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Malpractice Tail Insurance

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  • Avatar marathonmd 
    Participant
    Status: Physician
    Posts: 11
    Joined: 07/10/2018

    I am leaving my employer soon and he is not covering the tail. Is there a way for me to decrease a hit on my finances? The lowest quote is around 15k (gen Peds) . Can my employer pay for it and then deduct it from my salary pre-tax?

    #244279 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6177
    Joined: 01/12/2016

    Seems not bad at all, mine was 70k.

    #244332 Reply
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 936
    Joined: 02/06/2016

    In answer to your question, yes, malpractice expenses including a tail can be paid by an employer if the employer is willing to pay. And yes, this is clearly a valid deductible business expense.  If you were to offer to reduce your pay by the amount of the malpractice tail, and if your employer is willing and nimble enough to do this for you, then it will save you a lot on taxes.  Another option is to negotiate this with your new employer, assuming you are transitioning to a new job.  They can also pay it to make it deductible.

    Are you taking a new job?  What are the details of the old job and the new job? W2? 1099? New solo practice?  Those details matter as far as the potential options for how to set this up to pay the tail with pre-tax dollars.

    We recently had a doc join our group in a high risk specialty.  The director of practice management made arrangements to pay the new docs large tail with pre-tax dollars.  The new doc funded it by accepting reduced income.

    #244404 Reply
    Liked by Zaphod, jfoxcpacfp
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8113
    Joined: 01/09/2016

    In answer to your question, yes, malpractice expenses including a tail can be paid by an employer if the employer is willing to pay. And yes, this is clearly a valid deductible business expense.  If you were to offer to reduce your pay by the amount of the malpractice tail, and if your employer is willing and nimble enough to do this for you, then it will save you a lot on taxes.  Another option is to negotiate this with your new employer, assuming you are transitioning to a new job.  They can also pay it to make it deductible.

    Are you taking a new job?  What are the details of the old job and the new job? W2? 1099? New solo practice?  Those details matter as far as the potential options for how to set this up to pay the tail with pre-tax dollars.

    We recently had a doc join our group in a high risk specialty.  The director of practice management made arrangements to pay the new docs large tail with pre-tax dollars.  The new doc funded it by accepting reduced income.

    Click to expand…

    Spot on advice, same as I give to clients. If you are getting a signing bonus at your new job, ask them to include payment of tail in lieu of $15k of bonus, win win for both parties. Can be more difficult to get an employer you are leaving to work with you in that way but, often, the prospective employer will if they understand that there is no cost to them (actually, if the bonus is paid via W2, it will save them $$).

    Of course, if you are leaving to do IC work, it is fully deductible as a business expenses on schedule C.

    Realize neither of these options save you from paying tail (that’s something you should have already negotiated with new employer – definitely a point of negotiation when taking a new job – but they will significantly reduce your OOP costs.

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

    #244409 Reply

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