Ask An Accountant: How Personal Finance Relates To Your Private Practice

Join accounting expert, Edie Gardner, for this one hour webinar to find out how you can balance your personal and professional budget as a private practice owner.
SimplePractice’s fully integrated EHR system allows you to run your private practice with ease! What once seemed like barriers to a simple private practice are now easily managed with the all-in-one HIPAA compliant software for therapists across the health and wellness industry. With features like online billing, a client portal app, telehealth, and more we are your partner in private practice.
Follow us on social media for more great tips!
Website (30-day free trial): www.simplepractice.com
Facebook: / simplepractice
Instagram: / simplepractice
Twitter: / simplepractice
LinkedIn: / simplepractice
Pinterest: / simplepracticehr

[@user-iw8so5hu8q]

do you have a sample/template spreadsheet to download? Would be helpful rather than trying to recreate based on what is on the screen.

[@LimaFoxtrot]

There were some interesting takes in this presentation an it might have been more beneficial to quickly break down the various business entity types before launching into some pros/cons. One of the biggest pitfalls I've seen here in California are clinicians starting practices under legal entities that aren't allowed -- like an LLC. In California, you must be either a sole prop or a professional corporation, there is no LLC option, yet I see numerous practices setup as LLC's. You'd never want to be a C-Corp in most of these situations so you elect for S-Corp.
There were two points made by Edie that I completely disagree with:
At 28:32, Edie says "Becoming an S-Corp has the potential to save you PAYROLL taxes (not income taxes). But, do you want to be paying less into retirement, and are you aware of the downsides of mismanaging your S-Corp? You must be paying yourself a REASONABLE salary."
Yes, that's true. If you're earning more than $40-50k/yr, it will help you save on self-employment taxes. The argument that paying less in salary means you contribute less to retirement is ludicrous. You're talking about paying less into your FICA: Medicare and Social Security. You consider Social Security a real retirement? With that money you're saving in taxes, you should be setting up actual retirement accounts (401k, Roth, etc) in your plan for retirement -- not paying more in taxes so you have social security.
Here's a simple exercise. Let's say your estimated net income for the practice is $100,000. In an LLC/Sole Prop you'd pay about $14,581 in self-employment taxes because you're hit with 15.3% on all $100k. However, if you were an S-Corp, you could pay yourself a salary of $60,000 and receive a dividend on $40,000. In this case, you only have to pay FICA on the $60k salary (not the entire $100k) which comes out to approximately $9,180. That means, you're saving $5,401 in self-employment tax. Just to be clear, in both situations, you'll have to pay ordinary income tax on the $100k -- you're just not having to pay the ridiculous 15.3% SE Tax on the whole thing.
Yes, there are other things to consider with the S-Corp, like having to run payroll and it is good advice to utilize a CPA for your taxes. This is why most strategists will use the $40-$50k benchmark for when it becomes cost-advantageous to bring on those extra costs and transition to the S-Corp.
At 36:17, Edie says that she wants to encourage us to not have business credit cards and that not having one "sets you up for success."
This is terrible advice even in your personal finances. The only exception would be for someone who just can't be trusted with a credit card -- then ya, stay away from credit. However, for most responsible adults, you should be placing your entire life on a credit card (especially a business card with rewards) and then paying it off every month.
I feel like this is definitely old-school advice that is no longer solid. Credit cards provide a safety net for your cash. If your checking account or debit card becomes compromised, then someone can draw down all of your cash, leaving you broke until the bank decides to finally reverse it back to you. Good luck if you're underfunded during this time and your house payment auto withdraws. With a credit card, however, your cash is safe and while the fraud is being disputed, it really has zero effect on your day-to-day life.
People really need to move away from using cash directly from their bank cards -- both in their personal life and business.