Wife is a newly minted medical partner - next steps?

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goodbishop
Posts: 64
Joined: Sat Mar 10, 2012 8:38 am

Wife is a newly minted medical partner - next steps?

Post by goodbishop »

So my wife has been working at a medical practice for a few years, and she was just accepted to be a Member in the practice, which is a LLC. As a side note, I'm so proud of her!

We recently met with the CEO/CFO to talk through what this means, and I had a few questions for folks here:

Decision to incorporate. There is a option to personally incorporate - the CEO/CFO mentioned that out of 20 doctors, 1 incorporated, and they regretted it afterward. I'm inclined to not incorporate for that and keep things simple, but I'm wondering if people have alternate thoughts on that.

Taxes. It was recommended by both the CEO and CFO to have a accountant do our taxes, and they provided a reference to the practice's accountant. The thing that irks me is that I have done my own taxes for the past 10+ years, and it just bothers me on a deep level to pay a accountant $700-$1k to do our tax return, if I can buy TurboTax Business or Home & Business for $100-$150, and take a weekend and crank through our taxes. I'm savvy though (hey, that MBA in Finance is good for something) and I feel that I could do it. I believe we would have to file schedule E. I'm wondering for folks here who are partners in a practice - do you file your own taxes, or do you have a accountant do it? Side note - it's only one state, so one K-1. For folks who do it themselves, how difficult is it?

Writing off business expenses. Now that she is a owner of the business, I think she can deduct her Continuing Medical Education (CME) expenses, and travel from clinics from her income, as well as conferences/hotel. Thoughts on this? Is there suggestions on how to log mileage - Excel and so forth? How do folks track receipts - PDF, storing them, etc? Also, for those who are in similar situations, do you get a seperate credit card and just use it for work expenses? I'm thinking about getting her the Starwood Amex Business... (we've got the normal one and put all our spend on it - hotel points do well for us), though I can see her mixing up the cards - maybe I should get a different color card for her to use (heck, she mixes up the Penfed 5% gas card and the Fidelity 1.5% cash back VISA card... sigh...).

Quarterly tax payments to the IRS. I would need to get estimates from her work, and the CFO mentioned that they could provide those numbers. I'm assuming that the EFTPS.gov is the website, and we would need to get set up on that, right? Quarterly tax payments appear to be due on the 15th of the following month after the quarter ends. Seems straightforward.

Disability. So she doesn't have short-term disability through the clinic, but rather long-term disability that starts after 3 months. She will be making about 250k (give or take patient load and bililng hours), and I think her long term disability will pay out up to 110k per year (9167 per month). They tax the long term disability, so payments are tax-free if they get to that point. The CEO/CFO recommended to not get short term disability, but rather save up a 6 month emergency fund. I, being who I am, naturally agreed wholehartedly. So the first question I would have is is it worth it to get short term disability, or is it better to just rely on the emergency fund? I'm inclined to not get short term disability because it is expensive. Second qustion is - should my wife get additional long-term disability to cover the second half of her income? I'm inclined to say yes here, though in our situation, I make 150k, and she makes 250k - we can live off of my salary and her 110k if something happened. And yes, I know that we are more likely to be disabled than die early.

Life insurance. I don't think she gets any life insurance through work. I'm wondering on this - if she should get life insurance. If it is a replacement of income - I'm not dependant on her salary (nor is she dependant on mine - we both could support the household individually working). Thoughts on this? I have 350k term life on me, as a side note. I'm inclined for her not to get life insurance.

Liability. So her liability would be 2k in a account at the LLC if she were to be sued, and also future wages. We have a personal umbrella policy of a million, and I'm wondering if this is affected by that. Also, if there anything else I need to do here in this space...

Other Stuff. Is there anything else I need to know or take care of?

As a side note, I'm a fan of EmergDoc's website, the White Coat Investor.. I'll have to take a look through there and see if there is anything that I need to review for my wife's situation.

I appreciate folks's time in reading this text and helping out. Thanks!
RosieQ
Posts: 162
Joined: Tue Sep 09, 2014 2:52 am

Re: Wife is a newly minted medical partner - next steps?

