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  • New to the real world...New graduate...

    I apologize in advance if this thread is redundant...I've been reading WCI step by step but I am now more confused than ever...waiting on book i just ordered.

    So I JUST graduated from my fellowship...I am 35y.o., single, $250K in student loans, no home, no assets.. in Southern California.

    I already set up Schwab accounts for investments...short term/ long term, etc... with financial advisor.

    I am moving in with my parents, minimize all personal expenses I can for about 6-12 months...

    My base compensation is about $260K. My employer (private group) said I can do a mix of W2 and 1099.

    What should be my next steps... kinda naive about all this...

    1. What percentage of W2 vs 1099?

    2. Do I need to form corporation i.e s-corp, llc, c-corp?

    3. Is legalzoom OK to do above?

    Thank you.

  • #2
    Congrats on fellowship!  What is your specialty?

    Is your financial advisory an actual fiduciary advisor?  If not, part ways now...politely.  We can help you here to learn to do it all yourself and save you a lot of money not having to pay an advisor.  Its not that hard and you don't need to pay someone 1% of your portfolio every year to do it

    With that salary and the ability to live with your parents for a year, you'll have no problem getting rid of those loans.  I would make that priority number 1.

    Make sure you set up your 401k to contribute the maximum amount each year (18k).  That will save you on taxes.

    Save up an emergency fund of about 10k.  Even though you're living with your parents and will have very little expenses, its always a good idea to have some cash on hand if you need it for unexpected reasons.

    Once you have your e-fund and your 401k contributions set up, start paying off your loans starting with the highest interest rates first.  Set up a spreadsheet and track your progress each paycheck.  That's what I did and it helped me stay focused and I could actually see the progress I was making.  What are the interest rates on your loans by the way?  If you have any at ultra low rates (like 2.5% or something), you may want to wait to pay those off and instead start saving more for investments.

    Get yourself a term life insurance policy now since you're still young and probably healthy.  Also get yourself some good disability insurance.

    If I were you I would just get paid via W2 for now.  I don't know if there would be any advantages to using 1099 pay in your situation?

    Comment


    • #3
      Johanna Fox just wrote a post that might help. See this thread.

      Great advice from @hightower. I've never heard of a situation where you get to choose a percentage of income to be W-2 versus 1099. I've heard of choosing one or the other. It's pretty cheap to start an LLC via your state's secretary of state website. You don't necessarily need to form an S-corp. You can be an LLC and elect to be taxed as an S-corp.  You do not want to be a C corp. No need for Legalzoom if you're just forming an LLC.

      Congrats on finishing fellowship! You're making a lot of good decisions. Finding the forum and posting is among them.

      Cheers!

      -PoF

       

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      • #4




        Johanna Fox just wrote a post that might help. See this thread.

        Great advice from @hightower. I’ve never heard of a situation where you get to choose a percentage of income to be W-2 versus 1099. I’ve heard of choosing one or the other. It’s pretty cheap to start an LLC via your state’s secretary of state website. You don’t necessarily need to form an S-corp. You can be an LLC and elect to be taxed as an S-corp.  You do not want to be a C corp. No need for Legalzoom if you’re just forming an LLC.

        Congrats on finishing fellowship! You’re making a lot of good decisions. Finding the forum and posting is among them.

        Cheers!

        -PoF

         
        Click to expand...


        Cheap? Not in California, and confers no benefits given the large formation and maintenance costs here.

        Comment


        • #5
          First, consult with a lawyer regarding your contract. I am very skeptical that you and your employer could justify you doing the same job as a physician but being paid partly W-2 and partly 1099. If you were doing 2 substantially different jobs for the same employer (eg being a fulltime physician but also being paid to redo the practice website) it would be plausible, but otherwise doubtfully appropriate.

          Because your situation sounds like it should be a w2 job, no llc necessary. This is good because iirc california has egregiously high llc fees.

          I can't think of any better example of "live like a resident" than "move in with your parents."

          I recommend WCI's book to everybody I meet in your situation because it does a great job laying out a financial checklist for each career stage. Your main objectives at this point are appropriate insurance (own occ disability, i would hold off on term life bc no dependents, possibly umbrella insurance), 401k up to match, emergency fund, debt repayment. After that, max retirement accounts (401k, backdoor roth, hsa if applicable), then save for big purchases like house if applicable.

          I double and triple the recommendation to find out whether the financial advisor is truly fiduciary. The vast majority are not, and the even bigger majority that are willing to offer their services to fellows for "free" are not. The big advantage you have is that you have already found WCI and the forums who are filled with friendly, competent, helpful people who can answer your questions. I only wish WCI was around during my residency to save me from my financial mistakes

          Comment


          • #6
            thank you everybody for putting perpective on this. Also, for big picture objectives.
            1. yes, financial advisor is fiduciary
            2. specialty: heme/onc
            3. per contract, the splitting to W2 and 1099 not mentioned BUT my employer noted that he could do that. He also noted I should talk to accountant first. I honestly did not know that was on the shady side. Because of the potential 1099 component is what lead me to seek a personal llc.
            4. WCI book on it is way.

            Comment


            • #7
              I think you or your employer may not be using the correct terminology regarding W2 and 1099 income. We have what I think are similar options in our practice.

              Often a physician practice will give you W2 wages along with a "CME and professional spending" account.  The practice may fund this account, or perhaps you may have an option to add additional money to this account to cover the cost of "usual and necessary" business expenses.  It will cover the cost of a car to drive back and forth between office(s) and hospital(s), but not commuting from home.  It can cover the cost of your CME trips to Hawaii and Paris, and your new lab coats and stethoscopes, along with the fancy laptop you buy to give lectures to the residents and med students.

              In my practice, each doc gets 6k annually in their professional spending account. This money is worth almost double (high tax state) what it would be worth as salary income that gets taxed, because business expenses are deducted from income before tax.

              Some docs want to have more than the usual amount in their professional spending account. Say I want to drive my old Honda back and forth at work, but my colleague is all excited to be a new attending and wants to drive his spanking new leased red Porsche 911 turbo the 3 miles between hospitals.  My colleague has the option of diverting 15k (or some other arbitrary amount) from W2 wages to his professional spending account.  These types of professional expense deductions would normally not be allowed for a W2 employee, but would be allowed for a 1099 employee.  The professional spending account allows you to be a W2 employee and also get the "1099 like" benefit of deducting business expenses.  But you will not actually receive any 1099 wages.  In our practice, if you have money left over in your professional spending account, you will be paid out as taxable wages in December before the end of the year.

              I hope that helps you understand the options you are likely being presented.

              Comment


              • #8





                Click to expand…


                Cheap? Not in California, and confers no benefits given the large formation and maintenance costs here.
                Click to expand...


                Well, the setup itself is cheap. The administration costs are another story. The 1st year in CA is not so bad, but a minimum of $800/yr going forward. Better to be a sole proprietor than S-corp there if your contractual relationship allows it.

                Moral of the story: If cheap living is at the top of your priority list, don't choose California  !
                Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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