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Best way to set up Independent contractor status

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  • Best way to set up Independent contractor status

    Hello I am a ER physician who is an IC. My question to all the ICs out there is how you set up your practice. Did you set a corporation? How do you pay takes? Are there real  tax benefits to setting up a corporation? What about tax write offs? Any additional information would be greatly appreciated. Thanks

  • #2
    Some of it has to do with what state you are in, how much you make and what you plan to have as write offs.  I am ER as an IC in Texas.

    Did you set up a corporation?  Yes.  I am set up as a professional limited liability corporation (PLLC) with S corp election.  In Texas the other option is to form a Professional Association.  The only difference I could tell is that a professional association requires a yearly fee and paperwork to be mailed in.  The startup cost of the PLLC was higher but I don't have a yearly fee.

    How do I take pay? I give myself a little more than needed to max my retirement plan and the rest as distributions.  I think this represents a reasonable salary per the IRS.

    What about tax write offs?  There is only so much you can write off.  You don't make money by spending money for write offs but you should't leave free money sitting there either.  Most people in my group have a home office, deduct mileage/car expenses and generally travel once a year for CME of some sort.  You have to be careful that you use the office exclusively for administering your business if you want to comply with IRS rules (somewhat of a sore point for my wife).  Mileage from a home office to work is deductible, mileage from a home without a home office is not (my mileage has dropped significantly since relocating closer to work and I may give this up).  I definitely purchase my white coats, scrubs, and stethoscopes with my business but they don't really amount to that much.  Items such as laptops, iphones tend to get added to the deductions as we do need/are required to have them for business but again I only replace items when they break or become significantly outdated.  A laptop every 4-5 years and a phone every 3 years just isn't much of a tax break.  I save more money by not purchasing unnecessary items than by deducting what is available.  Listening to others explain why they purchased expensive cars so that they can "write them off" is something that makes me hurt internally.


    • #3
      I am not an IC, but I'll chime in.

      • Most IC's I work with at this point in time are S-corps. Whether or not you have an LLC to go along with it is irrelevant and unnecessary. The taxes saved by giving yourself distributions (as long as you are truly paying yourself a reasonable salary) are sometimes offset by the additional cost of administration: payroll service, preparation of additional tax returns (state and federal) and annual state fees. You will need to set up an accountable plan to reimburse yourself for OOP expenses, such as mileage and, if applicable a home office. You pay taxes via withholding from your paychecks and quarterly estimated payments.

      • Some are SMPLLCs (not allowed in CA). A SMPLLC files on a schedule C combined with 1040. If there are no employees, no payroll tax filing is required as the owner pays himself via distributions. You pay taxes via quarterly estimated payments.

      • Others are simply sole proprietors. This makes sense if you have appropriate insurance coverage (umbrella and other liability) as the S-corp and LLC will not provide protection from malpractice, which is your largest exposure (except, I suppose, divorce). I see doctors gradually moving to this. It is simpler and less expensive. You pay taxes via quarterly estimated payments.

      A home office can save taxes for you. You should be aware, however, that you qualify to have a home office only if you have no office space afforded to you where you carry on your profession.

      This decision is one you should discuss with your CPA or other financial advisor experienced in these areas.

      Hope this helps.
      My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
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