← White Coat Investor Podcast
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- [00:00]
Todd Stillson
This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.
- [00:16]
Jim Dahle
This is White Coat Investor Podcast 452 the Case for Self Employment. This podcast is sponsored by Bob Baiani at Protuity. He's an independent provider of disability insurance planning solutions to the medical community in every state and a longtime White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies. If you need to review your disability insurance coverage or just need to get this critical insurance in place, contact Bob. You can do so@whitecoatinvestor.com Protuity. You can email infoorotuity.com or you can call 973-771-9100 welcome to the New Year. It's new Year, new you. It's time to set your New Year's resolutions. I hope one, at least one of your New Year's resolutions is financial. Please do something this year to improve your financial life. Maybe it is simply to get a financial plan in place. We can help you do that, right? Go take our fire your financial advisor course. Get yourself a financial plan this year. If you need to go hire a professional, hire a financial advisor and get your plan in place. Whatever it takes. Maybe it's you need to simplify to. Maybe you need to get rid of an investment or an investing account or something this year. Whatever it is, set one goal, one resolution this week to do. It's also about that time of year when a lot of white coat investors are doing their backdoor Roth IRA process. Please don't screw it up. It's not that hard not to screw it up. Okay, here's a really easy way to do it. Make your contribution into a traditional Iraq. Then the next day or the next week, or whenever they allow you to do it, go ahead and move that to a Roth ira. In the meantime, just leave it in cash. Don't invest it in that traditional ira. Just leave it in cash. It'll make a couple of bucks of interest. You might have to do a second rollover into the Roth IRA and you'll actually owe taxes on that couple of bucks of interest. But that's it. Once it gets into the Roth ira, you can invest it as per your investing plan. The only thing you can screw up really, if you'll do that is by having some other ira, whether it's a traditional IRA or a rollover IRA or a SEP IRA or a simple ira, but not an inherited ira, not a Roth IRA with money in it. At the end of the year, you did that Roth conversion step in, then it gets prorated. Don't do that. Okay? Make sure you clean those accounts out by either converting them all to a Roth IRA or by rolling them over into a 401k or a 403 to avoid that pro rata thing. But otherwise, just because you're a high earner doesn't mean you can't contribute to a Roth IRA for yourself and for your spouse. You just have to do it via the backdoor process. And this week is probably the best time to do that for 2026. Okay, some changes on the podcast you need to be aware of. We call them Boot Camp. Okay, The Boot Camp podcast. This is different from the Financial Boot Camp email series that we started many years ago. It is different from the White Coat Investors Financial Boot Camp book. Now, I know we're using the same name, so I hope this isn't confusing to anybody, but the idea behind them all is the same, is try to get people up to speed as quickly as we can, get them the very basics and help you to catch up to the rest of the White Coat investor community if you're just finding us and get you going. But we recognize that everybody learns a different way. Some people like getting emails. Some people like reading the book, Other people do not. Especially people listening to this podcast. They often do not like reading all that stuff. They want to listen to podcasts. So for you people, we have decided to do a Boot Camp podcast and it is now live. It has its own separate feed. So you can just, you know, subscribe to that and listen to all the Bootcamp podcasts. There's at least 10 of them up there right now. By the time we're done with this later in the year, there will be 80 or 90 of these. And they are short, bite sized podcasts, less than 10 minutes apiece. They are aimed at beginners. This is where you can start. Okay, so you can sign up for that. You can go to whitecoatinvestor.com Boot Camp Podcast. Now, if you just go to Slash Boot Camp or Financial Boot Camp, you're going to sign up for the emails. That's different. I think you ought to do that too if you've never seen those. But it's Boot Camp Podcast and that'll sign me up for them. And so when the new ones come out, you'll be able to listen to those. But the idea is not that we're going to do this podcast forever and have a new thing dropping every week. It's that we're going to put together 80 or 90 of these, you know, basic podcasts that somebody can listen to. You can re listen to them, I suppose, if you want, but that someone can listen to and kind of get up to speed. It's the Basics podcast. Now it is going to replace this kind of one on one stuff I've been doing at the end of each Milestones to Millionaire podcast. So we're just going to insert one of these 10 minute segments or whatever into the Milestones podcast each week and it'll take you two years to run through them. So you're not going to be hearing them all the time. But you know, that's, that's what we're going to do on that podcast. But these all have their own, you know, these podcasts are all on their own feed. So if you just want to listen to those. If you don't like listening to the interviews we do with Milestones, this is a way in which you can separate those out. The URL is whitecoatinvestor.com Bootcamp podcast. Hope that helps. Okay, we have got a great discussion today. Okay. It's going to be all about being self employed. Why that might be a great option for you. Some of the intricacies of being self employed. And I've got Todd Stillson coming on. He's a doc. He also founded kind of a physician entrepreneurship academy. And we've been having a little bit of a debate, mostly on the blog. Actually, I wrote a blog post that I think was partially, at least in response to something I read that he'd written and he submitted a guest post as well. I think that guest post doesn't run for a couple of months, but it's a little bit of a debate about the merits of not just self employment because I'm obviously a big fan of doctors owning their jobs, but of some of the forming a corporation kind of stuff to save money on taxes and to decrease your liability and maybe the limitations of what that can really do for you. So there's a little bit of debate, there's a little bit of disagreement in this podcast, but for the most part we agree with most of the discussion we're going to have and we hope you find it very useful. So let's get Todd on the line here. My guest today on the White Coat Investor podcast is Todd Stillson. He's a doc, a rural Family doc and the founder of the Physician Entrepreneur Academy, where he inspires and coaches docs who want to move into the self employment space and want to take control of their lives and their practices and their careers. Todd, welcome to the podcast, Jim.
- [07:21]
Todd Stillson
It's great to be with you, Jim. I've been a fan for many years and I'm excited to talk with you a little bit about 1099 work.
- [07:28]
Jim Dahle
Okay, so this is our subject for today is 1099 work. And we're going to try to talk about everything with regards to 1099 work. We're going to have to start out, I think, defining our terms a little bit and making bringing people up to a reasonable level of education so they can follow the conversation. Then we'll talk about some of the things we agree about and hopefully we'll spend a good amount of time debating a little bit and maybe discussing some things we don't necessarily agree with.
- [07:56]
Todd Stillson
It sounds like a good plan.
- [07:58]
Jim Dahle
Yeah. So I wrote a post that was published in September titled why going 1099 won't solve all your financial problems. And Todd did not like that post. And as we often invite people who don't like something we publish on the website, we invited him to write a guest post. Well, he did. He wrote one, submitted it to us, and I think it runs. Do we know when it's running yet, Megan? We don't know. We'll let you know hopefully by the end of this podcast recording. But I think this podcast will drop. I think it's our first one of the year. So this is a great subject to start the year out with. And we'll follow it up, I think, with your. With your guest post. But let's talk about this. To start with, I think we got to define terms. All right. Most docs are paid on one of three types of tax forms, meaning at the end of the year or the beginning of the next year, you get one of these three forms. One is a W2, which means you're an employee. You have an employer. You work for somebody else, and you're an employee, you get a W2. Your taxes are pretty simple. Your financial situation's relatively simple. The amount of control you have over your job is not very high. You're an employee. The second Type is a 1099 form. And this comes to you when you are an independent contractor. And some people use the term 1099 employee. That is not a technically correct term because when you are paid on a 1099, you are not an employee. You are in business for yourself, you're running a business and maybe you only have one customer, one client. That's possible and actually pretty common among docs. But you still own your own business, you're running your own business. You generally file a schedule C every year. And you know, you can choose your various business entity, whether you're a sole proprietor or you're an llc, or you are, you know, an S corporation or even a C corporation, but you're in business for yourself. And then the third thing that lots of docs are paid on is a K1. And this is when you are a partner, you're in a partnership. And yes, it's a type of self employment, but there's more than one boss. It's not just you. There are other people who are involved in the partnership. And that can get a little bit more complicated as well when you're filing your taxes. Okay, so that's the basic terms when we talk about independent contractors and 1099. So Todd, what else would you add to the basic terms?
