New Tax Bill - any super creative options available for the Employed Docs?

[drpepper]

This is all a bit depressing if you are employed!  The self-employed docs are walking around a candy store on most of the threads on the new tax bill.  It is a giant loophole for the self-employed if you care to be creative enough.  The W-2 folks get some lower brackets, but nothing to the degree of the amazing "pass through" gift.  and if you are in NY/NJ/CT/IL/CA, enjoy being the piggy bank that funds everyone else's tax cuts.

Has anyone thought outside the box if you are employed?  Is there any possible way of characterizing W2 income as 1099 income?

[janettebournes]

drpepper wrote:

This is all a bit depressing if you are employed!  The self-employed docs are walking around a candy store on most of the threads on the new tax bill.  It is a giant loophole for the self-employed if you care to be creative enough.  The W-2 folks get some lower brackets, but nothing to the degree of the amazing “pass through” gift.  and if you are in NY/NJ/CT/IL/CA, enjoy being the piggy bank that funds everyone else’s tax cuts.

Has anyone thought outside the box if you are employed?  Is there any possible way of characterizing W2 income as 1099 income?

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Would love to hear answers to this too. I posted this is another thread

 

1) Is incorporating as a C corp an option for employed physicians wishing to characterize W2 income as 1099 income?

I know there have been a lot of posts about the “Qualified Business Income” 20% Deduction For Pass-Through Entities and its phase out limits but haven’t seen a lot of talk about going the C corp route.

 

2) Even if incorporating as a C corp is an option, at what level income does it make sense?

As I’m running the numbers using WCI’s example from a previous article (https://www.whitecoatinvestor.com/incorporating-to-reduce-liability-and-to-save-taxes/), it looks like even at $1M, we haven’t reached the point yet where a C corp wins out even with the lower 21% corporate rate.

Consider a physician that makes her business a C corporation and earns $1,000,000. First, she pays $210,000 in corporate tax. Then, she distributes the money to herself as a dividend. This is then taxed at 15%, the dividend rate, for another $118,500 in taxes ((1000000-210000) * 0.15). If she hadn’t been structured as a C Corp, her tax bill would have only been $309,379 in taxes (MFJ), instead of $328,500.

[spiritrider]

The 3.8% net investment income tax applies with a MFJ MAGI >= $250K. The 20% capital gains/qualified dividend tax rate starts at MFJ taxable income >= $479K.

At income levels < $250K (32% bracket) corporate profits + dividends will be taxed at rate of 21% + 15% = 36% vs. personal income taxed at 32%. At income levels > $479K (37% bracket) corporate profits + dividends will be taxed at rate of 21% + 20% + 3.8% = 44.8% vs. personal income taxed at 37%.

A C-Corp is not a panacea for pure tax rate savings, but it narrows that gap such that certain strategies may provide net benefits.

[StatBariumEnema]

drpepper wrote:

  and if you are in NY/NJ/CT/IL/CA, enjoy being the piggy bank that funds everyone else’s tax cuts.

 

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As somebody not in those states, I'm going to enjoy no longer being the piggy bank that pays for those states' poorly run governments and excessive hand outs. Why in the heck does CA need to charge such a high state income tax. The amount they should be collecting from the tourism business, agriculture and tech companies should make the state income tax much lower.

**I am in an average to slightly above taxed state and the loss of state income tax deductions will negatively affect me, but I'm very happy with the change even if it costs me a little bit. Overall, I'll benefit from the tax reform though.

[drpepper]

Respectfully, you have it backwards. Al of those states are net CONTRIBUTORS to the federal budget. It's precisely because they don't get excessive federal assistance that they have high local taxes. Generally the low tax states are getting disproportionately more federal resources. Obviously, there is corruption/mismanagement as well, but my point is the idea out there that red states are subsidizing blue states is not accurate.

https://wallethub.com/edu/states-most-least-dependent-on-the-federal-government/2700/

[hightower]

StatBariumEnema wrote:

drpepper wrote:

  and if you are in NY/NJ/CT/IL/CA, enjoy being the piggy bank that funds everyone else’s tax cuts.

 

Click to expand…

As somebody not in those states, I’m going to enjoy no longer being the piggy bank that pays for those states’ poorly run governments and excessive hand outs. Why in the heck does CA need to charge such a high state income tax. The amount they should be collecting from the tourism business, agriculture and tech companies should make the state income tax much lower.

**I am in an average to slightly above taxed state and the loss of state income tax deductions will negatively affect me, but I’m very happy with the change even if it costs me a little bit. Overall, I’ll benefit from the tax reform though.

Click to expand...

I thought the GOP believed in giving power back to the states and shrinking the size of the federal government?  This sounds like the federal government is intentionally picking winners and losers.  Why should Californians be punished for running their state THEIR WAY?  Who are you to say that it's a "poorly run government with excessive handouts?"  The people of California voted for their policies and put them in place because that's the way they want to live.  The federal government shouldn't be dictating how a state is run.

