Advice needed: starting work as 1099, what do I need to do?

[WitchDoctor]

Hey folks,

I just signed onto a new gig working as an independent contractor at a new hospital. I have ZERO experience with this. For those that have gone through it, what advice do you have on how to start?

Do I need to immediately find a financial advisor or a CPA or can this wait?
I'm planning on starting an LLC. Do this myself or hire a professional?
Do I open a business account?
Look for health insurance?
Man, I feel like I'm in over my head, any bits of advice or wisdom you have, please send it my way. I'm really just trying to strategize what initial steps I need to take.

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[JacobMcCandles]

A financial advisor wouldn’t be what you need it would be a CPA, however, with some foundational knowledge this is usually straight forward. If you do decide to go the CPA route then you need one that’s competent in your situation. Like various medical specialties, CPAs may be geared more towards certain things. An LLC taxed as a sole proprietorship is probably your best bet although an LLC isn’t absolutely necessary, either, but can be useful to get an EIN instead of giving out your SS number. Setting up an LLC with your state is usually pretty straight forward. A separate account is the easiest and cleanest but not absolutely necessary.

Being an independent contractor, your malpractice insurance is typically covered by whatever group you’re contracted with but double check this! You’re responsible for all your other benefits so if you want health insurance then you need to get your own. Get appropriate disability insurance, term life insurance, etc. Read up on a solo 401k assuming you don’t have any current IRA balances. Don’t do a SEP-IRA so you can still do a backdoor Roth without running into pro-rats issues.

Honestly, given the questions, you should probably find a competent CPA for the first year or two until you’ve gained the knowledge and confidence you need to do this yourself.

 

[cyanide12345678]

You can wait to find an accountant. The first year as a sole proprietor you don’t get hit with tax penalties, though it’s pretty easy to make quarterly payments online yourself too. But having a good accountant as a 1099 is extremely important. It helps especially in the beginning.

making an llc takes 5 minutes. Either go to a state website or something like incfile.com. This is the easiest thing ever. Once you make an llc, google irs ein number, takes about two minutes to create a new EIN. Save that document.

Once you have the llc paperwork and a ein, you may create a business account, makes accounting easier by separating personal and business finances. Easier to track business expenses essentially. This isn’t exactly something you absolutely have to do either, but it makes things easier.

Health insurance. Yes. You probably need it

 

[LChristmas]

I'm no expert but a couple things to get you started.

- put 30% of your gross into a high interest savings account and earmarked for taxes
- you need to make estimated quarterly tax payments (IRS has a schedule and calculator to help)
- save receipts for everything
- open a solo 401k. You can contribute up to $ 20,500 plus 25% of your gross income up to a total of $66,000

 

[cyanide12345678]

If you make 400k or more, then have a sit down with an accountant. You might benefit from being taxed as an s corp instead of sole proprietor.

That’s when taxes get really complicated.

 

[Kryptocoin]

You don't need an LLC as a 1099. It doesn't save you any taxes.

 

[cyanide12345678]

I'm no expert but a couple things to get you started.

- put 30% of your gross into a high interest savings account and earmarked for taxes
- you need to make estimated quarterly tax payments (IRS has a schedule and calculator to help)
- save receipts for everything
- open a solo 401k. You can contribute up to $ 20,500 plus 25% of your gross income up to a total of $66,000

Saving receipts is old school and a hassle.

Get quickbooks self employed. It’s not expensive. Attach it to your business account and business credit card. It will track and tally up all your business expenses. Will even track your mileage if you want.

Well worth the 5 or so dollars a month that it used to be.

Agree with solo 401k - etrade has a easy ready made solution for solo 401ks. Pretty easy to set up. Don’t make the mistake of being lazy and creating a Sep IRA instead of solo 401k if you plan on doing a backsoor roth

 

[cyanide12345678]

You don't need an LLC as a 1099. It doesn't save you any taxes.

It does if you choose to file as S corp and you make enough money to make it worth the accounting hassle. >400k absolutely you can save money on taxes with an llc taxed as an s corp.

 

[Kryptocoin]

It does if you choose to file as S corp and you make enough money to make it worth the accounting hassle. >400k absolutely you can save money on taxes with an llc taxed as an s corp.

You need a very income ($600k imo) to justify an S Corp. It requires lots of paperwork and accounting, which means it's expensive for a modest tax saving.

Best bang-for-buck for 1099 doctors is a defined benefits plan. You can contribute six figures annually. That's the biggest gift given by the IRS.

 

[cyanide12345678]

You need a very income ($600k imo) to justify an S Corp. It requires lots of paperwork and accounting, which means it's expensive for a modest tax saving.

Best bang-for-buck for 1099 doctors is a defined benefits plan. You can contribute six figures annually. That's the biggest gift given by the IRS.

