Save Taxes in Your Practice Without Needing Group Approval
Contact: Adrienne Lenhoff Wise
FOR IMMEDIATE RELEASE
Keego Harbor Mich.-. A group of nationally recognized financial planners including Keith L. Mohn, CLU, CHFC (www.benefitsolutionsgroup.biz) work with thousands of physicians and other professionals to build and preserve their wealth. They propose a better way for physicians to structure their PC if they enjoy sharing responsibilities with partners, but hate the inefficiency of needing unanimous agreement on asset management and compensation strategies. The consultants describe an all too common scenario that need not exist—whether the office has 2, 20 or 200 physicians. According to Mohn, “If the following scenario sounds all too familiar, perhaps your practice needs a change in corporate structure!”
Say that Dr. John Smith, age 40, makes $500,000 per year and doesn’t want to pay over $200,000 in taxes again this year. After researching tax reduction solutions and supplemental benefit plans, he wants to implement one of these proven plans. He is excited about an asset management plan that will allow him to put away $75,000 per year in a tax favorable manner. And he is sure the other physicians in his 20-doctor practice will be just as excited as he is.
After carefully researching the tax reduction plan, Dr Smith presents it to his partners. They will not have to pay for the plan, nor do they even have to participate; the inclusion of any other doctor or employee is not required. They just have to approve it! Like all non-qualified income tax reduction plans, it requires a “corporate deduction.” So, Smith needs the partners to approve the use of the corporation to implement the plan. It’s a great compensation strategy to reduce taxes.
Dr. Smith is willing to indemnify the corporation should there ever be any adverse consequences of implementing the plan. So he thinks it should be a slam-dunk decision!
Not quite. Out of the 20 physicians in the group, 5 are young non-partners and very interested. Unfortunately, 5 of the founding members (who also make up the Corporate Board) are over age 55, and they decide after little or no review of the plan that there is no upside for them. They vote against allowing Smith to implement the plan for himself.
Dr. Smith is beside himself and is among thousands of doctors around the country in medical practice or a hospital -- as an owner or employee – in which a small number of physicians or a CEO can VETO an asset management strategy desired by an individual.
“This scenario is sad,” says Keith Mohn. Half the calls we get on high-level money management are from doctors--in groups over five or from hospital employees--who want income tax reduction plans and favorable compensation strategies, but whose partners refuse to agree.”
A “perfect corporate structure” is simple and several medical offices around the country already have one. But the majority of multi-physician medical offices are still structured poorly. They have a main company (usually a C or S corporation) that employs both the physicians and all the employees. Let’s call that the “mother” company. With just the “mother” company in place, all the employees take their income from the “mother” company usually via W-2 income.
Should a physician wish to implement any kind of income tax reduction plan for himself or herself, it must be done inside the “mother” company and, therefore, there must be an agreement of the partners to allow such a plan. It is virtually impossible to get five plus physicians to agree on anything; so, one has little chance of taking advantage of any kind of advanced plan.
The “perfect corporate structure” exchanges a Professional Corporation (P.C.) for the physician as the entity to receive income. So instead of Dr. Smith receiving a W-2 paycheck from the “mother” company, the “mother” company instead cuts that paycheck to Dr. Smith, P.C. where the P.C. in turn, cuts a paycheck to Dr. Smith.
Is it complicated to create a P.C. that is paid instead of the physician? “Absolutely not,” say Mr. Mohn. “If Dr. Smith has a contract to pay “Dr. Smith,” he would simply re-do it to state that “Dr. Smith’s P.C.” will be paid the normal W-2 income (plus the normal matching corporate payroll taxes the “mother” company pays on his behalf) as a consulting fee.
In Dr. Smith’s 20-physician group, Smith might be the only one who names a P.C. as the payee. But, any or all of the doctors--whether owners or employees--can opt to do so, too—or not.
And now for the good news. Once Dr. Smith has money in his own P.C., he can choose to do whatever he wants with it, without asking permission of the partners in the “mother” practice. The same goes for practices where the physicians are not allowed to write off any portion of their automobile lease payment, cell phones or food. In this “perfect corporate structure,” each individual physician can make such a determination for him/herself and implement sound asset management and money management strategies that make sense and reduce taxes.
The biggest benefit of the “perfect corporate structure” is that each physician can implement his or her own income tax reduction plan without having to beg for approval from partners. As you may have read over the past two years, there are a variety of income tax reduction plans almost all of which can be implemented in an individual physician’s P.C.
So why wait? If your hands are tied from doing individual tax planning and taking advantage of appropriate compensation strategies, it could be costing you thousands that could be saved or deferred in non-qualified supplemental benefit plans.
The perfect corporate structure can also be utilized (along with one or two LLCs) to protect your practice equipment and Accounts Receivable from lawsuits against you or any of your partners.
Keith L. Mohn, CLU, CHFC is a financial consultant and lecturer and president of Benefits Solutions Group, LLC, in Keego Harbor (www.benefitsolutionsgroup.biz), Michigan, a full service financial consulting and planning firm specializing in working with high net worth individuals, business owners and medical professionals. Mr. Mohn has been servicing the financial needs of medical professionals since 1983, is a member of The Wealth Protection Alliance and can be reached at 248-681-9320.
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