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Old 12-15-2008, 11:37 AM   #21
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hello AJ and welcome!
i am unable to answer any of your questions, but it is very interesting reading from this side of the aquarium glass. you certainly have a lot going on!
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overall plan
Old 12-15-2008, 08:43 PM   #22
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overall plan

Thanks for the reply Martha! My plan is to just use the corporation to funnel the money to me from independent contractors and pay myself a small salary. I will continue to have my university employeeing me so that I can personally contribute to the 457b plan, while simulataneously contribute to my individual 401k through the corporation. Any insight or additional ideas would be greatly appreciated. Also, if anyone has any clever deductions I can use, those hints would be much appreciated as well. Thanks again all!
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Old 12-26-2008, 11:01 PM   #23
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Thanks for the reply Martha! My plan is to just use the corporation to funnel the money to me from independent contractors and pay myself a small salary.
What will the S-corp do with the rest of the income? Pay it as a dividend? Two words: BAD IDEA.

The IRS really, really, dislikes people who hide income and they know how the S-corp dividend game works. They also pay more attention to higher earning people.

If you have full insurance that isn't an HDHP plan, you can't get an HSA. Period.

Martha is right - the self employed can have defined benefit plans.


You're not only pushing the envelope here, you're going way beyond what any accountant would recommend. It'll work until it doesn't. You'll know it has failed when that letter from the IRS arrives.



But this is of course internet advice. You get what you pay for.
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Pay Out
Old 12-27-2008, 02:28 AM   #24
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Pay Out

Unfortunately, it seems like it is very hard for an S-corporation to pay a dividend, period. I have been told that the income that passes through to me will be taxed at the rate of my personal income tax bracket, but I will not have to pay medicare/social security tax on the distribution. what do u think?
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Old 12-27-2008, 03:31 PM   #25
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what do u think?
Others much more tactful than me have been making their points. Let me try a different approach.

Reading back over your questions & comments on this thread, here's what I think "u" should consider:
- People have a tendency to overestimate their financial skills-- the foundation of investor psychology. (And the lifetime employment of investor psychologists.)
- Highly intelligent, confident, articulate, and driven people tend to overestimate their financial skills even more dramatically than those who are less so.
- Your energy and focus is probably much more profitably directed toward perfecting your chosen avocation than toward tweaking your incorporation plans and finagling your tax obligations.
- It's not really different this time, and you probably aren't either. Do you feel that you've discovered an oversight that hasn't been found by any of the thousands of doctors who've gone before you? Is it possible that your "edge" doesn't exist, or that these medical people were busier focusing on the "medical" side of their business? Do you really think that you're the Buffett of medicine? It doesn't matter what I think-- only what you think.

Your situation is compounded by the appearance of getting your advice from Internet strangers. You say you've done a ton of reading but you don't seem to have been able to apply that study to determine what to put into your articles of incorporation, let alone assess the reputation of LegalZoom.com. You don't seem to have found another doctor who's used your contemplated methods to achieve riches in their 30s and retire to a life of self-directed exploration. Is it possible that these mentors don't exist? Is it possible that your sought-after methods don't work? I guess it'd be a stretch to expect you to actually pay a real no-foolin' experienced legal professional the money it would take to either do it right or to learn an effective way to set up your practice.

If you've been reading this board, you'd form the impression that the #1 contribution to ER is living below your means. Minimal spending and extraordinary savings. Mainstream ER doesn't come from brilliant investing or tax evasion avoidance or even (very often) from stock options. It mainly comes from saving a gargantuan amount of money to compound for a little time, or saving a goodly amount of money to compound for a longer time. It mostly happens while people are doing other things like practicing their chosen profession or learning enhanced methods of applied frugality.

I don't have much faith that you'll bother to do the legwork, but for the benefit of other MDs who may be reading this thread I'll recommend a book that was suggested to me by an MD who is well on his way to ER:
"The Physician's Guide To Investing: A Practical Approach to Building Wealth". The author, also an MD, has some tough love for guys like you.
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Old 12-27-2008, 07:26 PM   #26
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Unfortunately, it seems like it is very hard for an S-corporation to pay a dividend, period. I have been told that the income that passes through to me will be taxed at the rate of my personal income tax bracket, but I will not have to pay medicare/social security tax on the distribution. what do u think?
I think you need a good lawyer, not an internet board.

Ha
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Old 12-27-2008, 08:31 PM   #27
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bad day?
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learning...always learning
Old 12-27-2008, 08:33 PM   #28
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learning...always learning

point is to learn as much as i can from every source possible before meeting with these pros
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Old 12-27-2008, 11:09 PM   #29
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Nords, I will try to go point by point in ur ramble, but try to do so a little more tactfully than "u,"

"- People have a tendency to overestimate their financial skills-- the foundation of investor psychology. (And the lifetime employment of investor psychologists.)
- Highly intelligent, confident, articulate, and driven people tend to overestimate their financial skills even more dramatically than those who are less so"

those that r arrogant and overestimate their skills in life are those that do without thinking and move ahead without seeking advice from more experienced people. the intelligent r those that gather info from as many sources as possible, put it together, look for overlaps, and confirm what they have found. I have gathered info from as many places as possible and am continuing to do so, which is why I am part of this forum. I don't act on anyone's advice, but am smart enough to listen.

"- Your energy and focus is probably much more profitably directed toward perfecting your chosen avocation than toward tweaking your incorporation plans and finagling your tax obligations.
- It's not really different this time, and you probably aren't either. Do you feel that you've discovered an oversight that hasn't been found by any of the thousands of doctors who've gone before you? Is it possible that your "edge" doesn't exist, or that these medical people were busier focusing on the "medical" side of their business? Do you really think that you're the Buffett of medicine? It doesn't matter what I think-- only what you think."