- [10:20]
Todd Stillson
I just want to pull forward a little bit the W9 form, because this is where the real water hits the wall, so to speak, is a physician, when they're getting ready to work from somebody, is given a W9 form. It's not just a verbal conversation of do you want to be 1099 or W2. You're given the W9, which is basically the IRS's way of saying, what are you? Okay, are you an individual, are you a sole proprietor, are you a business? All the things that you just described. And then they want you to either place your tax id, that is your Social Security number for most doctors, or their ein, if they are a business, in that W9 tax form. And quite honestly, if you're not used to looking at that, it can be a little intimidating. And I think a lot of physicians just bite default, put their name in and put their Social Security number in and don't even think twice about it. And that little form, W9 I think, brings forward the idea that you have the power as a doctor to be a business, to consider yourself a micro corporation. The IRS is literally saying that to you. How do you want us to look at you? You could be one or the other. And it doesn't have to depend on the employer telling you what you are. You get to decide what you are.
- [11:36]
Jim Dahle
Yeah, well, that is kind of true, right? Because the IRS does give some guidelines of what an employee is and what an independent contractor is. And that's true. They're pretty gray. I'll admit they're pretty gray. They are, but they do give guidelines. For example, they say there's three main categories, right? There's behavior, there's financial, there's type of relationship. So the behavior, things you should be thinking about or does the company control or have the right to control what the worker does and how the worker does his or her job. The financial aspects, are the business aspects of the worker's job controlled by the payer? Things like how the worker's paid, whether expenses are reimbursed, who provides the tools and supplies. Then there's a type of relationship, right? Are there written contracts, are there employee type benefits like pensions and insurance and vacation pay? And they ask, is the work performed a key aspect of the business? And so those are the things the IRS wants you thinking about when you're deciding, are you an independent contractor, are you an employee? They even give 20 factors you're supposed to go through about whether you're an independent contractor or whether you're an employee. But the truth is the real risk here is not to the employee. The risk is to the employer. Because what can happen is if the employer calls you an independent contractor and says, no, no, no, they're, they're in business for themselves, they're an independent contractor. And a few years down the line the employee comes back and says, no, no, no, no, no, I was not an independent contractor, I was an employee. And you know, and I had to pay all these extra taxes that the employer should have been on the hook for. And the IRS comes back and makes the employer pay the other half of the, of the payroll taxes. So the real risk is for the employer. And so naturally the employer doesn't like that risk and, and they prefer not to run that if they can. And that's why sometimes they're a bit incentivized to have people be employees if they can, not only because then they get to tell them what to do, but they also don't have that, that particular risk.
- [13:52]
Todd Stillson
Yeah, so that's a great point. And some risk management features that employees will take. But let's pause for a second and think about this for a minute. Number one, I'm all about empowering physicians with information that allows them to determine what they want to be let, let a physician have the power to decide. Now if I were to say to physician, if you work, if you have multiple clients besides one, they that meets the behavioral control, you're not just having one employer that you're working for. If you have, if you carry your own malpractice insurance and you do your own benefits, that demonstrates financial control over what you are. Independent contractor, employee. And if you have a professional corporation, a PC or a pllc that is in the contract, not you as an individual, again, you demonstrate relationship control. You own a business. So if a doctor knew those three pieces help qualify you as an independent contractor, heading into that relationship, they might say to themselves, oh, I can check those boxes. I can do that. I would prefer to be an independent contractor. And then the employer who does have due diligence in this, if they were to say, jim, you know, we could make you an independent contractor or we could, you know, make you an employee. But if you want to be an independent contractor, you have to do this, this, and this. Can you demonstrate that to us? Right. And if you, and if you as a doctor go, no, I can't really demonstrate that to you, I fully agree that employers should say, sorry, you're going to be an employee. But if that employer or that company knows that you can be an independent contractor if you meet those qualifications, I think it's incumbent upon them to, to provide you the opportunity to do that. And listen, we're not talking about people who work at the peanut factory. We're talking about professionals. The same is true for lawyers, engineers, architects, doctors, dentists. The IRS looks at us differently. We have a power that's unique, to be considered both an individual as well as an individual, micro business, so to speak. That's something we've earned. And when we enter into these relationships, it's time for us to exert our agency and say, I've earned this. I can bring this to the table and say to you, Mr. Employer, yeah, I can do that. So it's not just about the employer and their risk management. I think if you went back into case law and you began to look at and see how many doctors were misclassified, how many employers were sort of penalized for misclassifying doctors, you would find it'd be extremely small. That's the reality. So the fear is more about the fear. The reality is much different, Jim.
- [16:43]
Jim Dahle
Yeah, I suspect you're probably correct on that. Now, the big problem here. Here's the big problem, right? Cause I get these emails. I get these emails all the time, usually from a young doc. They're not very far out of residency. They're not terribly financially literate. They've realized they have this option or they're being given this option. They're like, what should I do? I, I heard it's good to be a 1099. So should I do that? Well, the answer to that question is always, it depends, right?
- [17:08]
Todd Stillson
Yes, it does. That's correct.
- [17:10]
Jim Dahle
Because when you are, you know, you have a few more expenses when you're in business for yourself. If you're getting paid on a 1099 instead of a W2, you need to be paid more by the person paying you because you've now got to pay both halves of the payroll taxes, the Social Security and the Medicare, and you.
- [17:30]
Todd Stillson
Pay for your benefits if. If indeed if it's apples. Apples, Right.
- [17:33]
Jim Dahle
You gotta pay for all your benefits. Right. What's health insurance cost? A lot of people don't realize this.
- [17:38]
Todd Stillson
About 25 grand, at least for a family.
- [17:40]
Jim Dahle
Yeah. Yeah. They think health insurance is like their cell phone bill. In reality, it's more like their mortgage. Right. I mean, you know, I don't know, 25 grand's an average, but certainly 12 plus is what you're going to be paying for a family.
- [17:55]
Todd Stillson
Well, if you have a family, yeah. I mean, it's not unusual.
- [17:57]
Jim Dahle
Yeah. And people don't know that because their employer has been picking up 80% or whatever of the cost. They don't realize how much health insurance costs. So the bottom line is, if they're going to pay you the same as a 1099 as they're going to pay you on a W2, that is not a good deal. And you've got to recognize that.
- [18:17]
Todd Stillson
No, you're exactly right. I tell physicians this all the time in my coaching. It's not apples to apples. You need to be, I call it grossing up. You need to up what the pay is. And we do a lot of coaching with that. But I want to come back to a fundamental point here. Number one, I love the fact that you champion financial illiteracy. Guess what? I champion business illiteracy. And they run in parallel with one another with doctors. Okay. When you talk about these young doctors today, gosh, I sound old when I say that. And my son's a young physician. But the fact of the matter is this, Jim, is that they don't know any business understanding. And if we went back about 30 to 50 years ago, doctors, doctors coming out of training, they saw themselves as a business. They actually recognized, I'm going to go into business and they're going to have a business hat on. They're going to think about all these things. In today's world, those young doctors are conditioned to be business illiterate and financially illiterate. And it puts them really in an impaired position when it comes to knowing what their options are. Here's. Here's how I. When I speak to residents, here's what I like to tell them. Okay, you just spent $350,000 to get your medical education, okay? To become a doctor, to get the MD or do and go through your residency, et cetera. So what would it cost you to put the icing on the cave? I call it the capstone. By forming a corporation as you complete your training and saying, I'm going to enable myself with the options that I've been empowered with, that is to consider myself a micro corporation, Whether I use it in the marketplace or not, it doesn't matter. I want to go ahead and put that capstone on this educational journey, okay? And the answer is, it's just a couple thousand dollars. So you take $350,000 to get all the way through this, and you fall short by not being aware that for a couple thousand dollars, you could be considered a micro corporation. You've had a big swing and miss when that's the case, Jim.
- [20:16]
Jim Dahle
Well, I think you're overestimating the cost. I mean, I can form an LLC here in Utah for 70 bucks, and then it's $15 a year. I mean, you don't have to spend even thousands. It costs literally nothing. I don't know that I'd view it as a capstone, but you're right that the cost is very little.