Post by RosieQ »

Interesting thing I found out about disability insurance- some policies seem to have a real sweet spot with the 10 year benefit term. About 25-30% cheaper than to age 65 for me, additional savings to be had for not including a 3% Cost of living rider or a future purchase options. Put that together and you should have an additional disability insurance add on that would be most cost effective and meet your needs. Statistics are a little fuzzy on DI collections, with women having average disability time of 82 months (6.8 years) but only a small fraction of those claiming disability needing it for longer than 36 months- my read of this (and also thinking through a lot of medical conditions, accidents etc as I'm also in the medical profession) is that there is a real 1 sided tail in the distribution of those claiming, so I have a bit of catastrophic 3% COL adjusted to age 65 disability insurance but the majority is a 10 year term.
Grt2bOutdoors
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Re: Wife is a newly minted medical partner - next steps?

Post by Grt2bOutdoors »

Your wife is a partner in a medical practice and a doctor to boot and you only have a personal umbrella policy of $1MM? :shock:
Dude - you are "under-insured" - better work on rectifying that before some attorney makes you regret that for the next 30 years. You do know they can sue you, win and garnish your wages for the rest of your working career, right? What is the sum total of all of your other liability insurance combined? - home, auto? and umbrella? is it more than $2MM?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Grt2bOutdoors
Posts: 25617
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Location: New York

Re: Wife is a newly minted medical partner - next steps?

Post by Grt2bOutdoors »

RosieQ wrote:Interesting thing I found out about disability insurance- some policies seem to have a real sweet spot with the 10 year benefit term. About 25-30% cheaper than to age 65 for me, additional savings to be had for not including a 3% Cost of living rider or a future purchase options. Put that together and you should have an additional disability insurance add on that would be most cost effective and meet your needs. Statistics are a little fuzzy on DI collections, with women having average disability time of 82 months (6.8 years) but only a small fraction of those claiming disability needing it for longer than 36 months- my read of this (and also thinking through a lot of medical conditions, accidents etc as I'm also in the medical profession) is that there is a real 1 sided tail in the distribution of those claiming, so I have a bit of catastrophic 3% COL adjusted to age 65 disability insurance but the majority is a 10 year term.
Unless you get some unfortunate stroke of luck like a good friend of mine who developed MS at an early age - had she not had good disability to age 65, she'd be out in the street because she wouldn't be able to afford rent or her mortgage. It's the catastrophic outliers that you want to protect against most. Disclosure - I have no affiliation with any insurer.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
RosieQ
Posts: 162
Joined: Tue Sep 09, 2014 2:52 am

Re: Wife is a newly minted medical partner - next steps?

Post by RosieQ »

Grt2bOutdoors wrote:
RosieQ wrote:Interesting thing I found out about disability insurance- some policies seem to have a real sweet spot with the 10 year benefit term. About 25-30% cheaper than to age 65 for me, additional savings to be had for not including a 3% Cost of living rider or a future purchase options. Put that together and you should have an additional disability insurance add on that would be most cost effective and meet your needs. Statistics are a little fuzzy on DI collections, with women having average disability time of 82 months (6.8 years) but only a small fraction of those claiming disability needing it for longer than 36 months- my read of this (and also thinking through a lot of medical conditions, accidents etc as I'm also in the medical profession) is that there is a real 1 sided tail in the distribution of those claiming, so I have a bit of catastrophic 3% COL adjusted to age 65 disability insurance but the majority is a 10 year term.
Unless you get some unfortunate stroke of luck like a good friend of mine who developed MS at an early age - had she not had good disability to age 65, she'd be out in the street because she wouldn't be able to afford rent or her mortgage. It's the catastrophic outliers that you want to protect against most. Disclosure - I have no affiliation with any insurer.
Many other things to consider too, such as other insurance and family. I agree it's good to have enough long term disability to age 65 to cover scenarios like this, but likely just for basic living expenses. Best not to be under insured for the vast majority of other cases when you could have a <10 year disability and be living on 25-50% higher income. Also, OP appears to be employed too, an additional form of "disability" insurance for the other spouse.
anil686
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Joined: Thu May 08, 2014 12:33 pm

Re: Wife is a newly minted medical partner - next steps?

