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best option? W2 vs. 1099

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  • Avatar YSH 
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    Status: Physician
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    For two highly compensated individuals who file jointly on their tax return, what is the most financially advantageous work status arrangement to maximize allocation/ retirement planning?  This is assuming everything being equal.  Does it actually matter?

    1. W-2 x 2

    2. 1099 x 2

    3. W2 + 1099

    Thoughts?  What would you and your partner hypothetically choose if given the circumstances?

     

    #26199 Reply
    jfoxcpacfp jfoxcpacfp 
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    Depends what you mean by “everything being equal”. Are you saying that the W2 job would have the same profit sharing and defined contribution plan that the IC would have? If so, and if you are choosing whether to be W2 or 1099 for a solo practice (no employees except spouse), it really doesn’t matter.

    At that point, we move to other considerations, such as the cost and time of compliance work. 1099 wins out.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #26208 Reply
    LBKCLU LBKCLU 
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    Agreed. Even if you are earning more on a W2, the odds are very good that you are keeping more as an independent contractor. You also have the ability to create your own benefits and take expenses normally not available to employees paid on a W2.

    Lawrence B. Keller CFP®, CLU®, ChFC®, RHU®, LUTCF
    http://www.physicianfinancialservices.com I (800) 481-6447

    #26209 Reply
    Avatar YSH 
    Participant
    Status: Physician
    Posts: 108
    Joined: 01/11/2016

    Thanks Johanna and Larry for your feedback.

    I mean to suggest that employee benefits offered to both partners are equal if both were W2s, like 401K + employer match, HDHP/HSA, FSA, life/disability insurance, etc.

     

    Also clarifying that if W2, would be for big corporation (not S corp like structure). But if 1099, would be one man show.

    My gut calculation says 1099, but I can’t seem to “show my work”.

     

     

     

     

     

    #26212 Reply
    LBKCLU LBKCLU 
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    I’ve attached a link where you will find  a PDF of tax guide written for Locum Tenens physicians. This is applicable for independent contractors. You should find it to be helpful.

    Of course, you need to take into consideration what you can earn on a 1099 and what your expenses will be compared to simply receiving a W2.

     

     

     

     

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    Lawrence B. Keller CFP®, CLU®, ChFC®, RHU®, LUTCF
    http://www.physicianfinancialservices.com I (800) 481-6447

    #26214 Reply
    jfoxcpacfp jfoxcpacfp 
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    Thanks Johanna and Larry for your feedback.

    I mean to suggest that employee benefits offered to both partners are equal if both were W2s, like 401K + employer match, HDHP/HSA, FSA, life/disability insurance, etc.

     

    Also clarifying that if W2, would be for big corporation (not S corp like structure). But if 1099, would be one man show.

    My gut calculation says 1099, but I can’t seem to “show my work”.

    Click to expand…

    Your gut is correct. As a W2 employee for a large corp, you will be limited to deducting business expenses that are only in excess of 2% of your AGI – a very difficult threshold for a HIP to achieve. As an employee for your own corp, you would be able to set up an “accountable plan” and reimburse yourself for those expenses, thus writing them off through the business.

    otoh, as an employee for a large corp, it is more likely that these expenses would be paid by the corp as an employee benefit. With your own corp, you get to choose your own benefits (i.e. – more reimbursement for CE/travel, etc.)

    As for disability, you are better off not having that as an employee benefit in more cases because benefits from self-paid disability policies are non-taxable. Benefits provided by your employer are taxable b/c they are almost always a non-taxed benefit.

    Too many considerations for a one-size-fits-all answer to your question, but hope this helps.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #26220 Reply
    jfoxcpacfp jfoxcpacfp 
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    I’ve attached a link where you will find  a PDF of tax guide written for Locum Tenens physicians. This is applicable for independent contractors. You should find it to be helpful.

    Of course, you need to take into consideration what you can earn on a 1099 and what your expenses will be compared to simply receiving a W2.

    Click to expand…

    Hi, Larry, Just to clarify, does Mr. Schwartz have any kind of business affiliation with you?

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #26224 Reply
    LBKCLU LBKCLU 
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    No. I have no financial arrangement with him. However, we have written articles together in the past. For educational purposes, the guide is helpful and would allow YSH to be in a better position to understand the differences between someone paid on a W2 or a 1099.

     

    Lawrence B. Keller CFP®, CLU®, ChFC®, RHU®, LUTCF
    http://www.physicianfinancialservices.com I (800) 481-6447

    #26225 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7960
    Joined: 01/09/2016

    Thanks, Larry – appreciate that. His guide has a lot of solid advice.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #26227 Reply
    Avatar YSH 
    Participant
    Status: Physician
    Posts: 108
    Joined: 01/11/2016

    Thank you so very much to both of you for your insights and advice.

    Larry, the article was extremely helpful and has given my partner and me much to digest.  Thank you!

    We will have some number crunching to do on our own and narrow down on a next decade game plan………..

     

    Thanks again!

     

    #26232 Reply

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