I saved about 5k in taxes with 450k 1099 income.

Paid myself $180k w2. The rest distribution income on which i saved medicare taxes. Extra accounting cost was about about $2000 - 600 of which was for payroll expenses and 1300-1400 extra for s corp tax return. Though my accountant is extremely reasonably priced, from one of the lowest cost of living areas in the country, and he is actually pretty good.

The increased accounting hassle shouldn’t be there if your accountant manages everything. I never ever had to do anything, my accountant did everything and Just updated me with reports. So yes, i think >400k you start seeing a small benefit of a few grand. >600k and obviously then it’s more money saved and 100 percent worth it.

A defined benefit plan can literally defer 6 figures in income if you are old enough. I never set one up because i knew i was switching jobs.

 

[JacobMcCandles]

I saved about 5k in taxes with 450k 1099 income.

Paid myself $180k w2. The rest distribution income on which i saved medicare taxes. Extra accounting cost was about about $2000 - 600 of which was for payroll expenses and 1300-1400 extra for s corp tax return. Though my accountant is extremely reasonably priced, from one of the lowest cost of living areas in the country, and he is actually pretty good.

The increased accounting hassle shouldn’t be there if your accountant manages everything. I never ever had to do anything, my accountant did everything and Just updated me with reports. So yes, i think >400k you start seeing a small benefit of a few grand. >600k and obviously then it’s more money saved and 100 percent worth it.

A defined benefit plan can literally defer 6 figures in income if you are old enough. I never set one up because i knew i was switching jobs.

This probably isn’t the best place for this discussion but $180k for a full time EP isn’t what I would consider reasonable but that’s between you, your accountant, and the IRS if they were to choose to get involved. The chance the IRS gets involved is likely slim but you’d have a hard time defending your W2 pay and it’d be quite the headache. Arguing 40% of your total pay as salary would be an uphill climb.

 

[cyanide12345678]

This probably isn’t the best place for this discussion but $180k for a full time EP isn’t what I would consider reasonable but that’s between you, your accountant, and the IRS if they were to choose to get involved. The chance the IRS gets involved is likely slim but you’d have a hard time defending your W2 pay and it’d be quite the headache.

That’s the number my accountant recommended. IRS never blinked an eye. The median income for physicians on the BLS government website is 208k or $100/hr.

So as someone working 1728 annual hours, i actually paid myself more than the government 100/hr published median number for physicians.

If the IRS doesn’t agree with your tax forms, they don’t go through an audit over 3-4000 dollars. They send you a modified tax return, tell you what they changed, and what you owe. Then you have the option of disagreeing with them. But paying yourself median income for a physician published on a government website is not going to give you issues. I know plenty of people who pay themselves a similar amount. If you want to pay the government more, go for it. But 180k is absolutely appropriate - and I’ve done it in the past with 0 issues.

Don’t be so terrified of the IRS. Worst case scenario is they send you a corrected return, and tell you that you owe more money, then you just pay them. I don’t just volunteer to pay them more from the start.

Physicians and Surgeons : Occupational Outlook Handbook: : U.S. Bureau of Labor Statistics

Physicians and surgeons diagnose and treat injuries or illnesses and address health maintenance.

www.bls.gov

 

[JacobMcCandles]

That’s the number my accountant recommended. IRS never blinked an eye. The median income for physicians on the BLS government website is 208k or $100/hr.

So as someone working 1728 annual hours, i actually paid myself more than the government 100/hr published median number for physicians.

If the IRS doesn’t agree with your tax forms, they don’t go through an audit over 3-4000 dollars. They send you a modified tax return, tell you what they changed, and what you owe. Then you have the option of disagreeing with them. But paying yourself median income for a physician published on a government website is not going to give you issues. I know plenty of people who pay themselves a similar amount. If you want to pay the government more, go for it. But 180k is absolutely appropriate - and I’ve done it in the past with 0 issues.

Don’t be so terrified of the IRS. Worst case scenario is they send you a corrected return, and tell you that you owe more money, then you just pay them. I don’t just volunteer to pay them more from the start.

Physicians and Surgeons : Occupational Outlook Handbook: : U.S. Bureau of Labor Statistics

Physicians and surgeons diagnose and treat injuries or illnesses and address health maintenance.

www.bls.gov

I have no doubt your CPA recommended that number. That’s why I recommended the OP get a competent accountant. When you say the IRS never blinked an eye you’re assuming that a human at the IRS looked at it and approved it which isn’t true. The IRS doesn’t just look at BLS numbers which we all know aren’t accurate. You think a neurosurgeon can pay themselves $200k and then do $800k in distributions? They’ll also look at how much income you’re bringing in, and as I said, 40% in salary wouldn’t pass the reasonableness smell test. It isn’t being afraid of the IRS. It will be much more complicated than them sending you a letter saying you owe this much more. It will be a headache. Nonetheless, as I mentioned, it’s low risk that they’ll pursue it but it’s important for someone to understand the risks they, and their accountant, are exposing themselves to because ultimately you’re responsible for your taxes.