- [20:32]
Todd Stillson
No, it is. It is very little. And I use 2000 just to kind of overestimate so people aren't have shicker stock. I mean, you could spend more, too, if you wanted. But the reality is that what you do when you get that corporation just like your MD or your do just like your license, just like your board certification, now you are credentialing yourself to enter the marketplace, and you're empowering yourself, Jim, to choose if you want to be an independent contractor that is a corporation, or be an employee that is a W2 worker. Okay, 1099. W2. And if you don't have that in place and an employer says, what would you like to be? 1099 or W2? And you're like, I like to be 1099. And they're going like, okay, do you have a corporation? And you're like, and you don't know because you don't know, all right? And the reality is, then you're just going to lean right towards W2. Boom. That's just how it goes down, all right? Because you just don't know. And what I try to say to doctors. And I think the point here is that you have more power than you realize, you have more agency than you realize. But it's been removed from us in the process to make us think we don't have it. And the reality is that we do. Whether you act on it or not, it's up to you. Listen, I told you before we got on the call, I've spent 15 years as a W2 employee. I've spent 15 years as an independent contractor. I love the latter the most. Okay? I love being an independent contractor more. However, I would not go back and change what I did with the W2, because at that moment in time, with what was going on in my life at the time, a W2 was the right, simple answer to collect the paycheck and do the work I needed. And for a lot of doctors out there, that is the right answer. But for a lot of doctors as well, Jim, they don't know what their options are. And that's what's important in this whole communication and conversation about 1099 versus W2. You do have more options than you think, for sure.
- [22:35]
Jim Dahle
And I've had experiences on every end of this. I've been a W2 employee. I have been an independent contractor, paid on 1099. I have been a partner, paid on a K1. I have started partnerships, I have employed employees, I have contracted with independent contractors. So I've been on every angle of this. And this is one of the things when you decide to be self employed, one of the first things you have to do is decide on a business structure. And I think you're lumping it all together in calling it a corporation because you have lots of options here, right? I mean, you can be a sole proprietor. You don't even need an employer identification number, an EIN from the IRS which is totally free and takes 30 seconds to get. You don't even need that. You can put your social in there and still be a sole proprietor and paid on a 1099 and file a schedule C with your tax return every year. That's probably the most basic thing. And honestly, for most docs that have no employees and might not have very much 1099 income, that's probably fine. You're not reducing your liability at all. Because forming a corporation or an LLC doesn't reduce malpractice. Malpractice is always personal and you don't really have any other business liability. So I wouldn't feel like everyone's got to get a corporation. I mean, sometimes, you know, you can be self employed without a corporation.
- [24:02]
Todd Stillson
Okay, so first of all, getting a corporation is empowering to you. It gives you options. It just puts in play the assets that you've earned. And now you can choose to use it or not use it. But you're right about the sole proprietorship and I've done the math on it. The math is this. If you're at 30,000 plus in income that's flowing through your 1099 work, probably makes sense to consider incorporating. If it's below 30,000, sole proprietorship probably is your best model. But once you start getting above that 30,000 mark, then that's when the wheels need to start turning. When you get above 50,000 for sure, the economic structure of that corporation definitely provides you with some tax advantages that allow you to retain more of your income. So those kind of that space below 30, I say, eh, probably not worth it. 30 to 50 probably worth it. Above 50 definitely worth it in terms of the incorporation. And you know this because you teach about, you know, trust and asset protection. Sole proprietorship does not protect you as a physician from a lot of risk that you have when it comes to your assets. Okay. So be careful if you choose a sole proprietor route because it doesn't provide you the protection that probably you need as a high income earner. So there's some space there.
- [25:24]
Jim Dahle
All right, I got to push back on this. What savings do you see yourself getting when you have 1099 income of 30 or $50,000 and you decide to form a corporation? First of all, are you we talking about a corporation where you're making an S election an S corporation or we just s election?
- [25:42]
Todd Stillson
That's correct. It's a pass through. So you're okay.
- [25:45]
Jim Dahle
So the real tax savings is payroll tax. That's the only tax savings you're making by forming that corporation.
- [25:50]
Todd Stillson
You also are increasing the possibilities of what you can place in your retirement funds.
- [25:57]
Jim Dahle
No, you're not. You can set up a Solo 401k, you can set up a personal defined benefit plan all as a sole proprietorship. You don't need a corporation to do any of that.
- [26:06]
Todd Stillson
No, you can, you're right. But you have more options and opportunities when it comes to that in terms of the amount that you put into it through the S corporation than you do through the sole proprietorship.
- [26:18]
Jim Dahle
No, you don't. In fact, sometimes at some income levels you can put less in because you have to pay yourself more as a salary than as distribution, which is where the real savings are. On an S corporation. I don't see that you can put more money in because you formed a corporation. I've never found anything that suggests that to be true.
- [26:38]
Todd Stillson
Well, I think that that is possible in terms of a cash balance plan for you to put more in when it comes to the 401k with cash balance plan than you can just through the 401 alone.
- [26:49]
Jim Dahle
I don't think that's true at all. But we'll allow you to send in a source if you can find one. We'll include it in your show notes.
- [26:55]
Todd Stillson
Yeah, let's do that because that's great.
- [26:57]
Jim Dahle
Like I said, it's easy to form an LLC and elect to be taxed as a corporation and to make an S election. None of that is very hard. None of that costs very much money. And if that lets you put another $50,000 into a retirement plan, I'd be all for it and I'd publish it widely on the website. But I've never seen anything that allows you to do that just by forming a corporation.
- [27:18]
Todd Stillson
So I'll make a note and then share that with you afterwards and maybe we can have some additional dialogue about it. But I have a case study that breaks it down and I would agree with you that sole proprietorship, in terms of what is opened up with that versus the S Corp. Okay, what is opened up with that are pretty similar, but there are some advantages. Right? The tax code is not the same for sole proprietors as it is for S Corps. And so there are some opportunities that exist in that space that don't exist for the sole proprietor in addition to the asset protection that you get through a corporation.
- [27:50]
Jim Dahle
Okay, so we'll get to the asset protection next. Let's finish the tax advantages first.
- [27:54]
Todd Stillson
Yeah, yeah, yeah, yeah. So the tax. And again, I want to bring this back around to something, and this is where you and I do agree. I agree that to choose to incorporate simply for financial or economic purposes is probably not the best choice alone. Okay. I actually think the most important reason to incorporate is so that you, A, have greater autonomy, B, have greater agency, and three, have greater identity as an owner of a business than you do as an employee. And I. I really believe passionately that that is one of the secrets to unlocking the whole stupid burnout crisis that exists for doctors as employees. And so I'm for it more because of that space. I think there are some financial advantages. I do. I definitely do. But I don't think that's the sole reason to do it. And that's where you and I agree that it's kind of, it depends on your case whether or not the financial and tax benefits are hugely there. But I think when it comes to the autonomy and agency that you gain, it's definitely there. Your sense of well being, your sense of thriving, sense of being in control as a doctor are enormously higher than when you're an employee.
- [29:16]
Jim Dahle
Now I'm a big fan of ownership. You know this and regular long term listeners know I'm a big fan of ownership. I like when people own stocks, I like when they own real estate. I like when they own businesses. I like when they own their job. I like having that control. I think that control matters. I do think it reduces burnout. I think it matters a whole lot more by mid career.
- [29:36]
Todd Stillson
It does.
- [29:37]
Jim Dahle
When you are self employed, when you own your business, I think you can do things that control your work environment, that control your schedule, that lead to less burnout. I'm a big fan of all of that. I guess I just don't buy that there's some additional benefit by putting ink after my name. Right. Versus being self employed, whether that's a partnership or whether that's a sole proprietorship or whether I've bothered with an LLC or a corporation, I feel like all of that is more or less the same to me, no matter what the business structure is by being self employed rather than being an employee.
- [30:11]
Todd Stillson
Again, I think it depends on the situation, it really does. But I think there is a continuum there in terms of how much money you're putting in versus like again talking about the 30,000 below, the 30 to 50 and the 50,000 plus. Even the 50,000 plus person, it bears working with a professional, I. E. A CPA usually or somebody who understands these things. And I always encourage a doctor when they're considering this, especially if they've come out, they've been a W2, now they're looking at being a 1099. I like to do what I call an as is versus as if analysis and a good CPA can do this. They can literally take what would this look like if you were a W2? What would this look like if you're 1099? And then if you're 1099, what would it look like on your tax this next year if that income came in as a sole proprietor, an S corp or a C corp and you can do the analysis. It's kind of a forward looking than a retro looking process. And when you do that, that's going to inform you in your own specific situation what is best for you. Okay? And it does vary because it's not just the job, there's other assets and other things that come into play. So I think from a financial standpoint, working with a cpa, which by the way, this is a good time for you and I both said it, declare I am not a cpa. I am not a tax professional either. I'm not an attorney. This is for your information and education and enjoyment. However, working with professional does make a difference with this and I would lean into it. And that's what I encourage folks to do when I'm coaching them. Right. Is we connect them with people who can really help them make wise professional decisions about these things and not just guess.
