Form a Business Corporation (Examples: S-Corporation, C-Corp. or LLC) †

• Profits/losses are reported on the owners' personal tax returns and any tax due is paid by the owners at the individual tax level not the corporate

  • On average, 1099 providers with a properly formed and organized business corporation pays only 15% in taxes versus 28% as a W2‡

• To help protect you and your assets from a malpractice lawsuit (since everything will be in your business’s name and not your name)

 

Set-up a Payroll Service (Examples: ADP, Intuit, Gusto, OnPay, SurePayroll)†

• A payroll service links the Business Corporation and Personal Bank Account

• It “pays” you as a W2 from the Business Bank Account to the Personal Bank Account

• Costs as little as $10/ month for basic to $100/month (average is $50/month) depending on services included

• Calculates and deduct Federal and State Income Tax, Medicare and Social Security

• Manages other deductions form you paycheck such as retirement plans, college savings plans, etc.

 

Set-up a Business and Personal Bank Account†

Business Bank Account (under business name)

• All earned 1099 income will be deposited into the Business Bank Account

• All Necessary Business Expenses can be paid from this account including but not limited to:

  • Payroll Service and Retirement fees

  • Malpractice, Business, Car, Life, Health, and Disability Insurance

  • Gas, food, and car payment

  • Remember to save all receipts for 5 years

Personal Bank Account (under your name)

• The Personal Bank Account is where the Payroll Service will deposit the “W2 earnings” from the Business Bank Account  

• The money in your Personal Bank Account can be used for Discretionary Expenses

 

Purchase Malpractice and Business Insurance

• To cover you, your practice, and your business

 

Flow of Money

• Deposit 1099 money into the Business Bank Account

• Payroll service calculates and deducts taxes, Medicare, social security, retirement savings, etc

• Payroll services then withdrawals the calculated W2 payroll amount from the Business Banking Account and deposits it into the Personal Bank Account

 

Single Tax Filing Example‡

• Average 1099 earnings $210,000

  • $210,000 will be deposited into Business Bank Account

• To stay in the 25% Tax Bracket: Pay yourself < $91,900

• $210,000 (Business Account) – $91,000 (Personal Account) = $119,000 remains in Business Bank Account

• $119,000 would remain in Business Bank Account

  • This money can be used for any “Necessary Business Expenses”

    • Insurances (Malpractice, Life, Disability, Business, Health, etc.)

    • Car Payment, Phone, Internet, Payroll Services

    • Business related bills and expenses

      • Purchasing new computer, phone, car, etc.

    • Retirement and College Savings, etc.

• $91,000 deposited into Personal Bank Account via Payroll Services

  • This money can be used for Personal (“Discretionary”) Expenses

    • Dining-out, Entertainment, etc.

  • This money can also be used for Business (“Necessary”) Expenses

 

*To ensure the lowest tax responsibility possible for your individual financial situation and the lowest professional and personal liability, before practicing and earning income consult your financial and/or tax advisor to form a Business Corporation, set up Business and Personal Bank Accounts and Payroll Service, and Purchase Business and Malpractice Insurance

 

†Consult your financial and/or tax advisor for assistance with forming a Business Corporation, set up Business and Personal Bank Accounts and Payroll Service.

 

‡Used for example purposes only