Also, just curious, but what do you pay your accountant?

 

[emergentmd]

I went through this 1099 IC and doing a C/S corp. yeah it would have saved me about 3-5K but then I would have to file more paperwork/another return which would have cost me 3 K plus all extra time. For me wasn't worth the hassle.

Now that I am making a much higher amount, I added a S/C corp.

 

[cyanide12345678]

I have no doubt your CPA recommended that number. That’s why I recommended the OP get a competent accountant. When you say the IRS never blinked an eye you’re assuming that a human at the IRS looked at it and approved it which isn’t true. The IRS doesn’t just look at BLS numbers which we all know aren’t accurate. You think a neurosurgeon can pay themselves $200k and then do $800k in distributions? They’ll also look at how much income you’re bringing in, and as I said, 40% in salary wouldn’t pass the reasonableness smell test. It isn’t being afraid of the IRS. It will be much more complicated than them sending you a letter saying you owe this much more. It will be a headache. Nonetheless, as I mentioned, it’s low risk that they’ll pursue it but it’s important for someone to understand the risks they, and their accountant, are exposing themselves to because ultimately you’re responsible for your taxes.

Also, just curious, but what do you pay your accountant?

Last year i believe i paid about $2000 or so for my personal and s corp tax return. Plus $50/month for payroll.

My personal taxes are complicated too because of 10+ K1s and multiple state returns due to syndications.

The above cost includes year round support for answering any questions as their client. It also includes a insurance package where i don’t pay them for responding to any irs audit.

 

[GatorCHOMPions]

I'm no expert but a couple things to get you started.

- put 30% of your gross into a high interest savings account and earmarked for taxes
- you need to make estimated quarterly tax payments (IRS has a schedule and calculator to help)
- save receipts for everything
- open a solo 401k. You can contribute up to $ 20,500 plus 25% of your gross income up to a total of $66,000

Can you do a solo 401k through a 1099 IC job taxed as sole proprietor if you also have a W2 job offering a 401k?

 

[cyanide12345678]

Can you do a solo 401k through a 1099 IC job taxed as sole proprietor if you also have a W2 job offering a 401k?

Yes. You just have one bucket for individual contribution limit. So you just have to be careful about contribution limits. Even if you max your w2 401k with personal employee contribution, you can put more money in the solo 401k in the employer bucket

 

[bky3c]

A financial advisor wouldn’t be what you need it would be a CPA, however, with some foundational knowledge this is usually straight forward. If you do decide to go the CPA route then you need one that’s competent in your situation. Like various medical specialties, CPAs may be geared more towards certain things. An LLC taxed as a sole proprietorship is probably your best bet although an LLC isn’t absolutely necessary, either, but can be useful to get an EIN instead of giving out your SS number. Setting up an LLC with your state is usually pretty straight forward. A separate account is the easiest and cleanest but not absolutely necessary.

Being an independent contractor, your malpractice insurance is typically covered by whatever group you’re contracted with but double check this! You’re responsible for all your other benefits so if you want health insurance then you need to get your own. Get appropriate disability insurance, term life insurance, etc. Read up on a solo 401k assuming you don’t have any current IRA balances. Don’t do a SEP-IRA so you can still do a backdoor Roth without running into pro-rats issues.

Honestly, given the questions, you should probably find a competent CPA for the first year or two until you’ve gained the knowledge and confidence you need to do this yourself.

I agree. I found it really helpful to have a CPA. WCI has a list of recommendations; if I had it to do over again, I'd probably pick one of them.

Physician Tax Services & Strategists - | White Coat Investor

Tax strategy and planning is different from just filling out the forms every April. These WCI-vetted advisors can help you make sense of your complicated tax situation and suggest ways to lower your tax bill.

www.whitecoatinvestor.com

Also, I don't know if this is the "right" way to go about it, but I hired a bookkeeper, who is much cheaper than a CPA, to tidy up all the numbers before they went to the CPA, so I saved money on CPA hours. (I was doing locums in several states, though, so maybe my situation was more complicated than "normal.")

 

[thegenius]

Hey folks,

I just signed onto a new gig working as an independent contractor at a new hospital. I have ZERO experience with this. For those that have gone through it, what advice do you have on how to start?