- [31:54]
Jim Dahle
Yeah, I agree. Analysis is a good idea. Running the numbers is a good idea. If you need professional help, hiring that professional help, also a good idea. But let me push back a little bit on this. Do you have a CPA that files your corporate tax return?
- [32:07]
Todd Stillson
Yes.
- [32:08]
Jim Dahle
About what do you pay for that a year?
- [32:09]
Todd Stillson
I pay less than $10,000 a year for bookkeeping. I mean everything kind of what I call white glove service.
- [32:16]
Jim Dahle
Okay. Not necessarily, not exactly sure what the corporate return is. I pay between $2,000 and $2,500 for my corporate return a year. That's reasonable. That's what it costs from my. It's a reasonable price. It's certainly, you know, might be able to get it for less, somebody might pay a little more. Whatever. That's what it is. So when we think about the tax savings for, you know, being a self employed physician and deciding to, you know, form an llc, you know, elected to be taxed as a corporation, do an S election. So now you're filing taxes as an S corp. Right. You could have been a sole proprietor. You've chosen to be an S corp and so you make a whole bunch of money. Let's say you make 2 or $300,000 and you call 100,000 of it distribution instead of salary. So the tax savings on that for most docs, because they've already paid themselves enough in salary to max out their Social Security taxes, is the savings is really only Medicare taxes. Right. So 2.9%, half of which is deductible. So really we're talking about something like 2% ish. 2.2% ish, something like that is what's actually being saved. So if $100,000 is distribution, maybe we're saving something like $2,000 in taxes for having formed that corporation. Well, that's amazingly similar to the cost of filing my corporate tax Return, I'd.
- [33:40]
Todd Stillson
Push back on your math. I would say a doctor making $300,000, that might be more. Closer to $10,000, not 2,000.
- [33:47]
Jim Dahle
10,000. In what? Where are you finding the 10,000?
- [33:50]
Todd Stillson
Again, I'll kind of after the we. I can give you the math after the call in real time. But it, it basically comes back to the fact that it's part of the shared tax efficiency that runs through retaining your own, you know, money that you've earned. Okay. And so I would say that's closer to 10,000. So if 2000 is what the, the actual cost of doing the taxes is, the net gain is still positive. And so again, that's what my experience is.
- [34:20]
Jim Dahle
It's not positive. Once you pay for the tax return, it's about break even at that point.
- [34:25]
Todd Stillson
You call it break even. I would call it closer to a positive gain for you if you're incorporated. But again, I'll share some case examples with you afterwards and we can look at that.
- [34:39]
Jim Dahle
Okay. Because the other taxes are all the same. Right. You're going to pay the same ordinary income tax rates on the income, whether it comes in as business income, whether it comes in as employee income. You're going to pay the same amount of Social Security tax because you're maxing out the wages on it. So the only savings left by forming this corporation is the Medicare tax.
- [34:59]
Todd Stillson
Yeah. And again, well, look at the math on that.
- [35:03]
Jim Dahle
Okay, okay. All right. Well, we can look at that in more detail later. Let's turn to the asset protection aspect of forming an LLC or a corporation. And in some businesses there is business liability. For example, the white coat investor is an llc. It has elected to be taxed as a corporation and it's made an S election. So it's an S corp for tax purposes because it has some additional liability. Right. If I end up getting sued for defamation or something or, you know, an employee decides to sue me or something, there are benefits to being an LLC or a corporation. Right. Essentially, they can't sue me personally, they have to sue the business and all that can be lost is what the business owns. Right. There's some serious asset protection there for a business that has liability, but for a DOC who has no employees, no other significant business relationships or liability, whose almost all of their, you know, professional liability is literally professional liability. It's malpractice liability. There's no real asset protection benefit there to forming an LLC or a corporation, I would argue. What asset protection benefit are you seeing in that sort of a situation?
- [36:18]
Todd Stillson
I guess I think the asset protection is getting to your own personal assets. Not the corporate assets, not you as a doctor's assets, but your family, your household assets, that if you have a corporation, you're going to create a sort of a veil or a space that separates you from those two, between your household and your corporation. And when you're a sole proprietorship, you don't have that separation.
- [36:47]
Jim Dahle
Okay, I agree there's a separation there, and I agree there's a theoretical asset protection there. But there's gotta be liability, right? So something's got to be able to happen that induces some sort of liability where you need that protection and it just doesn't exist for a doc that's a 1099 hospitalist with no employees.
- [37:06]
Todd Stillson
Well, I mean, I hear you talk plenty about, you know, malpractice cases that go for greater than the amount of what the case go for. It's an overage, if you will. And then, you know, where's that going to come from? Is that going to come from you personally? Is that going to come from.
- [37:22]
Jim Dahle
It is because malpractice is always personal. The corporation doesn't give you an additional malpractice. Malpractice protection.
- [37:28]
Todd Stillson
Some corporations carry malpractice for the corporation as well. Like I've carried a corporate malpractice a small amount, but a corporate malpractice policy in addition to my personal one for years. And so that's just liability protection.
- [37:44]
Jim Dahle
I mean, you're buying more insurance.
- [37:46]
Todd Stillson
Yeah, basically.
- [37:47]
Jim Dahle
I mean, you can always buy more malpractice insurance, but the corporation itself isn't providing some additional malpractice protection. That's my point.
- [37:56]
Todd Stillson
I think that you're probably right about that in terms of what the amount is that you would be protected from. But in essence, that corporation protects your household assets, I mean, like, from anything, any bad thing. You're driving to work, right, and going to the hospital, do your hospital's work, and you run into somebody, you have an accident, I know your auto insurance is going to cover that. But again, if you're doing it for the corporation, are you going to be protected from your household from what the outcome of that is, or are you going to be. Is your business going to take it on?
- [38:29]
Jim Dahle
I mean, I guess if the business owns the car and you're functioning as the business's employee, you could make the argument that it's, you know, the business is on the hook. But I think that'd be a tough case to win if you're just commuting into the hospital.
- [38:44]
Todd Stillson
Well, I think a lot of self employed doctors do have their own, I mean corporately owned cars and that's often not uncommon.
- [38:52]
Jim Dahle
I don't know, I guess you could make that argument. Maybe there is some possible savings there if you're arguing that I'm functioning as my corporation when this accident occurred. And so just because you've cleaned out my $300,000 in auto liability and my million dollar umbrella policy, now all you can take is the corporate assets, which is only 20 grand in a bank account. Okay, all right. Maybe you can get a little extra protection there. I don't know that I'd form a corporation just for that. Can you think of any other, can you think of any other liability that could come to the corporation as a result of, I'm talking one doctor corporation, Any other liability they could face?
- [39:34]
Todd Stillson
I don't think of a lot that come to my mind right away. I just think it's wise for us with our usually larger net worth to do what we can to create barriers that allow anybody to get to it for any reason at all. Right. And if that corporate veil does provide a bit of the protection that's needed even for things that are unforeseen or that you're blind to. And so I can't think of anything specifically right now that would fit in that box. But inevitably there are things that fit in that box because they do happen. We are a target.
- [40:09]
Jim Dahle
The issue with complicated asset protection schemes, of course, is they come with added complexity in your life and they come with additional cost and sometimes other downsides. I mean, trust me, I've looked into trusts and overseas trusts and corporations and all this kind of. I mean, I wrote a book on asset protection. I've looked into this stuff and there are situations where you can come up with, oh, that might help to have this be in Delaware or Nevada or Wyoming and those sorts of things. But for the most part, a doc who's working as a, you know, 1099 hospitalist or 1099 GI doc or whatever, you know, the amount of business liability there is, not very much. Most people do not go out and buy even a business liability policy for their, you know, 1099 Corporation.
- [40:57]
Todd Stillson
I think given the why in the road. And again, I wouldn't become a corporation just because of liability protection or just because of asset protection. But if you are doing 1099 work and you're given the choice of being a sole proprietor or a corporation, I would choose the corporation because it does provide a bit more extra layer, kind of a tapping of the break compared to the sole proprietor, where you're really wide open.
- [41:21]
Jim Dahle
Yeah, well, I mean, I would. There's a step in between there. Right. You don't have to hassle with a corporation just for liability protection. You can get that from an llc. Now, this is all governed by state law for sure, but for the most part, your protection as an LLC is exactly the same as your protection as a corporation. So if all you want is that additional protection from driving into work or whatever and you're going to have the LLC own the car, I think you can get that with an LLC and just have it passed through for tax purposes to your return. You can still file a schedule C, no need for a corporate return, et cetera.
