Officially made partner in Private Practice - Now what for taxes and finances ?

[flubez]

Hi Everyone,

I have been with my practice for 2 years and i made partner. Before i was a W2 employee that was paid a straight salary not based on my production or overhead. After making partner i am in the "eat what you kill"  model and i am responsible for equally shared overhead of the practice with the 5 other partners. The practice is a s-corp and i take a monthly draw and anything in excess i get paid out quarterly.

 

Now that i am a partner i wanted to know what tax strategies or tax savings i should take advantage of? For instance should i open up a business credit card to keep track of any expenses that i personally incur due to work? Do i need to open up a business account with a bank that is separate from the practice's s-corp?

Additionally, my practice uses a safe-harbor 401k profit sharing plan? Would i still be able to maximize the $54k IRS limit to a profit sharing 401k plan as a business owner? Any help would be appreciated as i am still trying to learn the ropes of being a partner in a private practice that is registered as a s-corp. I want to make sure that i make the right financial decisions while still being law abiding and ethical.

Thanks!

[jfoxcpacfp]

It depends on how the overhead arrangement is set up. Doubt there is a need to set up a separate business account, probably not a business credit card, either. But I would be very on top of the overhead calculation, collections, anything to do with bookkeeping and production as it may affect you. Your practice hopefully has a reimbursement plan set up for business expenses referred to as an "accountable plan". If not, you should suggest it. You may be able to continue to maximize your annual $54k 401k/PS contributions, depending upon your salary and the metrics of the business employee payroll.

To make sure that you make the right financial decisions, you should seriously consider a relationship with an experienced CPA. Make sure s/he reads the shareholder agreement and understands the calculation of the overhead that is attributable to you. This is very important. Don't miss any shareholder meetings and be willing to speak up and ask questions.

[flubez]

jfoxcpacfp wrote:

It depends on how the overhead arrangement is set up. Doubt there is a need to set up a separate business account, probably not a business credit card, either. But I would be very on top of the overhead calculation, collections, anything to do with bookkeeping and production as it may affect you. Your practice hopefully has a reimbursement plan set up for business expenses referred to as an “accountable plan“. If not, you should suggest it. You may be able to continue to maximize your annual $54k 401k/PS contributions, depending upon your salary and the metrics of the business employee payroll.

To make sure that you make the right financial decisions, you should seriously consider a relationship with an experienced CPA. Make sure s/he reads the shareholder agreement and understands the calculation of the overhead that is attributable to you. This is very important. Don’t miss any shareholder meetings and be willing to speak up and ask questions.

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Thank you for your reply. Very helpful. can you expand on "You may be able to continue to maximize your annual $54k 401k/PS contributions, depending upon your salary and the metrics of the business employee payroll."? Thanks, again!

[jfoxcpacfp]

flubez wrote:

can you expand on “You may be able to continue to maximize your annual $54k 401k/PS contributions, depending upon your salary and the metrics of the business employee payroll.”? Thanks, again!

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I'm just saying that whether or not you can get $54k into your 401k annually depends upon several factors, such as your salary, whether the plan becomes subject to top-heavy testing, and the profit-sharing calculation.

[flubez]

jfoxcpacfp wrote:

flubez wrote:

can you expand on “You may be able to continue to maximize your annual $54k 401k/PS contributions, depending upon your salary and the metrics of the business employee payroll.”? Thanks, again! 

Click to expand…

I’m just saying that whether or not you can get $54k into your 401k annually depends upon several factors, such as your salary, whether the plan becomes subject to top-heavy testing, and the profit-sharing calculation.

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i was under the impressions that safe-harbor plan advantage is to save businesses from top-heave testing? Profit sharing would be any excess profit from the practice that is not directly related to work that i do. I.E. an employed physician makes a profit for our practice so that profit would be equally distributed among the partners.

[jfoxcpacfp]

flubez wrote:

i was under the impressions that safe-harbor plan advantage is to save businesses from top-heave testing? Profit sharing would be any excess profit from the practice that is not directly related to work that i do. I.E. an employed physician makes a profit for our practice so that profit would be equally distributed among the partners.

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I think we are talking about 2 different things. Profit sharing in the sense of retirement contributions or cash distributions is subject to discrimination testing. The advantage of safe harbor is that the business has a template to follow that will prevent the top-heavy rules from coming into play. That doesn't mean that the rules are always followed. However, I think we have gotten away from your question about the $54k. Hopefully, your 401k account will be able to receive that much annually, but the point I was trying to make, in a clumsy way apparently, is that I just don't have enough information to know. It depends upon the facts and circumstances of your plan and your compensation.

[flubez]

Thanks. Appreciate all your help.

[Rando]

I was in a similar situation some time ago and our retirement plan was not set up so we could contribute the max, so it's basically what Johanna said -what's important is how your plan is configured and that may vary from group to group.  I am now solo and my plan is set up that I can contribute the max.

 

The other thing I would mention is that when getting W-2's taxes are automatically withheld for you but when I became a partner I had to start submitting estimated taxes.  We had one partner who didn't realize that and ended up with a big problem.

[jfoxcpacfp]

Rando wrote:

The other thing I would mention is that when getting W-2’s taxes are automatically withheld for you but when I became a partner I had to start submitting estimated taxes.  We had one partner who didn’t realize that and ended up with a big problem.

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Good catch - I totally overlooked that!