Post by anil686 »

Great questions and congrats to your wife - I made partner at my first practice 10 years ago and then left to start my own practice 2000 miles away and am very happy with now 3 other partners...

1. Incorporation - I have never seen one of our partners express interest in it and at my former practice nobody did either. Would defer to others on how they would view it. I would think it would mean that the practice would pay your wife as an independent contractor kind of - but that would be sticky since she is also a co-owner of the practice. But what I am getting at is that you would have the ownership in the practice as another LLC (the one your wife would own). Sounds confusing but maybe others could chime in on this...

2. Taxes - you can do it yourself but you run the risk of making mistakes due to lack of information. I don't mean you do not know what you are doing because I am sure you probably do but as you can imagine, any practice tax matters would have to be communicated to you. I don't know how good that communication is - typically if the practice has an accountant - they receive (and expect to receive) all tax related forms and documents- their primary duty is to the practice and its partners. They will probably be able to do your taxes correctly every year - is that worth $700-1000/year - you would need to decide that. Let's put it this way - if you submit an erroneous return b/c the CEO or CFO did not give you a document you needed - is that worth the $700-1000 headache of fixing everything - how about if they give it to you 1 year late/3 years late/ 5 years late or at an audit...

3. Expenses. You cannot deduct commuting from your home to the office as a business expense. Only from office to office for work related purposes. At my first practice, we covered about 60 miles to the west, 40 miles to the east and 50 miles to the south in a rural area. We used google maps to plot the shortest distance between the offices (no matter what route we would normally take) and used that for mileage so there was no issues with the IRS. I have continued that policy at my current practice. If you need to make a stop before the office for work related activities (i.e. PO box pickup, bank deposits, etc.) that can count as mileage from that stop to the office... Many practices now just do a car allowance which is in lieu of mileage.

FYI - I keep my mileage on excel with a spreadsheet and save it per month and keep it.

I always use a business credit card for business purposes and never my personal - just my preference. All partners use the same account and we split the rewards evenly - just how we do it though

4. Insurance
Life insurance is up to you. If you have children I strongly recommend term for 10x her current salary - While you can work after she may unfortunately pass away, it will be an emotionally traumatic time (likely) for you and possibly the kids. It would be nice not to have to work during your grieving and then try to pick up the pieces later...

Also, what ever practice debt is there is owed (typically) equally by all the partners. In our practice, it is building loans and equipment costs - these are scheduled to be paid back - but obviously can't if the partner passes. We all have "key-man" insurance in which the practice collects a life insurance settlement in case of an unfortuante demise. It also covers the cost of getting a locums physician for the practice for 1-2 years so the patients can still be seen and the care given without the partners borrowing or losing part of their salary.

I also do not have short term disability - just emergency fund

I agree with the umbrella - it is very inexpensive to get 2-3 million in coverage - I agree with G2B above - completely - you open you family up for bad things being underinsured.


Just my thoughts and hopes it helps...
PoppyA
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Re: Wife is a newly minted medical partner - next steps?

Post by PoppyA »

Re: liability

What assets are protected by state law? Here in Florida it is your home, pensions, 401k's, etc. a good thing to know, not only for liability, but for futur einvestment purposes.

I believe there are some forms of life insurance that are judgement proof as well.
otherguy
Posts: 1
Joined: Sat Oct 25, 2014 3:52 am

Re: Wife is a newly minted medical partner - next steps?

Post by otherguy »

Having faced all of the same questions myself, here are a few opinions worth consideration:

1. Incorporation: Simple to do, of questionable benefit, and apparently offerring no meaningful liability protection. Allows separation of personal and professional accounting.

It also can be constructed in a fashion which allows professional expense or medical/insurance deductions which would likely otherwise be obliterated by the AMT if included on one's personal return. If you have a lot of personal deductions, and anticipate significant business expenses which cannot be deducted otherwise (within the business entity), this might merit consideration. But most of my colleagues consider incorporation an unnecessary expense.

2. Taxes: For the business I found it helpful. For one's personal return, I use an accountant periodically (but not every year,) recognizing they have on occasion found deductions (on a K-1, etc.) which I overlooked. I found that the accountant was economical and informative only when associated with a small firm with experience with docs in the same or similar businesses.