Do I need to immediately find a financial advisor or a CPA or can this wait?
I'm planning on starting an LLC. Do this myself or hire a professional?
Do I open a business account?
Look for health insurance?
Man, I feel like I'm in over my head, any bits of advice or wisdom you have, please send it my way. I'm really just trying to strategize what initial steps I need to take.

I am a 1099. I've been doing my own taxes for the length of my 1099 career. I think one time I got a CPA and they did my taxes wrong.

You can do this. It is not hard whatsoever.
It's even easier if you do not have complicated taxes (like passive income sources, extra businesses, etc.) If you basically rent or own a house, get 1099 income, get standard (or even itemized deductions), it's very easy to do.
It's even easier if you use something like TurboTax. I use TT every year and it's worth the $150-200 to get it done.


FIRST
1. I recommend opening another bank account. There you will put estimated taxes in that bank account every time you get a 1099. YOU MUST PAY QUARTERLY FED AND STATE TAXES. I know of no way around this. If you are a normal person that will make 350-500K in 1099 income, I recommend that you put away 33% into your tax account everytime you get paid. Then every quarter you go to the IRS and pay quarterly taxes, and do the same with the state you are in

2. Find a way to track your business expenses. You'll learn over time what you can and can't deduct. I recommend you open a business banking account, however it isn't necessary. I for instance have 4 bank accounts (Personal Main, Personal Savings, Business Main, Business Taxes) and I shuttle money from one to another every month. I have 1099, W2, and my wife has W2 income.

3. Consider getting a business credit card. Only things you can deduct go on there.

4. You need health insurance and will have to buy it on the open market.

5. You should get disability and life insurance. You'll have to buy it on the open market.

6. You should open a SEP-IRA or a solo 410K for your retirement. MAX THAT OUT it's the best tax savings you'll ever get.

7. You gotta do basic accounting. I use a simple spreadsheet. I've done it for so long it's second nature to me now. Not hard.

For what it's worth, I pay about 29-30% of my 1099 income as taxes (both Fed and State) every quarter. Come tax time my tax obligation is +/- 6K. So I'm quite accurate with my estimated tax payments.

You can PM me if you have more questions (or just ask here).

Big thing is paying quarterly taxes. Can't mess that up and you'll be fined if you miss it (although it isn't much). Everything else you'll have time to figure out.

EDIT: BTW, I wouldn't bother at first with forming an LLC or S-CORP, at least at first. Do your own stuff or with turbo tax for the first few years. If you become an LLC and S-Corp, you'll probably need an accountant / CPA to do all your monthly filings, and at the end of the year that will cost you $3-5K/year. Maybe less. You can investigate it later. I was an S-Corp for a year or two and it sucked and i didn't save any money and it gnawed at me that I would spend $100/month for some CPA to pay me money with my own money. Tax savings are marginal at best (for me).

 

[thegenius]

It does if you choose to file as S corp and you make enough money to make it worth the accounting hassle. >400k absolutely you can save money on taxes with an llc taxed as an s corp.

I didn't. I did a comparison and it wasn't worth it.

 

[Janders]

Can you do a solo 401k through a 1099 IC job taxed as sole proprietor if you also have a W2 job offering a 401k?

yes.

My main job (and 80-90% of my income) is a W2 where I completely max out a 403b both with my personal contribution and a "company match" combining to hit the total current limit (which is over 60k).

I have had a number of side income 1099s the past 3-4 years; some have been significant (e.g. $50k moonlighting in other EDs), some less significant but still worth noting ($5k for side admin-style work; $5k for a hobby that turned a profit).

I have a solo 401k set up for this 1099 income, and while I cannot add additional personal pre-tax contributions, I CAN add additional employer contributions (its close to 25%, but you have to remove any expenses etc etc). While adding $5k of income to a seperate 401k might not get me to retirement a decade earlier, I'd be investing this money anyway and now I don't need to pay income tax on it, and it grows without taxation.

Punchline-- if you have a W2 job but get significant 1099 side income, you should set up a solo 401k (I use fidelity) and use it to save taxes and further empower your retirement savings. You can do similar things with a SEP-IRA, but then you can't backdoor roth...

 

[PianoMedic]

Saving receipts is old school and a hassle.

Get quickbooks self employed. It’s not expensive. Attach it to your business account and business credit card. It will track and tally up all your business expenses. Will even track your mileage if you want.

Well worth the 5 or so dollars a month that it used to be.

Agree with solo 401k - etrade has a easy ready made solution for solo 401ks. Pretty easy to set up. Don’t make the mistake of being lazy and creating a Sep IRA instead of solo 401k if you plan on doing a backsoor roth

Roth SEP-IRAs will now be allowed under secure 2.0, so there might be some benefits to that model over the solo 401k once companies start offering them (might already be offered). Traditional SEP-IRA should probably be avoided for most docs doing a good job saving.