- [41:58]
Todd Stillson
I think you're exactly right about that. And again, just for your listener's sake, as they hear you talk about LLCs, this can be confusing to them. It's really, in most states, a professional llc, a pllc, that's what their states usually require. Either a PC or a pllc, depends on the state you're in. But not a general LLC that say you put real estate in or other sort of business assets in. So just a small nuance there, it's different. It is truly an llc. And you're right, it is a bit different that way. But I just want to make sure your listeners connect the dots to that form of an llc.
- [42:30]
Jim Dahle
Yeah, and that is state specific. Some states do require you to be a professional LLC or professional corporation if you're a physician or an attorney or an accountant. Not all states, but some do. And obviously if you're in one of those states and you're forming an LLC to be a doctor, you got to have a professional llc. But legally speaking, there's really no difference. It's the same.
- [42:49]
Todd Stillson
You know, that's exactly right. They're very similar. And in fact, most instances they're going to choose an S classification in either case. And they're very similar.
- [42:57]
Jim Dahle
Yeah. Now, for the most part, the ability to deduct business expenses is also exactly the same between a sole proprietorship or, you know, an LLC or a corporation, et cetera. Basically, if it's a business expense, you can write it off. It's a deduction from your income before you have to pay taxes on it.
- [43:14]
Todd Stillson
Again, relatively speaking, they're similar, but they're not exactly the same. The tax code is a bit nuanced between a sole proprietorship and an S corp, and there are a bit of differences there.
- [43:26]
Jim Dahle
Let's talk about them. Because There are a couple of. I view them as relatively small trivial differences, but let's talk about as many of them as we can.
- [43:33]
Todd Stillson
Well, I think one that I see especially self employed physicians take advantage of that. I don't know how you feel about it is like the Augusta plan, right? That's where you rent your own home for 14 days a year to your business to do a business meeting. And there's a lot of documentation, other elements to support that. But I'm reasonably certain that a sole proprietorship is not able to do that without the corporate documents to support it. And that's a big shift in terms of untaxed income that you can shift into your home through a corporation.
- [44:09]
Jim Dahle
Yeah. Okay, that's a good one. I'm going to give you that point because I think that is a great deduction.
- [44:16]
Todd Stillson
Yes, it is.
- [44:17]
Jim Dahle
That I take every year.
- [44:19]
Todd Stillson
Me too.
- [44:20]
Jim Dahle
And you can't do it as a sole proprietor. I'm going to give you that one. I think that's a good point. But what other ones do you got to be a corporation to take? And obviously you don't have to be a corporation to take that. But you can't be a sole proprietor.
- [44:31]
Todd Stillson
That's right. You can't be a sole proprietor for that.
- [44:33]
Jim Dahle
I think there's a. Isn't there a health one, a health insurance one or something?
- [44:37]
Todd Stillson
Yeah. So yeah, a health reimbursement plan is also another. An accountable plan. So you have some accountable plan that fit into a corporation that don't fit into sole proprietorship. Again, I think the tax laws change. Things do. It is dynamic and that's why working with professionals is really important. But when it comes to a number of assets like the accountable plan and healthcare, you do have some more opportunities.
- [45:00]
Jim Dahle
All right, so there are some other deductions. I would guess the Augusta rule is probably the biggest one.
- [45:05]
Todd Stillson
I would guess it is. I think it's significant.
- [45:07]
Jim Dahle
It still might be hard to take if your business is just your doc paid on the 1099 and you work as a hospitalist. I mean, to use the Augusta rule, you have to rent your home out. You do to your business because you have.
- [45:24]
Todd Stillson
Yeah. And so when you.
- [45:25]
Jim Dahle
The IRS doesn't require you to make smart business decisions. That much is true. But you've still got to have some reasonable use for your business to rent the home. And it's a little hard for me to say just completing charts in the evening or something is a reasonable use.
- [45:40]
Todd Stillson
Yeah, well, no, that doesn't count. No, that doesn't count. Nor does dinner with your wife and kids count, even if they're employees in your micro corporation. It really involves having an uninterested business party there for a physician. That means think of a physician peer, think of another hospitalist that you're taking call with that you bring over to your house for dinner and you talk shop. What? Doctors don't talk shop when they get together? Okay? And they talk. It's business. Those are business purposes. Those are business development. Now, you got to take the notes, you got to support while you're there.
- [46:10]
Jim Dahle
But you, but you still gotta say this to an auditor with a straight face that, yeah, we rented my house out so I could have a chat with my colleague about, you know, call scale.
- [46:20]
Todd Stillson
That's the case for the Augusta plan all day long. And it's really, to do it properly, you do have to comply with certain elements of it. So I don't want your listeners to again, take you or I chat about this and take it the wrong direction. Work with your tax professional, do it the right way, document it. But when you do, and you do do it properly, there is, there is an opportunity there. And if you're 1099 or not, there's the opportunity there.
- [46:45]
Jim Dahle
Yeah, I mean, it can be a huge deduction, right? If you look up what your, what it would cost to rent your house if it were an Airbnb, it might be $500 or something for the night. And so you multiply that by 14 and that's a $7,000 deduction over the course of the year.
- [47:03]
Todd Stillson
Could be even higher depending on your location, the size of your house.
- [47:06]
Jim Dahle
I mean, it could be $2,000 a night. Who knows? I'd have to look it up. I mean, that's what we do with it each year is we look up what would it cost to rent my house in this time period, this time of year.
- [47:17]
Todd Stillson
And then you document it and you work with your CPA to document that and you both agree, and that's how that works.
- [47:24]
Jim Dahle
All right, okay. Let's talk about a couple other things that people should be aware of. And this is not necessarily specific to whether you form a corporation or an llc. But one of the bigger things that trips people up is when you become self employed, there is no longer somebody else taking money out of your paycheck to send to the irs. You are now required to start making what the IRS calls estimated quarterly tax payments. And it's really not a great name because you don't pay them once a quarter. You pay them in April and Then your next one is due just two months later in June and then in September and then in January, four months later. So it's not quite even when you make those payments. But it's important that you know about this change and that you have that money to make the payments. How do you coach people when you're, when you're, you know, helping them become self employed? How do you, what do you tell them when it comes to quarterly estimated taxes?
- [48:28]
Todd Stillson
Well, first of all, my general advice to physicians who are looking at corporation is I encourage them to develop a team and a team of professionals to support them. And this is there's a small percentage that are do it yourselfers and you have a lot of people in your audience that are do it yourselfers, but lean into professionals for this. And so your bestie is always going to be your cpa. That's who you choose. You're going to work with and kind of organize with them and they're going to help you with that. So the other members of your team that are often very helpful, financial planner, wealth manager, etc. I know how you feel about those. And a legal consultant periodically, you may need a legal person. And then I always think of business coach. You know, what we do with pea, it's, it's an important element to help you grow in terms of your own business skills and knowledge. But your core person is going to be your CPA that you work with. And that's where I would. You can calculate it yourself. And you have had ample posts and ample podcasts walking through that detail by detail with doctors. You can look it up. I'm sure you can include it in your show notes. But I encourage doctors to lean into their tax professional, their accountant, to help them plan this, organize it and pay it. But the point that you're making that is very important is you can't not be ignorant about it. You can't just put the money in the bank account and be unaware that you're going to need to pay the taxes.
- [49:49]
Jim Dahle
Well, better to put it in the bank account than to spend it. At least if it's in the bank account, you can write the check next April and pay the interest on it.
- [49:57]
Todd Stillson
Right? That's a seller.
- [49:58]
Jim Dahle
That's why the end of the world to do that. I much rather have it be in the bank account than down at the boat dealer.
- [50:04]
Todd Stillson
I would agree with you. And then you automate it right into the right account. But yes, I agree with you totally.
- [50:11]
Jim Dahle
This is harder to calculate than you might think. Right? I Mean, it is. I'm paying somebody to do my taxes, Right. But guess when my taxes get filed every year, they get filed about October 15th. So by the time my taxes for the prior year are filed, October 15th. And it's hilarious when I get this every year because I get this as part of my tax paperwork. After filing my taxes, they suggest what I ought to pay for my quarterly estimated taxes for this year. Right. Well, it's October 15th. I've already made three quarterly estimated payments. It's useless, right?
