It’s that time of year when you think about what happened to your money last year. You reconcile how much the government gets to keep, and how much you might “get back”, or possibly how much you might owe. This annual American ritual is commonly called “doing your taxes”. The ultimate goal is to score a positive return as it’s like “finding” money.
Many Americans use this annual ritual of “found money” to make various large purchases, depending on the size of the return.
I am all for paying my fair share of taxes to live in this incredible country, so this blog is not about how to avoid taxes. But it is about how to smartly strategize your taxes as a physician.
You won’t have to read very far to get your answer to your most important tax strategy.
Form your own Professional Corporation (PC).
For many of you, choosing to be employed by any number of employers is a smart move in our constantly changing healthcare economy.
But just because you choose to be an employee, doesn’t mean you should not form your own Professional Corporation (PC). This is a great misconception. Visually, this is what a standard employment contract and a PSA look like:
Choosing to be employed rather than starting, or joining, a private practice arrangement is the new normal, with nearly 90% of residents choosing this route. And among physicians who have greater than 5 years of experience, many are converting to employment contracts as well. Being employed by a 3rd party is a safe harbor for many doctors.
But choosing to be employed does not preclude the formation of your own PC as part of the process. See the above diagrams to catch a visual of why this is the case.
In the past, forming your own PC was akin to starting your own private practice. Once again, this is a myth.
You can form a PC, and not own any real estate, or have any responsibility for practice overhead, depending on your type of PSA arrangement.
- Your own PC can sign the same employment contract you are currently in, through what is called a PSA. Then your own PC employs you to do the exact same work with the same professional arrangements, absent the benefit program (your new PC will pick this up)
- Or you can keep your current employment arrangement in place, but use your new PC to organize all of your side hustles that you want to funnel through it. These side hustles incomes are increasingly common, and can include a lot of things ranging from medical directorships, call coverage, legal services, insurance services,moonlighting, or even a part time job. The PC affords you a host of professional and personal options, including taxes, but beyond taxes.
You can either choose to get your W-2 from your own company, or from someone else’s company. It’s that simple.
Yet choosing to get it from your own company unlocks a multitude of tax strategies, retirement benefits, and retained income not available to you solely as an individual.
You are a business as an individual.
Now you are aware.
You are a business and can form your own PC. You CAN be employed by your own PC who then contracts with your current employer.
In doing this, you will reap the benefits of controlling your income flow to yourself as an individual and a corporation.
In my next blog post, I will unpack this in a bit more detail. Stay tuned.
Dr. Inc.
