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Weighing Job offers between K-1 vs. W2

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  • Weighing Job offers between K-1 vs. W2

    Hello Sages of WCI,

    I am a graduating resident who needs some help weighing between two offers:

    Job #1) W-2 Employee. Guaranteed 400k first year.
    • 45% of collections up to 900k, then 47%.
    • No mid-level supervision

    Job #2) K-1 Partner. Guaranteed 420k first year.
    • 45% of collections
    • Profit sharing % paid annually (likely not much until we add a few more physicians to the practice)
    • Supervise 1 mid-level
    Assuming I receive the same benefits (PTO, health, dental, malpractice) in both positions, is Job #2 a significantly better offer than #1?

    I know Job #2, I will have to pay self-employment taxes, in addition to income tax, but I will likely be able to claim more business deductions as a result.

    Thanks in advance. (My apologies for posting in the wrong subforum previously)

  • #2
    I have heard of W2 vs 1099, but I have not heard of a doc being paid via K-1 for employment. Usually I get K-1s from partnership related real estate income and business related income, but not from somewhere where I have also been employed as a doc.

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    • #3
      Originally posted by White.Beard.Doc View Post
      I have heard of W2 vs 1099, but I have not heard of a doc being paid via K-1 for employment. Usually I get K-1s from partnership related real estate income and business related income, but not from somewhere where I have also been employed as a doc.
      I thought these offers were from separate practices - no? The K1 would be for partnership track or go directly into partnership.

      No way to answer your question w/o a lot more discussion. Partnership might pay double but be h3ll on earth with a bad businessperson and leader for a partner and that might not be worth it to you. I believe money is A consideration but not the ONLY consideration and maybe not the PRIMARY consideration, iow.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Originally posted by White.Beard.Doc View Post
        I have heard of W2 vs 1099, but I have not heard of a doc being paid via K-1 for employment. Usually I get K-1s from partnership related real estate income and business related income, but not from somewhere where I have also been employed as a doc.
        I believe that's because I will be both a partner of and also work for the PLLC, so a K-1 is the most appropriate.

        W2 status would fail to capture the partnership portion.
        Last edited by ArchEnemy; 03-16-2022, 06:19 PM.

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        • #5
          Originally posted by jfoxcpacfp View Post

          I thought these offers were from separate practices - no? The K1 would be for partnership track or go directly into partnership.

          No way to answer your question w/o a lot more discussion. Partnership might pay double but be h3ll on earth with a bad businessperson and leader for a partner and that might not be worth it to you. I believe money is A consideration but not the ONLY consideration and maybe not the PRIMARY consideration, iow.
          Yes, these are offers from separate practices.

          The business partner is definitely way more successful and knowledgeable at running the practice than me, so I am not concerned from the business operations perspective.

          With Offer #2, there appears to be larger room for growth, compared to Offer #1 where partnership is impossible.

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          • #6
            Originally posted by ArchEnemy View Post

            I believe that's because I will be both a partner and an employee of the practice, so a K-1 is the most appropriate. W2 (employee) or 1099 (independent contractor) would miss out on the other.
            You cannot be a partner and and employee of the same practice simultaneously. But I can’t figure out what you’re saying in your 2nd sentence,
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              Originally posted by jfoxcpacfp View Post

              You cannot be a partner and and employee of the same practice simultaneously. But I can’t figure out what you’re saying in your 2nd sentence,
              I am very unfamiliar with taxes and its terms. I guess I should have mentioned that I am a partner, and I also work for the practice.

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              • #8
                While a partner is considered a partnership employee for employer retirement plan purposes. Their compensation is self-employment earnings reported on Form K-1 (1065). They are not and cannot be a W-2 employee.

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                • #9
                  Any thoughts on my original question of Job 1 vs. 2?

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                  • #10
                    Bumpping this post again for attention. Thanks in advance.

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                    • #11
                      Please provide more details.

                      - Are you becoming a partner for job 2 on day 1? Or is it employed with a salary guarantee?
                      - is there a buy in?
                      - are you being paid 45% of collections? Does that mean that the practice has 55% overhead or the partner hiring you takes the rest ( entirely appropriate since you may be subsidized for your first year)
                      - does your portion increase in the future?
                      - is there ancillary income?
                      - do you get the income generated by the mid level you supervise? Do you pay their salary?

                      - how long is the job 1 employment contract?
                      - what happens after year one?

                      - how does lifestyle, call, location, other aspects of your clinical experience differ between the two offers.

                      if you provide more info, there are a ton of helpful people here with really informed advice.

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                      • #12
                        Originally posted by ArchEnemy View Post

                        I am very unfamiliar with taxes and its terms. I guess I should have mentioned that I am a partner, and I also work for the practice.
                        Completely understandable. However, the contract is a legal document. You will actually need a contract review. Comp is only one factor.
                        How you join and the exit terms are just as important. If you do not understand the terms, then you do not understand the substance. Benefits, call, malpractice, non competes, terms of exit etc. can greatly impact the taxes and the projections after the guarantee are just a few. Not a criticism, a suggestion that you have a valid question about the comps but there are a lot more things in the comp and whether is is sustainable. You may know this already.

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                        • #13
                          job 2 as a partner “45% of collections” just doesn’t tell the story. Where’s the other 55% go?

                          usually in a private practice ownership situation whether partnership or S corp, the owners get whatever is left over after all the expenses are paid. How expenses are split among the owners, and how remainder of the pie are split can vary.

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                          • #14
                            but perhaps more importantly. Do you want to be an owner or do you want to be an employee? Typically there are a lot of important differences that have nothing to do with money but more about time, expectations, responsibility, risk reward, etc. some employment jobs are great and some suck. Some ownership jobs are great and some suck.

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