay twice as much. This is simply informing the state that you are still in business, along with your current address. 

 Summary: 

You can do this. Just like most things that look complicated, it is more about following the process step by step. There are no shortcuts. If you decide you need some assistance, or simply feel that you would rather work with someone who does this all the time, we would be honored to add you to our list of satisfied clients. 

 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. For more information visit our website: www.mypro-cfo.com

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