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Coaching and Compliance
One of the benefits that my micro-business coaching clients receive is micro-business updates and coaching on how to use guardrails to comply with various business and tax laws that interface with small business owners.
In this context, there are published Federal, State, and IRS documents for small business owners that align with what we refer to as “standards of care” in medicine. In medicine, we inform our clinical decision-making with standards of care, but we also include our experiences and shared knowledge through what are known as published “case reports”. These narratives provide us with valuable information on how to manage emerging or unusual medical conditions. This combination of these information sources leads to the application of our medical knowledge to patients in what is commonly known as the art of medicine.
In the small business world, there are similar case reports that are filtered through tax and legal professionals as they file IRS audits and monitor court cases. In turn, these case reports inform how federal, state, and IRS officials are interpreting the application of various standards with small business owners. It’s this combination of guidelines/laws/IRS code and the experiences/case reports that inform professionals on how to guide their small business clients.
At SimpliMD, we are dedicated to closely monitoring the ever-evolving and ever-changing business and tax laws. Our commitment is to stay up-to-date and well-informed on matters that directly impact physicians and their micro-corporations. We take great pride in sharing this valuable knowledge with our physician clients.
This is one of the areas that sets us apart as an agency that offers physician business consultation, courses, and coaching to our community. It’s what makes us truly unique. The ever-changing nature of small business laws, regulations, and tax codes emphasizes the importance of having a professional agency to monitor these factors and assess their impact on your financial well-being. This is especially crucial for doctors and their micro-corporations. We are a niche agency and online community solely focused on your unique life as a doctor.
Tax Planning
I hear it over and over again in our SimpliMD community, Due to your high income, tax planning, and strategies are a significant concern for all of you. This is particularly true for those of you who are traditionally employed as W-2 workers. But the W-2 planning also affects micro-business owners because they too receive W-2 income—in the form of salary from their own business.
So, keeping in mind that both traditional workers and self-employed doctors interface with W-2 tax planning, let’s take a global perspective and remind ourselves of the tax planning options available for W-2 workers.
Helping W-2 Employees
Generally speaking, high-income income-earning W-2 workers have fewer options for tax planning. However, there are still some effective methods that can be utilized, including:
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Maximize your opportunities for itemized deductions.
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Maximize your retirement accounts
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Take advantage of pre-tax contributions and employer matches.
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Use after-tax contributions such as a Roth, or for most doctors a Back-Door Roth.
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Open an HSA account—make sure it is maxed out because it’s essentially a stealth IRA.
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Rental properties— these can be a powerful tool to accelerate your wealth and minimize your tax burden. I highly recommend a Semi-Retired MD to resource you in this area.
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Start a small business—the easiest and most natural option is to start your professional micro-corporation. However, any small business can be helpful.
Helping Professional Micro-Corporation Owners
As I work with various types of doctors, I have noticed a growing trend of doctors engaging in job stacking. This involves combining a W-2 job with 1099 side jobs. Those doctors will utilize all the tax planning strategies mentioned above. However, by utilizing a micro-corporation for their 1099 income, they will unlock numerous additional tax planning options. It’s beyond the scope of this blog to delve into those options, but suffice it to say, that it typically involves the wise utilization of pre-tax business deductions.
Coaching Corner & Dwelling Unit Reimbursement Program (DURP)
I had a quarterly coaching meeting with a client whom we helped convert to a PC-Employment Lite program a few years ago.
He is extremely pleased with his transition from traditional employment. One of the tax-saving business expenses we incorporated into his micro-business structure is what we refer to as a Dwelling Unit Reimbursement Program (DURP), commonly known as an Augusta Rule. It’s an excellent opportunity to generate tax-free income from your business to your household through the periodic rental of your home to your business. However, it’s important to consider the legal, tax, business, and documentation aspects to ensure proper execution. At SimpliMD, we offer comprehensive guidance to our business consultation clients in navigating these considerations and also work with our legal network to ensure that your dwelling unit rental plan is properly embedded into your corporate bylaws. Both elements are essential to have in place in the event of an IRS audit.
One component of our program is to review our clients’ DURP meeting minutes for compliance adequacy, paying close attention to any evolving federal, state, or IRS changes.
When it comes to DURP interpretation from the courts and IRS, there have been some recent updates, and here is what I discussed with my coaching client.
DURP Compliance Update
After collaborating with our legal & tax professional network and based on recent IRS cases that have scrutinized DURP meetings in the small business community, we are making the following recommendations for SimpliMD members and clients, effective immediately:
To ensure compliance with the changing IRS interpretation of dwelling unit rental for your business, you must include the following elements for your 14 meetings DURP meetings per year:
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General considerations that have not changed:
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Schedule Meetings at Your House
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Take Corporate Minutes
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Find Comparables
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Invoice the Business
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Pay the Expense
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Document Income/Expense Write Off
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A DURP meeting requires a disinterested person, as defined in section 672(c) of the Internal Revenue Code, who must physically attend the meeting at your dwelling for a business purpose. A disinterested person refers to someone who is neither related nor subordinate to the business owner(s) involved. This means that owners, employees, and family members who attend your business meeting do not qualify for this designation.