Why does CA need to charge such a high income tax??  Because it's one of the most densely populated places on the planet and it provides good services to it's citizens.  California is one of the top ten largest economies in the WORLD!  Lot's of people living in one place will demand lot's of taxes being collected to pay for everyone.  Californians collectively provide an enormous chunk of federal income taxes to the nation as a whole due to how large they are. Low cost of living states are in no way shape or form the "piggy bank" for California.  [inappropriate language removed -- nachos31]  You hear those BS things on FOX news because it's propaganda.

[Zaphod]

StatBariumEnema wrote:

drpepper wrote:

  and if you are in NY/NJ/CT/IL/CA, enjoy being the piggy bank that funds everyone else’s tax cuts.

 

Click to expand…

As somebody not in those states, I’m going to enjoy no longer being the piggy bank that pays for those states’ poorly run governments and excessive hand outs. Why in the heck does CA need to charge such a high state income tax. The amount they should be collecting from the tourism business, agriculture and tech companies should make the state income tax much lower.

**I am in an average to slightly above taxed state and the loss of state income tax deductions will negatively affect me, but I’m very happy with the change even if it costs me a little bit. Overall, I’ll benefit from the tax reform though.

Click to expand...

Ah, come on. Lets not get political or afactual.

[Zaphod]

I dont think its as rosy even for self employed docs as you think. Im self employed but will likely be above the cutoff on total income so wont get any of that benefit. It only will work if you actually have pass through businesses, and for those docs its not a loophole, its an actual business setup and the tax reflects it.

[hightower]

drpepper wrote:

Respectfully, you have it backwards. Al of those states are net CONTRIBUTORS to the federal budget. It’s precisely because they don’t get excessive federal assistance that they have high local taxes. Generally the low tax states are getting disproportionately more federal resources. Obviously, there is corruption/mismanagement as well, but my point is the idea out there that red states are subsidizing blue states is not accurate.

https://wallethub.com/edu/states-most-least-dependent-on-the-federal-government/2700/

Click to expand...

Exactly.  The GOP knows this very well and is intentionally trying to mislead people into believing the opposite because it obviously helps them win elections.  Right now their propaganda machine is very strong and doing an excellent job deceiving the masses.  Thank you FOX news

[Lithium]

Blue states subsidize red states because 11 of the top 12 states in income and DC are all blue states.  The bottom 17 states are ALL red states.  It isn't really that complicated.  If those of you in blue states don't like it, push for a flat income tax.

[Slav4ikMD]

Stupid question:  so if I am understanding this correctly, a self-employed physician who operates his or her business as a solo proprietor (does NOT need to be an S corp for this, right?)  and has total gross taxable income under 315K (if married), WILL save 315k x.02 x.24 = roughly 15k a year on taxes, right?  And if that physician also happens to have some W2 income which puts him over 315k in total, then they are out of luck, correct?

[nachos31]

As hard as it may seem, let's please keep the political commentary on both sides out of this and focus on the actual questions posed.

[Zaphod]

Slav4ikMD wrote:

Stupid question:  so if I am understanding this correctly, a self-employed physician who operates his or her business as a solo proprietor (does NOT need to be an S corp for this, right?)  and has total gross taxable income under 315K (if married), WILL save 315k x.02 x.24 = roughly 15k a year on taxes, right?  And if that physician also happens to have some W2 income which puts him over 315k in total, then they are out of luck, correct?

Click to expand...

Sounds about right, and my current understanding. Hopefully wrong.

[DMFA]

spiritrider wrote:

The 3.8% net investment income tax applies with a MFJ MAGI >= $250K. The 20% capital gains/qualified dividend tax rate starts at MFJ taxable income >= $479K.

At income levels < $250K (32% bracket) corporate profits + dividends will be taxed at rate of 21% + 15% = 36% vs. personal income taxed at 32%. At income levels > $479K (37% bracket) corporate profits + dividends will be taxed at rate of 21% + 20% + 3.8% = 44.8% vs. personal income taxed at 37%.

A C-Corp is not a panacea for pure tax rate savings, but it narrows that gap such that certain strategies may provide net benefits.

Click to expand...

I didn't know if it was additive or multiplicative...like if the corp gets taxed at 21%, and then the shareholder gets taxed at 23.8%, then I didn't know if it would be, using $100k as an example, 100,000 - 21,000 - 23,800 = $55,200 (44.8%) or if it would be $100,000 * (1-.21) * (1-.238) = 100,000 * .79 * .762 = $60,198 (39.8%).

Basically, is the dividend rate tied to what the corporation paid on the tax, or what the shareholder receives?

[u500_insulin]

If employers are getting a big tax break, do you expect them to pass on some of the money to employed physicians?

Should employed physicians ask for raise?