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    Do you own an S corp? Why I made the switch

     

    There are two factors to consider when defining your salary. First, you could obviously avoid paying payroll taxes completely by simply taking no wages and taking everything out as a distribution. But the IRS states that you have to pay yourself a reasonable wage. So what is a reasonable wage?

    According to the Medscape annual compensation report, the median salary for a physician is $294K and assuming that you practice in Colorado (like me), you can discount this 10%, as my region tends to pay less (the average doctor here makes approximately $265K; turns out other people than me like the mountains so we pay a price in salary to live here). The second consideration, though, is retirement. If your company offers a profit-sharing plan, you probably want to maximize that contribution, which means your salary needs to be at least $271K.

    With that in mind, let’s do an example. According to Beckers, the median compensation for a urologist is $441K and of that $441K in compensation, you make $271K in wages (that allows you to maximize your profit-sharing plan contribution while paying yourself a “reasonable” wage). This means that you have $170K ($441-$271) in distributions on which you save 3.8%, giving you a “profit” of $6,460 ($4,860 after paying the yearly expenses of running the company).

    Read: Men’s health: A forgotten topic

    Let’s be honest though, you’re not going to retire on $5K. But in my world, (remember I’m a cheap man), $5K is worth the hassle, especially when combined with the defensive advantages discussed earlier. For some, the hassle may not be worth it. Another way to look at the math is that if you’re not making around $312K, you likely aren’t making enough to pay for the administrative costs of an S corp with the 3.8% payroll tax savings. You still get the defensive benefits of the structure, but there won’t be a bonus check at the end of the year.

    Next: The downsides

    Henry Rosevear, MD
    Dr. Rosevear, a member of the Urology Times Clinical Practice Board, is in private practice at Pikes Peak Urology, Colorado Springs, CO.

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