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As a professional micro-corporation owner, there can be a host of business purposes to have someone come into your home, and here are some suggestions:
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corporate financial, wealth management, benefits services, banking, legal, and marketing services that are connected to the operation and management of your professional micro-corporation.
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Business development that includes:
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Management of your professional network and PC business contacts, professional peer relationships with other doctors
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Business opportunities
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Business medical market monitoring and analysis for changes, and threats. and challenges.
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Professional relationship development & maintenance with teammates, staff, and management who are not employed by you. For example, if you are in a PC-Employment lite contract this would include all of your support staff.
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Recruitment of staff, providers, and management that support your contracting work but are not employed by you.
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Patient panel development growth, maintenance. Patient loyalty, pride, and attraction to your PC brand.
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Charitable giving and advertising interests for your professional micro-corporation.
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Your global mission to community health through monitoring and improving the health & wellness of your neighborhood, town-city, region, state, nation, or world.
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The person who is disinterested in attending does not need to participate in other aspects of your micro-business or any associated meetings. Even though you may choose to document your micro-business meeting on the same day that the disinterested party visited your dwelling, it’s important to note that your business meeting and notes are not considered part of the DURP meeting.
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You are allowed a maximum of 14 tax-free meetings per year for your DURP.
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These meetings do not need to be held monthly but should be scattered sporadically throughout the year. For example, you might have three DURP meetings in one month and then none for the next two months.
Frequently Asked Questions
Q: Can a disinterested person attend a DURP meeting via Zoom?
A: While the COVID pandemic significantly changed the landscape of in-person meetings, businesses are now shifting back to pre-pandemic face-to-face meetings. While we understand that some CPAs and attorneys may suggest that Zoom meetings qualify, we prefer to take a conservative approach and advise against using Zoom to support attendance by disinterested individuals. The only exception to this would be a person who initially planned to attend in person but, due to unforeseen circumstances, had to switch to a Zoom meeting.
Q: What if my business doesn’t have the cash flow to pay my household for 3 DURP meetings in 1 month?
A: You can work with your accounting professional to suspend, hold, or partially reduce your paycheck or some other reimbursable business expense until your micro-corporation has the cash flow to make up the deficit.
Q: What if I don’t have 14 disinterested individuals come to my home for business purposes throughout the year?
A: You can only be reimbursed for the meetings that qualify for a DURP, regardless of the number. The simple solution is to invite a person/persons to your home who has a business purpose mentioned above. However, there may additional tax-efficient options for transferring money from your business to your household beyond DURP meetings. We recommend you speak to your tax or legal professional about this.
Q: Does the uninterested party attending the meeting in my home need to know that it’s a DURP meeting?
A: No, they do not need to know this information. However, if asked during an audit, they should be able to discuss any personal or professional business matters that were discussed. Ultimately, it’s all about the narrative of why someone was in your home. It is possible to mix business, entertainment, and hospitality.
Q: I’m not sure if I have 14 disinterested people in my social circle who would want to come to my home to discuss personal and professional matters. My life is pretty busy and quiet, and I don’t have many non-family members visiting my home. Can the same person visit 14 times?
A: We don’t recommend having the same person every time, but it’s possible to have a repeated disinterested person throughout the year. The easiest way to approach this is to consider your professional network and periodically invite someone over for a coffee, drink, or dessert. The conversation doesn’t have to be too formal or strictly business-oriented. You can discuss virtually any aspect of your medical-professional life, just like you would in the old-school doctor’s lounge. Of course, other businesses may visit you to discuss the intersection of personal and business matters, such as your wealth manager or insurance salesman. Once again, it all comes down to the narrative of why they were there.
Q: Do I need to purchase food and provide a receipt for this type of meeting?
A: No, you don’t have to do this. However, we do like the idea of providing some sort of food (it can be simple) as evidence that food or beverages were provided to the disinterested person who attended. This is a common practice in business meetings, further evidence of a business meeting is that food is catered or provided to facilitate a comfortable and efficient meeting. One more thing to note: since your household is renting the space to your business, the cost of the food & beverages needs to be covered by your personal or household funds.
I hope you have found this information helpful, especially if you are utilizing the DURP meetings in your micro-business.
If this concept is new to you and you would like to use it as a great tax planning strategy in your micro-corporation, let us help you with a SimpliMD business consultation.
If you are already using a DURP, but after reading this, you realize that you need a professional to help beef up your by-laws and audit-proof your process, let SimpliMD help you with a business consultation.
If you are unsure and would like to discuss whether it can work for you, please reach out to me here for a FREE-minute business consultation to review your particular situation.
Lastly, if you don’t have a professional micro-business coach, I highly recommend signing up for my popular micro-business 4-pack coaching program here—our community members love it. It’s worth noting that it’s tax-deductible to your micro-corporation:)
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