In the post-TCJA era, many physicians are finding themselves creating their own MD corps. This is because many physician groups are being set up as partnerships where the partners are using their solely owned S-corps to own interest in the partnership. Or the physician simply wants to work as a 1099 contractor. This benefits the group or hospital by no longer having an employee relationship with the physician and it helps the physician take advantage of numerous tax strategies and investment opportunities.
Why Strategic Tax Planning Matters for Physician S-Corps
To begin, once a doctor incorporates their own MD corp, they now have to worry about additional compliance requirements. For example, they have to run payroll and ensure all quarterly payroll tax filings are accurate and made on time. They also have to ensure they set their wage a reasonable rate using a reasonable compensation analysis. Furthermore, if they are in a state, like California, that offers the pass-through-entity tax credit, they must coordinate that credit before certain time of the year using an accurate estimate of their annual state tax liability. Lastly, they also need to coordinate their retirement plan contributions with their payroll based on their investment goals.
As you can see, many of these advanced strategies require a bit of coordination to satisfy all the regulations and periodic deadlines that are more frequent than your annual tax filing. Many of our clients find that offloading these responsibilities to their Certified Public Accountant ensures that their tax strategies get implemented properly and on time.
Strategies for Effective Tax Planning
1. Retirement Accounts
If you have a financial planner or are savvy with your own portfolio and taxable vs tax deferred planning, it will be important to coordinate various retirement account options, such as 401(k)s, IRAs, and defined benefit plans. If you have an S-corp, coordinating tax deferred contributions should be done through payroll. You also have to ensure that you're in compliance with controlled-group rules.
2. Entity Structure
As mentioned, it's become very popular for physicians in states offering pass-through-entity tax credits to form S-corps. There's also an opportunity to perform a reasonable compensation analysis to substantiate a wage that could require less payroll taxes.
That said, S-corps aren't for everyone. They add complexity and the aforementioned compliance requirements. If you are frequently traveling to other states for locums work, your S-corp may be subject to multistate filings which can add a higher level of complexity to your tax and payroll compliance requirements.
3. Tax Credits and Deductions
Doctors may be eligible for various tax credits and deductions that can lower their tax bill. For instance, expenses related to continuing education, medical conferences, professional licenses, and malpractice insurance are often deductible. Additionally, for some physicians that contract at various surgery centers or hospitals, there are opportunities to write off auto expenses.
These deductions, of course, require robust bookkeeping and records. This can mean setting aside a few weekends per year to maintain your Quickbooks records and receipts. Or, it might mean hiring a professional to help you.
4. Timing Strategies
Strategic timing of income and expenses can have a significant impact on your tax liability. By deferring income to a later tax year or accelerating deductions, you can effectively manage your taxable income and potentially reduce your overall tax bill. We've found this to be especially true for physicians nearing retirement who may want to contribution over $100k to a defined benefit plan.
In addition, many physicians with families are looking for asset protection strategies to be coordinated from their trust and estate attorney to their CPA to ensure their wealth can be preserved for generations.
The Role of Certified Public Accountants
Navigating the complexities of the tax code can be daunting, especially for busy healthcare professionals. That's where working with a Certified Public Accountant specializing in healthcare can make a difference. A knowledgeable CPA can help you develop a comprehensive tax strategy, identify opportunities for tax savings, implement them and maintain everything for a stress-free, money-saving experience.
Conclusion
In the world of medicine, where every moment counts, strategic tax planning is often overlooked. However, by prioritizing tax planning and adopting proactive strategies, doctors can safeguard their finances, maximize tax savings, and secure their long-term financial well-being. Remember, strategic tax planning is not just about saving money; it's about optimizing your financial health and setting yourself up for success in the years to come.
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