- [50:43]
Todd Stillson
Yes, it is. To be honest, when it comes to 1099 income for doctors, a lot of times it's highly variable. I mean, if you take extra shifts, if, you know. So kind of predicting what that income is going to be is not always as easy as it would seem because it is highly variable. So you do your best you can. But as you know, the IRS does allow for a little bit of fudge factor. Their kind of expectation is that you overestimate rather than underestimate at. That's just the fact.
- [51:10]
Jim Dahle
Yeah, there's no penalty for overpaying. All you lose is the opportunity cost on that money. But actually, the payment for underpaying is actually not that bad. You're basically just paying interest on the money. And if you have the money invested anyway, it's not quite a wash, but it's relatively close to a wash.
- [51:27]
Todd Stillson
It's a funny thing. The first time that happened to me, I'm a real follower. And I kind of like get that little shrill in the back of my neck, like, oh, I'm in trouble from the irs, you know, and I have a penalty or, you know, I didn't pay enough. And in my accountant, you know, talked me off the wall, and it's like, no, no, no, no. It's. It's okay. These things happen. You're not going to pay. You're not paying this huge penalty. You're not in IRS jail. It's just part of how it goes down. And we underestimated you pay it, period. Right. And it's really just the interest that you're paying on what you should have given them in the meantime. It's not a huge amount of money's bottom line, Jim.
- [52:05]
Jim Dahle
I think right now it's around 7%, and it varies with interest rates, but it's around 7% on the money you should have paid. So if you should have paid $10,000 last April and you're paying it this April, well, it's been 12 months. You're gonna owe 7% of that $10,000. Your penalty is gonna be, you know, 700 bucks. That's what it is.
- [52:22]
Todd Stillson
Yeah. And I think the word penalty is what throws people off. It's not like you're not being penalized, you're just really paying what you owed. Yeah.
- [52:30]
Jim Dahle
You're just settling up with the IRS is all you're.
- [52:33]
Todd Stillson
That's it. That's it.
- [52:35]
Jim Dahle
Okay. So another big thing that throws people off is they move into the self employment world is similar to what throws people off as they move into the retired world. It's health insurance. People have never bought their own health insurance and it's a total mystery to them how to buy their own health insurance. What do you tell people when you're coaching them about this?
- [52:54]
Todd Stillson
Yeah, that's a great question. It's funny, it is one of the great fears that doctors have when they're talking about making the transition. Like, where do I get health insurance? It's like, like, come on dude, you're a doctor and all right, you know how this goes. But the reality is that there's a lot of options that range be from the marketplace. Right. Every state has a marketplace option that they can choose from. A lot of states, their state medical association may provide options for them as well as a self employed doctor from getting it. Some of their professional medical societies provide options for it. And then there's what I call the health share plans, which are again the alternatives to insurance. And a lot of self employed doctors may choose health care plans because they're similar in space and I think there's opportunities. I frankly use the health share plan and like using it, but because it.
- [53:43]
Jim Dahle
Costs about half as much.
- [53:44]
Todd Stillson
It does.
- [53:45]
Jim Dahle
That's what attracts most people to them.
- [53:47]
Todd Stillson
Yeah. And the claims process is a little bit different, a little wonkier, but at the end of the day it does cost less. But that's not the sole reason for doing it only too. But anyhow, the point is there's options and you can find them. There are a few companies that are growing nationally that are for physicians and sort of almost like a clearinghouse for physicians. I think trying to remember if it's called Rise is one of them, that allows physicians to acquire health insurance on a national scale no matter what state you're in. Kind of put you in a large group, so to speak, with them. But at the end of the day, between what it costs for the actual premium and what it costs for the high deductible and what it costs for the hsa, that I would encourage you, as you know, you're very aware you want to have an HSA typically in these and then your out of pocket expense you need to account for for a family, 20,000 to $25,000. Between the premiums, the out of pocket, the deductible and the HSA, it's going to be about $20,000 to $25,000. That's a real number. And there's some sticker shock that comes with it. But again I remind doctors in this moment it's a business deduction for you in most cases. Okay. Depending how you construct it.
- [54:59]
Jim Dahle
Yeah. That's almost all pre tax money for sure. It's very interesting to me though that people don't realize this. You can just Google health insurance broker in Salt Lake City and you'll get 10 things pop up and you can call them up and you can just go there and buy health insurance from them or call them up on the phone and buy health insurance. You don't have to get it through an employer, you don't have to get it through some sort of specialty association. You can just call somebody up and buy this stuff. It's not that complicated. But it is expensive.
- [55:31]
Todd Stillson
Yeah, it is. Correct.
- [55:31]
Jim Dahle
That's what you need to realize is it is expensive stuff.
- [55:34]
Todd Stillson
Yeah. I have several ebooks that I've created for physicians that are independent that kind of deal with this and break it down for them and walk them through their options because it is a very common scenario.
- [55:44]
Jim Dahle
Yeah. Okay. Now you've alluded to a number of times, but let's get into this a little bit more. Your thoughts on why being self employed in particular and forming a corporation as well helps doctors to have more agency, to have more autonomy, to have less burnout. I want to hear your spiel on this. I want to hear you convince us that it is worth it for more doctors to be self employed.
- [56:14]
Todd Stillson
Yeah. So first of all, I think I'm not selling anything. What I'm telling is my experience. That's what I want to start with. 15 years working as an employee versus 15 years of work as an independent contractor. And it's heads above working as an intimate contractor in sense of my sense of well being, my sense of control, my sense of autonomy and agency, of my place in the marketplace. I see this over and over again with doctors that I coach. When they transition into independence mentally a shift happens and their identity as an owner begins to form and they begin to see the world through eyes that are more in the business mind. And I see them over and over again. The demand for physician Services is so high, the opportunities are so huge that they begin to see opportunities that exist for them to do what I call job stacking. Okay. Which is like not just one job in one location with one person. It's multiple jobs in multiple locations that are often virtual. And so you begin to have control. You begin to build the life and the lifestyle that you want when you're independent. And the marketplace is such a high demand for your services. And Jim, frankly, when you have control, most of us feel better about ourselves. Most of us feel better about our life. So let's use as a reference the most recent Medscape self employment survey that was done. They clearly indicate in their 2025 survey, which by the way, I've served as a commenter in that, just as a disclosure, but that self employed doctors are happier, they thrive, and they like their professional life much better than doctors who are employed. That's not rocket scientists to any of your listeners. Okay? Like that is just what you sort of intuitively know. And Jim, I would have to say probably from your own experience, you would say you enjoy ownership and independence over. If you've ever been a pure employee, you prefer that as you know, independence as well. And so what's most important is for doctors to begin to see that they do have the opportunity in the marketplace today to not just blindly become an employee and expect a great outcome. You'll get paid well, but you're also going to go through all the hazards associated with being an employee. Nothing wrong with that. A lot of people, that's their best rodeo. Okay? But if you have any desire to sort of protect your, your autonomy and preserve your agency in the marketplace, I think choosing to be independent and maybe choosing to incorporate yourself to maximize that or to consider yourself a micro corporation, whatever model you choose is really the best way for you to circle the wagons. We have lost our sense of agency in this, in, in today's market. And it's sad. It breaks my heart when I think about Jim. Right. The burnout rate is still nearly 50% depends on your specialty. Literally one out of two doctors that are in the employment world today are burnt out and don't love their life. That's a Sad truth. After 14, 15 years of education and lots of debt and lots of effort to get there. And we deserve better. We should be living a life that allows us to thrive and enjoy life. So that's my take on it. And I think independence does have its proof. You know, if we look at the evidence, the evidence shows that independent doctors who Are self employed, enjoy life more than employed doctors.
- [59:48]
Jim Dahle
Yeah. Now I think, in general, I think that's true. I'm, as I said, I'm a huge fan of ownership. I'm a huge fan of having control. There are unfortunately, statistics and trends that suggest we are not moving in that direction. I think currently about 75% of docs are employed. And when I talk to our sponsors that review physician contracts, they're telling me 80% now of what they're seeing. So this might be new young docs that are having their contracts reviewed 80%. So the trend is still not reversed. And there's a number of reasons for this. The main one, though, is the consolidation of healthcare. You just have bigger and bigger organizations and doctors become smaller and smaller cogs in these organizations and it becomes very hard for them to have the same sort of negotiating power with a payer, whether that's, you know, Medicare or, you know, insurance company that they might have if they're banded together with 400 other docs or a thousand other docs or a huge hospital system or whatever. And so a lot of times I see people selling their practice to a hospital corporation or even just closing it and taking a job with the hospital because they're literally getting paid more to do that because the hospital can afford to pay them more, because it's collecting additional fees, it's collecting facility fees. This is the reason why surgeons like to go open their outpatient surgical centers because not only do they get the physician fees, but they also collect this much larger facility fee. And of course there's expenses that go along with those fees. But in general, they, they do well by doing that, by owning that and, and that, that's what's working against the doctors being, being self employed.