Well...I don't really know how to respond to something like this, but i'll try. First of all, you may considerer yourself one-dimensional but i take great pride in trying to learn about everything i can, and yes, that can include finances AND medicine. last time I looked, doctors aren't dumb, and chances r, it doesn't take too much to be smarter than ppl that say tactless and rude remarks. Warren Buffett of medicine? Saving for retirement is hardly high-powered, multi-billion dollar investing.

"Your situation is compounded by the appearance of getting your advice from Internet strangers."

Once again, a completely idiotic remark. Guess what, financial planners and lawyers are strangers too, and most of the time, they do not have ur best interests at heart. this is why it is important to educate yourself from as many sources as possible. I am also talking to friends as well, which leads me to my next point.

"You don't seem to have found another doctor who's used your contemplated methods to achieve riches in their 30s and retire to a life of self-directed exploration. Is it possible that these mentors don't exist? Is it possible that your sought-after methods don't work? I guess it'd be a stretch to expect you to actually pay a real no-foolin' experienced legal professional the money it would take to either do it right or to learn an effective way to set up your practice."

Well, most of the doctors I've interacted with are in their mid-40s and early 50s, and ALL have said they wished they had my mentality when they were my age. Being a doctor is about delaying gratification for decades, and when they do make money, it gets thrown in a nice house and car, "golden handcuffs." I am avoiding that at all costs.

You must be completely dilluted if you think throwing money at a "no-foolin' experienced legal professional" without some understanding of what you are doing will suddenly make everything right.

"If you've been reading this board, you'd form the impression that the #1 contribution to ER is living below your means. Minimal spending and extraordinary savings. Mainstream ER doesn't come from brilliant investing or tax evasion avoidance or even (very often) from stock options. It mainly comes from saving a gargantuan amount of money to compound for a little time, or saving a goodly amount of money to compound for a longer time. It mostly happens while people are doing other things like practicing their chosen profession or learning enhanced methods of applied frugality."

Wow, let me take a breath. absolutely blown away by this amazing advice. Spending less means saving more! No way! If this is ur one tidbit of constructive advice, move one. Similar to: "doctor, how do I lose weight?" Response: "Exercise more and eat less." amazing

"I don't have much faith that you'll bother to do the legwork, but for the benefit of other MDs who may be reading this thread I'll recommend a book that was suggested to me by an MD who is well on his way to ER:
"The Physician's Guide To Investing: A Practical Approach to Building Wealth". The author, also an MD, has some tough love for guys like you."

Guess what, read that. New edition coming out in March by the way. Since I don't believe in using just one source, I continue to learn from other books and other people. You should really try that some time.

Nords, since u've been so kind to to take the time and give me advice, let me return the favor: chill out.
AJ
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Old 12-27-2008, 11:56 PM   #30
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You have a nice life now...
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Old 12-28-2008, 12:00 AM   #31
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You must be completely dilluted if you think throwing money at a "no-foolin' experienced legal professional" without some understanding of what you are doing will suddenly make everything right.
Nope, like it or leave it, he is full strength.

Ha
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Old 12-28-2008, 12:00 AM   #32
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no worries... now maybe the thread can be constructive again
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Old 12-28-2008, 08:54 AM   #33
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Glad things settled down and also glad to hear that you are doing your homework before talking to a pro as talking to a pro is vital.

When people have an S corp and try to pass through some of the income as a distribution, they are not trying to save income taxes (because they can't), they are trying to save SS or Medicare. As a number of us have mentioned, but might have become lost in the shuffle, it is next to impossible for a personal service corporation to designate any income as anything but salary and thus you will have to pay withholding taxes like FICA and medicare. The assumption is that because all the income comes from your own labor whatever you are paid is a reasonable salary.

But again, consult with a pro and read my signature.
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Old 12-28-2008, 01:38 PM   #34
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passing through

Completely agree with you Martha. For 2008, I set myself up as an independent contractor and in 2009, I am going to incorporate. One benefit of being so underpaid as a resident is that I can show the IRS how much I am being paid per hour of work ($5/hour) so if my corporation pays me a salary 3-4x that, then that should more than signify "reasonable compensation." I am waiting for after the holidays to contact a lawyer and get the S-corp set up. I have a couple of people holding their checks for me until my S-corp is set up so that it can be paid to the corporation instead of me. Side note: thanks for the 457b tip; i looked into it and confirmed it. I am now maxing that out on top of my individual ROTH 401k. Now I just have to look at setting up a flexible health account so i can use that money and get braces and possibly lasik. Thanks and happy holidays!
AJ

P.S. For all, a full list of FSA-eligible items
http://www.irs.gov/publications/p502/ar02.html#d0e1048
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Old 12-31-2008, 09:27 AM   #35
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Sounds like a lot of effort to skim the systems most people accept as price of living in America. You have certainly invested a lot of time to understand the angles of our "current" tax system but always consider tax laws change when too many people find ways to beat them. I say knock yourself out, but it may be more productive to hire a professional in these matters and spend the rest of your skilled time growing top line revenue.
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yeah, i would but...
Old 12-31-2008, 11:02 AM   #36
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yeah, i would but...

I wish it was that easy. i'm somewhat pessimistic when it comes to people and money as there is inherent greed evidenced by what is happening with today's economy. I want to make sure I know what i'm doing rather than blindly trusting someone i don't know who has very little to zero accountability. My goal is simply to minimize my taxes LEGALLY as there r no shortage of ways to do so. Happy New Year to all!
AJ
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