If you don't fully understand your taxes, I would have an accountant review them - and subsequently review them yourself until you do.

3. It takes a LOT of miles between the primary and a SECONDARY practice location to qualify for a personal deduction if your income is high. Google it - the IRS publications are clear enough.

4. Consider deducting disability insurance (if not nullified by AMT). If you want more coverage, you can stop deducting it (and your benefit will no longer be taxable either.) This can be much cheeper than an increase in coverage.

5. Statistics suggest YOU WILL BE SUED (and more than once on average.) You will likely prevail, and if you loose, the judgment is unlikely to exceed the usual 1m/3m required coverage limits. But do not underestimate the financial stress - on top of the injured pride, self-confidence and most importantly, the injured sense of trust and goodwill generated by a single opportunist.

Check your umbrella policy - it likely does not cover judgements exceeding your medical malpractice coverage. One can obtain additional malpractice coverage, but attorneys have waffled when I have asked if this makes one an attractive target.

6. EDUCATE YOURSELVES ABOUT ASSETT PROTECTION and DO NOT DO ANYTHING RASH (e.g. putting everything in one's spouse's name)

EVERYTHNG you have is at risk from medical liability. The rest is peanuts. Envision being sued as you enter retirement. Do not underestimate the $ value of the judgements.

Too many of my colleagues have managed this poorly. Since you are asking the right questions, I suspect you will do far better.

And as an afterthought, keep in mind that the risk of catastrophic financial loss can be far more psychologically threatening to one spouse than the other.

Best of luck. Just my opinions.
Topic Author
goodbishop
Posts: 64
Joined: Sat Mar 10, 2012 8:38 am

Re: Wife is a newly minted medical partner - next steps?

Post by goodbishop »

I did get price points on how much 2-3 million will be for umbrella policy - so I will be getting that updated - side note, thanks for the reminder of this.
I also reached out to our insurance agent - does anybody know what the key aspects are for long term disability, or key items I should look to be in the policy? Quite honestly, it seems a bit convoluted.

Expenses - good point on that. Only office to office is what I meant, and it's a good idea as mentioned to track that in Excel.

I think the incorporating was from a time where partnerships were dominant, and there wasn't corporate structures like a LLC, so you had to incorporate to reduce personal liability.

Asset protection - any suggestions on this? Trusts and so forth... I feel like we don't have enough assets currently that would require this - when we have a million in assets, then I would want to look into this. Thoughts on that approach? I did take a look at this - http://www.bogleheads.org/wiki/Asset_protection
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White Coat Investor
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Re: Wife is a newly minted medical partner - next steps?

Post by White Coat Investor »

goodbishop wrote:So my wife has been working at a medical practice for a few years, and she was just accepted to be a Member in the practice, which is a LLC. As a side note, I'm so proud of her!

We recently met with the CEO/CFO to talk through what this means, and I had a few questions for folks here:

Decision to incorporate. There is a option to personally incorporate - the CEO/CFO mentioned that out of 20 doctors, 1 incorporated, and they regretted it afterward. I'm inclined to not incorporate for that and keep things simple, but I'm wondering if people have alternate thoughts on that.

Taxes. It was recommended by both the CEO and CFO to have a accountant do our taxes, and they provided a reference to the practice's accountant. The thing that irks me is that I have done my own taxes for the past 10+ years, and it just bothers me on a deep level to pay a accountant $700-$1k to do our tax return, if I can buy TurboTax Business or Home & Business for $100-$150, and take a weekend and crank through our taxes. I'm savvy though (hey, that MBA in Finance is good for something) and I feel that I could do it. I believe we would have to file schedule E. I'm wondering for folks here who are partners in a practice - do you file your own taxes, or do you have a accountant do it? Side note - it's only one state, so one K-1. For folks who do it themselves, how difficult is it?

Writing off business expenses. Now that she is a owner of the business, I think she can deduct her Continuing Medical Education (CME) expenses, and travel from clinics from her income, as well as conferences/hotel. Thoughts on this? Is there suggestions on how to log mileage - Excel and so forth? How do folks track receipts - PDF, storing them, etc? Also, for those who are in similar situations, do you get a seperate credit card and just use it for work expenses? I'm thinking about getting her the Starwood Amex Business... (we've got the normal one and put all our spend on it - hotel points do well for us), though I can see her mixing up the cards - maybe I should get a different color card for her to use (heck, she mixes up the Penfed 5% gas card and the Fidelity 1.5% cash back VISA card... sigh...).