- [61:36]
Todd Stillson
I mean, that's, that's the hidden, there's a hidden cost though, to that, taking that, that deal, so to speak. Oh, we're going to make it simple for you and we're going to give you a salary. And it's not just that. There's a lot of things hidden underneath that, that it takes about three to five years for you to figure out this isn't the best deal, this isn't a good choice. This is killing me. I need to make a change. And this happens to doctors over and over again. On one level it seems simple and easy, but on another level it's not easy. One of the things that, and I just want to bring this forth, this is part of my rural family doctor sort of world. Okay, Jim? It's not Just doctors. It's patients. Patients are cogs in the wheel as well. And what you're seeing in the medical economic world is doctors and patients alike are revolting. Right? That's why we're seeing, you know, 10% penetrance of, you know, direct primary care, cash only practices. A lot of patients are just, they're just paying cash to get, you know, what we might call alternative or integrated care. I mean there's all flavors of these things, personalized medicine, you name it, direct to consumer care. All of these things are going on because consumers are tired of it. Doctors are tired of it. Right. So what's the response? We're going to cut out the middleman and we're going to just make it between me and you. That's the way it should be. Okay? That's the way it was always meant to be. All right? In the corporatization of medicine that is not going away. The government and the corporations are going to, and the insurance company are going to control the market, but we don't have to stand for it. And you can choose independence and not play in the system. Doctors are doing this over and over again because patients are looking for solutions and you can be independent now. So what I'm saying in that is, is that the traditional private practice, if you will, which is the alternative to employment still some places that that can thrive, there's still opportunities for that. But what I see is this third space is developing which is a little more outside of the system. Maybe cash based patient and doctor, only a little more a micro business, if you will, or even independent contracting, which again has a lot of the missing, a lot of the hassles. And independent contractors are doing telemedicine all over the country. So there's a lot of opportunities that exist for doctors that they don't have to just say I'm going to be like the 80% and have to fall into the system and do exactly what those employers tell me to. We have options and opportunities. That's the message that I'll like to communicate to doctors. It's not for everybody, but I want those young doctors coming out. This is where it breaks my heart. They don't even know it's visible. They can't even see it. In fact, they've gone through training and they've not even seen models of what it looks like to be independent. They don't even know any independent doctors. Think about it. They're practicing in a hospital and in a training environment where everybody's employed. That's all they know, that's all they get to see. And so unless they have some mentor that showed them there's an alternative path, they don't even know what their options are. That's why they're all getting funneled into the same place. And so my job, one of my passions, is to let people know that there are other options and opportunities to pursue besides traditional employment. And in fact, the studies show you'll like your life a lot better if you choose that path.
- [65:06]
Jim Dahle
Yeah, love it. Love it all. So one of the things that a lot of people don't realize too is they get into a practice, you know, maybe they're a surgeon and they own their own practice and they feel like because of so much overhead, they're locked into it and they basically have to practice full time until the day they're done. And I hate that for them because so many, you know, shift based workers, like emergency medicine that I'm in, it's so much easier to gradually cut back over the last half of your career to control which shifts you work to have, have more control over your life and your career and your income and all that kind of stuff. And that is available for surgeons now. Obviously you have to sell the practice before you can do this, but they wouldn't believe how many opportunities there are for locum surgeons, you know, because all your peers, they want some time off too, but they need somebody to come in and cover them. And that's what you would do as locums. But maybe you only work two weeks out of every three months. And so there are these opportunities to transition out, to be part time, even if you're in, you know, a crazy, you know, surgical kind of practice.
- [66:16]
Todd Stillson
And Jim, we haven't even, we haven't even talked about what honestly I did for a decade, which is what I called the employment light model, which was, is a hybrid between employment and private practice. It's literally being a long term independent contractor embedded within an employment model, so to speak. Okay, so over a decade ago, I transitioned to that type of contract where I formed my corporation, I formed a professional services agreement with my hospital that I was formerly employed by, and now I work in the same clinic doing the same work with all the requirements for me to be considered independent contractor that we talked about at the beginning of the show. And I worked for them for a decade in that model. To the community, it looked like I'm wearing the same team jersey doing the exact same work, but behind the scenes, from a business standpoint, I was not getting paid the same. I wasn't forced to comply with the employee compensation program. I got to negotiate an independent contract with them because it's a two or three year rolling contract and I had my independent. So it was a mixture of both. And that model is called the employment light model. There's a lot of people around the country that do that. And again, did I work also as a contractor doing nursing home directorships and other sort of things at the same time? Absolutely. And that really helped me to see that there are other opportunities out there, there are other options. And so again, that's called employment light. And there's again, the Coker Group has a law group Midwest that has done a lot of work in this, on that employment like model. And there's just a lot of variation opportunity that exists there. So that's a hybrid. Right. So that kind of looks like employment, but is not employment because you are independently contracted within an employment environment. Little.
- [68:08]
Jim Dahle
Little more control, maybe a little more pay.
- [68:11]
Todd Stillson
That's correct, yeah. It's both. I mean, I got paid.
- [68:14]
Jim Dahle
You get to go out and you get to go out and pick your own benefits. Just make sure they're paying you enough more that you can afford benefits and the other half of the payroll taxes.
- [68:21]
Todd Stillson
When I made the transition, the net net was about $200,000 more a year.
- [68:25]
Jim Dahle
A. I got paid more, which is dramatic for. For a family doc. That's a dramatic increase in income.
- [68:30]
Todd Stillson
It is dramatic. Now I did ob. Surgical obstetrics. Okay. So I mean, it is with an outpatient family medicine. You know, rural docs do it all, but. But the reality was that's what the translation was. And I mean, I have a case study about my. My story and actually a book that I wrote about it that impacts it all. But the reality is, is that you can do okay in that model, too. And that's a hybrid model. Again, there are options out there besides traditional employment. That's the message. And. And that involves 1099. Like, so when I work at Employment Line, what did I get from the. From my employer? A 1099 slip. Right. Every year that I was part of my taxes, I was a 1099 worker. But to the rest of my community, I look like an employee of the hospital. I wasn't, though.
- [69:17]
Jim Dahle
All right, well, Todd, it's been wonderful chatting with you. Thank you for being willing to come on the White Coat Investor podcast and sharing your views, and thank you so much for your time.
- [69:26]
Todd Stillson
Yeah, Jim, it's been great to talk with you. Thanks for having me. And I Look forward to. Forward to hearing from your listeners about this as well.
