Money Minutes for Doctors #3 - The Entrepreneurial Doctor
Welcome to this month's edition of Money Minutes for Doctors. In this, our third episode, we discuss the opportunities for physicians to build wealth outside of the traditional W2. Our focus this month looks at the tax benefits of having 'physician partners', S corps, C corps, LLCs that are taxed as C corps, and those opportunities that involve 1099 Income. Back again for another look into the world of personal financial wellness for physicians and their families is Katherine Vessenes, JD, CFP®, RFC, Founder and President of MD Financial Advisors.
About Ms. Vessenes:
Ms. Vessenes works with over 300 physicians and dentists from Hawaii to Cape Cod. Her firm uses a team of experts to provide comprehensive financial planning to help doctors build their wealth and protect their wealth while reducing taxes now and in the future. Katherine is a longtime advocate for ethics in the financial services industry; and has written three books on the subject of investment strategies. She has received many honors and awards including: numerous tributes from Medical Economics as a top advisor for doctors, multiple 5-Star Advisor Awards, honored as a Top Woman in Finance, in addition to being selected to be on the CFP® Board of Ethics. Katherine can be reached at: Katherine@mdfinancialadvisors.com or 952-388-6317. Her website: www.mdfinancialadvisors.com.
Quick Summary:
New and significant benefits under the new tax laws...
Know about the Pass through advantage—and how to shelter more income from taxes:
-applies to those that have income from partnerships or goes onto schedule C of your tax return, but outside the W2 income
-Can deduct 20% of this income and pay federal taxes on the remaining amount (the first 20% is exempt from federal taxes) Whether that income is also exempt from state taxes is variable depending on state
-Upper Limit of Taxable income to qualify for the pass through is $315,000 on MFJ (married filing jointly) and $157,500 if SF (single filer)
-IF you are MFJ and have Taxable income of $315-415,000 then the deduction is prorated % and if taxable income > $415,000 then deduction does not apply and phazes out after $207,500 for SF
-More complicated if incomes are above $415,000 (MFJ) as the deduction does not apply and phases out after $207,500 for SF as then depends on if specified service business (health care qualifies as such).
Goal:
The doctor who has some self-employment income can use tax planning to lower their taxable income to qualify for the deduction & reduce their overall taxable income.
Recommendations:
(1) maximize your 401K, 403 B
(2) if you have your own practice consider a defined benefit plan that can be layered onto of 401K or 403b
(3) Make sure you know what business deductions you are eligible for, including the home office and maximize them!
Need a good accountant and financial advisor to help you with these tax strategies
-this also offers you less risk to be audited and gives you some protection under their error and omissions insurance.
There has never been a better time for doctors to earn some extra income and shelter it from taxes - Think Big !!