Quarterly tax payments to the IRS. I would need to get estimates from her work, and the CFO mentioned that they could provide those numbers. I'm assuming that the EFTPS.gov is the website, and we would need to get set up on that, right? Quarterly tax payments appear to be due on the 15th of the following month after the quarter ends. Seems straightforward.

Disability. So she doesn't have short-term disability through the clinic, but rather long-term disability that starts after 3 months. She will be making about 250k (give or take patient load and bililng hours), and I think her long term disability will pay out up to 110k per year (9167 per month). They tax the long term disability, so payments are tax-free if they get to that point. The CEO/CFO recommended to not get short term disability, but rather save up a 6 month emergency fund. I, being who I am, naturally agreed wholehartedly. So the first question I would have is is it worth it to get short term disability, or is it better to just rely on the emergency fund? I'm inclined to not get short term disability because it is expensive. Second qustion is - should my wife get additional long-term disability to cover the second half of her income? I'm inclined to say yes here, though in our situation, I make 150k, and she makes 250k - we can live off of my salary and her 110k if something happened. And yes, I know that we are more likely to be disabled than die early.

Life insurance. I don't think she gets any life insurance through work. I'm wondering on this - if she should get life insurance. If it is a replacement of income - I'm not dependant on her salary (nor is she dependant on mine - we both could support the household individually working). Thoughts on this? I have 350k term life on me, as a side note. I'm inclined for her not to get life insurance.

Liability. So her liability would be 2k in a account at the LLC if she were to be sued, and also future wages. We have a personal umbrella policy of a million, and I'm wondering if this is affected by that. Also, if there anything else I need to do here in this space...

Other Stuff. Is there anything else I need to know or take care of?

As a side note, I'm a fan of EmergDoc's website, the White Coat Investor.. I'll have to take a look through there and see if there is anything that I need to review for my wife's situation.

I appreciate folks's time in reading this text and helping out. Thanks!
1) You may wish to incorporate to save on Medicare taxes. Decide how much of her income you can justify as dividend vs salary. (I would suggest her salary be at least what she was making last year.) If 2.9% of that is enough tax savings to bother with that, then sure, do it. I didn't incorporate after making partner, but am very seriously considering doing it in the next couple of months for this reason. No other significant benefit that I can see for me.

2) You can certainly do your own taxes. I do. If you're worried, pay someone to look over them this year. If they don't find much, forget it. Keep in mind that things don't change that much year to year.

3) You don't have to incorporate to deduct legitimate business expenses. Commuting isn't deductible, but travel from one work site to another is. CME is of course deductible.

4) Why bother with the Fidelity 1.5% Visa when the Fidelity 2% AmEx is available?

5) Don't miss your quarterly estimated payments, but learn the safe harbor rules. You can significantly under pay/withhold this year and pay the rest in April without any penalty. Even if you get a penalty, it isn't a big one (3% per year of the amount you should have paid.)

6) I don't have ST disability. I have a 6 month emergency fund instead.

7) I think 110K tax-free to age 65 is about the equivalent of 250K taxable minus sufficient savings to pay for pre-age 65 retirement. I've already got enough in retirement to retire at 65. I insure about a third of my gross income, and that's already twice what we need to live. You might want a little more LT disability, but certainly don't need twice as much.

8) RE life insurance- what's your financial plan if she dies? Do you want some more money if she dies? If so, buy life insurance on her. If not, don't. It's that simple. I still have a couple million on me, but none on my non-working wife. Will it cost me something if she dies? Of course. Can I afford it? Absolutely.

9) An umbrella policy and a malpractice policy should be considered mandatory. Don't expect the umbrella to pick up anything work related and don't expect malpractice to pick up anything business related except malpractice, but read the policy to be sure. There may be a need for separate business insurance, but the partnership probably already has it.

You may find this post useful:

http://whitecoatinvestor.com/making-partner/

and this one:

http://whitecoatinvestor.com/becoming-a ... omplexity/
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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