- [69:33]
Jim Dahle
Okay, I know we just finished that interview. I'm recording this a few hours later. Todd has subsequently sent me some emails that we're going to talk a little bit about and we'll link to these PDFs he's put together in the show notes. But I thought I'd go through them on the podcast briefly first. The first one is about business deductions you can make with a corporation that you can't make as well with the sole proprietorship. So let's go through a few of these. We talked about the Augusta rule. Yeah, don't do the Augusta Rule as a sole proprietor. If you're able to have your business rent your house for 14 days or fewer a year, it's worth forming an LLC or a corporation to do that. Okay. The second one he mentions is an accountable reimbursement plan. Okay. And he lists a bunch of things you can run through an accountable reimbursement plan. Cell phone, Internet, home office, travel, meals, mileage, continuing education, licensing fees, medical equipment, software. Okay. All this stuff is deductible to any business. It's deductible to sole proprietorship. All right? And you're again, only supposed to deduct the amount you're using for business use, not for sole proprietorship or for business use, not for personal use. Maybe that's a little harder to defend the line between personal and business use. I don't think so. You either used it for business or you didn't. Lots of people cheat on this stuff. Of course, they deduct their entire cell phone costs rather than deciding how much of his personal use and how much of his business use and so on and so forth. But it's really not that complicated. Now, there are some educational reimbursement plans you could do under a 127 plan. I don't know a lot of people doing that, but you can look into that if you're interested in that. You got your kids at a private school or something, you could look into that. But most of those deductions are available no matter what your structure is, whether you're a sole proprietorship, partnership, corporation, llc. Filing is one of those things. Whatever. Okay. But you're not going to have the accountable reimbursement plan. In fact, it's a little bit of a pain sometimes that you have to do an accountable reimbursement plan for some of this stuff once you have a corporation in place. Like when I have some of the stuff paid for by, you know, that I pay for personally accidentally. It's a business thing. I have to have the business reimburse me. It's a little bit of pain to do that stuff. It's not that big a deal. But I don't know. That's a dramatically huge benefit. Okay, we're going to talk for a minute about retirement plan stuff. He also talks about the ability to run premiums for your health insurance through payroll rather than just deducting them on 10, 40. Maybe that can save you a little bit of payroll tax there. So that might be a little bit of savings. Again, this is the same question of why you'd form an S corp, right? It's all about saving Medicare taxes, family payroll strategies or income shifting. You can hire your spouse or children for your S corp and then their wages are deductible and then they're eligible for Roth ira. Hey, okay, that's true. But you can do that as a sole proprietor, he says. Oh, with dramatically more scrutiny. Well, I did it for years. There wasn't any scrutiny. I can assure you there's not all that much scrutiny going on. Although I think it is true that small businesses returns are some of the least audited returns out there. Right? So these little S Corp returns and those sorts of things don't get audited very often. Cannot integrate your family into corporate HR benefits. Well, you probably can because whatever benefit you're buying as a sole proprietorship is going to be available to your family as well. If you hire them by your sole proprietorship, they are eligible for retirement plans in the corporation or in the business, even if it isn't a corporation. Okay. Fringe benefits expand dramatically inside corporations. FSAs, dependent care accounts, commuter benefits, certain insurance plans, education assistance, adoption assistance. Okay. I mean, if you want to run that stuff through, here's the deal, right? This stuff kind of makes sense when you're really truly self employed. If you got your $20,000 of 1099 income in addition to your W2 job, you're not going to be putting together commuter benefits and educational assistance plans and that sort of stuff. But if you want to to go after some of this stuff, there are a few small deductions that you can do with corporations that are a little bit easier than if you were just a sole proprietorship. So maybe it's worth looking into and spend a little bit of money forming it. Okay, now let's talk about the big thing, which is the retirement accounts. He was convinced you could contribute dramatically more to retirement accounts if you form a Corporation. And I'm not convinced even with this additional stuff that he sent over about it. Here's the basic argument. The basic argument is that a sole proprietor must use earned income after deductions and self employment tax adjustments. This reduces eligible compensation by 10 to 15%. No, it doesn't. It doesn't reduce it at all. Because that's all not profit anyway. It's not money you can be using to pay yourself a salary if you were an S corp anyway way it's business expenses. Okay, so yes, it reduces eligible compensation, but it does it for both entities equally. Then says that a corporate owner can set their W2 compensation. That's true. Which becomes a clean input for plan formulas. I agree, it's a very clean input. It also happens to be less than the business is making because it doesn't incorporate in the profit. So most of the time, if you're in this intermediate range where you would be able to contribute more via a sole proprietorship than you would with an S corporation paying you only half of what you earn as income, it could actually be less. Okay. He says there's more usable compensation space for Employer 401 contributions and gives actuaries predictable compensation needed to maximize cash balance plan funding. Well, you know, if you're making enough money and saving enough money that you're interested in a personal cash balance plan, right. We're talking people that are saving well over six figures a year for retirement, which is not most docs, even self employed docs, then it does become a little bit easier. You got a stable W2 compensation stream that they can base those contributions off of. That could be worth it. But if you're making that much money anyway, you ought to be an S Corp anyway just for the Medicare tax savings. This again is not somebody making 20 or 30 or 50 or even $75,000 a year. You know, there's just not the savings there to do that. You're not going to start a cash balance plan for your 1099 gig that makes $100,000 a year. It's just way too much hassle for the tiny amount you're going to be able to contribute to it. Okay, so he claims this result is simply that s cor physician owners routinely achieve two to three times the combined contributions compared to sole proprietors with identical revenue. I don't think that's true at all. I'd be embarrassed to have written that the only way you're going to be able to do that is by opening up a cash balance plan. You couldn't Otherwise open. You can open one, but if you're making enough money you're opening a cash balance plan. You ought to be opening up filing as an S Corp anyway for the Medicare tax savings and doing that. This is not something that's going to that dramatically allow you to contribute more for your $50,000 side gig. Hope that's helpful in a discussion of what we discussed during the podcast. I wanted to share another email that I got recently from someone who had been working with our partners. She writes in and says, I'm an ER doc, recently graduated from residency, currently working multiple jobs that are all 1099. I work anywhere from 12 to 15 shifts a month and I'm making decent money. My goal is to pay off my student loans as quickly as possible within two to three years. I got some quotes for refinancing rates and the best rate was with Earnest. So I applied for refinancing but was denied. Reached out to them and they told me I was denied because my income is 1099 and they want two years of tax returns proving my self employed income is consistent. Do you know any way around this? Are there any refinancing companies that will work with physicians with 1099 income? The majority of ER jobs in my area are 1099, so I'm wondering how other ER docs tackle their loans if we're unable to refinance for two years. Well, here's a downside of being self employed, right? It can also give you a little more hassle getting a doctor mortgage too, although usually there's ways around both of these. So I asked Cindy, who manages these relationships with our partners to reach out to all of them and figure out what's the deal with refinancing your student loans if you're on a 1099. And here's what she got back. She checked with Splash and they require two years of tax returns. She checked with Laurel Road. If they've got their student loans in health care, they don't need a two year history with Laurel Road, so that's a good option. Credible only requires them to submit 11099 to verify their income or with pay stubs. So that is going to require you to wait till the end of the year. You know, if you came out of residency in July and you don't get your 1099 until whatever, January or something, you're going to have to wait six or seven months to refinance with Credible. And Juno is a marketplace and some of their lenders require it. Some of them don't so Earnest may not be the best choice. Splash may not be the best choice. Laurel Road seems like a good option. Credible is a pretty good option. And maybe you can find somebody with Juno through whom you can refinance your loans. It sounds like she didn't get an answer back from SoFi. They may be able to do it as well, but hopefully it was helpful. For those of you out there who are 1099s looking to refinance your student loans, go to our recommended pages and you can find all those links to get there. Remember, you get a better deal going through the links on the White Coat Investor website than you do going directly to the company. Okay? I hope you enjoyed that podcast. Hope that wasn't too much disagreement and yelling at each other for anybody. That's actually probably, probably better podcast content when there's at least some disagreement with the guest, right? So a couple of things. First of all, I forgot to do the quote of the day I usually do at the beginning of the podcast. Today's comes from Dave Ramsey. A little bit controversial in his own way, but he said you must gain control over your money or the lack of it will forever control you. I love that quote. In fact, I love a lot of stuff that Dave does. Obviously I've got a few disagreements with with him like most of you probably do as well, but I think in general he's doing far more good than bad in this world. I mentioned at the beginning about our Financial Boot Camp podcast. If you go to whitecoatinvestor.com Bootcamp podcast, you can listen to those. Most of them are new for this year and if you're trying to get up to speed on the basics of personal finance and investing and business for for physicians and other high income professionals, you'll definitely want to catch those. They'll also be incorporated into the Milestones podcast that drops each Monday. Thanks. For those of you who leave us five star reviews and tell your friends about the podcast, a recent one came in and said I wish I knew about you. Years ago, saddened about the time and money I wasted. Optimistic about the knowledge I'm getting from the White Coat Investor. Five stars. We appreciate those reviews. They help us to spread the word word about the importance of financial literacy and financial discipline among doctors and other high income professionals. This podcast was sponsored by Bob Bayani at Protuity. A listener sent us this review. Bob has been absolutely terrific to work with. He's always quickly and clearly communicated with me by both email and or telephone with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications of underwriting process in a clear and professional manner manner. Contact bob@whitecoatinvestor.com Protuity or by emailing infoortuity.com or calling 973-771-9100 to get your disability insurance in place today. All right, that's it for this podcast. Keep your head up, your shoulders back. You've got this. We're here to help. The whole White Coat Investor community is going to be behind you this entire year. Stick with us. We'll help you get to where you want to go. See you next time on the podcast.
- [82:06]
Todd Stillson
The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.