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“You can get past the dead end. You can break through the ceiling. I did and so have countless others.”

Tax Time!

For most Americans, December means Christmas shopping, gifting, Santa Claus, Christmas lights, gingerbread houses, and the new year. For the business owner though, December also means having all your books finished and money accounted for. Tax season is upon us and while the average American is looking forward to getting back the money they loaned the federal government over the year (which is stupid by the way), most nurse practitioners and business owners dread the possible check we have to write to the IRS. Even if you are a nurse practitioner student or an aspiring nurse practitioner entrepreneur, the following article should motivate you to start your own side business.

When you are a 1099 contractor paying your LLC or own a business, you are taxed on your profit. If you have an LLC, then all the profits are passed onto your personal tax return. You pay the taxes on the profit and this money moves from pre-tax business dollars to after-tax personal dollars. If you have a C corporation on the other hand, your profits are taxed at 20% and remain in your business account. If you want to use the profits for personal use however, you have to withdraw them from the business and you are then taxed on that income again. This is why having a standard LLC, or an LLC that elects as a S corporation, is ideal. You pay taxes on the profit only once.

Regardless, the reality is that you have to pay taxes on the profits. Therefore, at the end of the year if your business is showing a profit of $40,000 (for example) and you have not paid taxes on it throughout the year, you are going to be writing a nasty check to the IRS. For the astute business owner though, you have two options at the end of the year in regards to your profits:

  1. Withdraw the money, pay the income taxes, and enjoy the large bonus you just paid yourself.
  2. Spend the money and reinvest it back into your business, open another business, or go on one hell of a business trip.

In my opinion, I would rather invest the money back into my business than pay income taxes on it (only if you do not need the money personally). You need to do everything in your power to grow your business with the profits before the end of the year. This is what drives capitalism and growth. So, if you decide to spend the money before the year is over, what can you do with all those juicy profits?

  1. Reinvest the profits back into your existing business: This is wise if you have a growing practice and want to expand and grow the business. Here are some examples of what you can do.
    • Pay your lease for the next year. Yes, I do this often times at the end of the year. I will write a check to the landlord for the entire year’s lease. You know how nice it is to not worry about your businesses rent for an entire year? Plus, it’s done with pre-tax dollars!
    • Stock up on supplies for the next year. I always stock up my clinics for the next year in December. I just purchased 6 months of syringes, needles, alcohol swabs, bacteriostatic water, testosterone, etc. for my men’s health clinic.
    • Do an end of the year advertising blitz. Why not grow your business with all those profits before the end of year? Purchase 6 months of a billboard. Purchase radio time for an advertisement. Unload advertising dollars on social media. The options are endless.
    • Pay off any form of debts you have such as credit cards, business loans, car loans, etc.
  2. Start another business with the profits. I will usually start another business around August or September because this is a good time to gauge how your business is doing financially and will provide you ample time to use the money on getting the new business up and running.
  3. Buy a business vehicle. Yes, that is correct. If you follow the Elite Nurse Practitioner Model, you should be living off your part time jobs salary. Therefore, at the end of the year you could potentially have $40,000+ in your business account. Go buy a new truck, cash! You are going to need a business vehicle so you can go to conferences, drive in between your businesses, etc.
  4. Put money into your self-directed 401k or IRA. As a self-employed nurse practitioner entrepreneur, you should have a self-directed retirement account. You can put a maximum of $56,000 into these accounts tax free! Imagine doing that every year for 10 years. You would have close to a million dollars with the compounding interest and investment returns.
  5. Pay your children $12,000. You can pay each child up to $12,000 a year tax free. They just need to have a function in your business. Your baby would look good on your business card, right?
  6. Pay for an extravagant CME vacation for the following year. As long as the money is spent in the current tax year, you can pay for a vacation next June, for example. I have already booked a trip to Costa Rica in May of next year. I need CME credits to keep my licensure, right? So do you!

Decreasing your legal tax obligations is one of the biggest perks of owning your own business. You can literally save thousands of dollars a year in taxes by operating your own business vs working as an employee. Every business owner in this country takes advantage of these perks. You would be a fool not to.

It is even more important to use your business profits before the end of the year. As soon as January 1st comes around, every dollar in your business account will now be considered personal income. The only exception to this is putting a delayed contribution into your self-directed retirement account.

Lesson of the article is this: you need to always be looking at your profits and how this will affect your tax obligation at the end of the year. I begin thinking about this as early as April. You need to have a plan on what you are doing with your profits all year long. Make sure you are taking advantage of every single legal tax deduction you can with your business. If you are paying yourself out of the business or making significant profits, ensure you are paying taxes quarterly to decrease your tax bill at the end of the year.

Also, if your accountant is not saving you money, fire them and hire an aggressive one! You would be amazed at how bad and uninformed some accountants are. As always with tax specific advice, ask your accountant first before implementing such strategies.

5 thoughts on “Tax Time!

  1. Wowzers! What a truck load of information! Thank you so much.
    I will start an LLC in 2020 because of you.
    Quick question(s): I don’t plan on starting a business yet as I still need to save up for it but in the meantime, I plan on asking my jobs to switch me from w2 to 1099 & to pay my LLC instead. So say I make 150k from these jobs, what exactly will be considered ‘profit’ in this instance as it isn’t exactly my own business?
    Do you advice we get a w2 job in addition to the 1099 or strictly 1099? I’m getting health insurance through one and will lose that if I switched to 1099. How do you sign up for a self directed 401k or IRA, and which do you prefer out of the 2?
    This one is really random, where/how does one find a good accountant? lol

    1. 1. Everything will be profit. That is why you need to have business expenses through the LLC, that is the advantage. Therefore every expense you have through the LLC will subtract off the profit (salary), therefore minimizing your tax obligations. You need a company vehicle to travel in between jobs right? The vehicle expenses should be ran through your LLC. Title your vehicle in the LLCs name. That kind of stuff.
      2. A W2 job to pay for benefits is not a bad idea if you have a family. But you can find decent self employed insurance plans that often times be cheaper considering it will be paid with pre-tax dollars.
      3. Just sign up for a self directed 401k with companies like Vanguard. 401k is better because you can put $55000 into it vs $5000 with IRA
      4. Interview accountants. Find an aggressive one.

      1. Thank you! So I guess paying myself through the LLC will also be considered an ‘expense’ right? If yes, do you pay yourself the average NP salary in your area or lower? Do you have a post on self employed insurance plans? Would love to learn more because I tried signing up for one through Obamacare & the rates were pretty high which was why I figured I may as well get the little $250 health insurance stipend my employer was offering. Before I forget, Happy new year!!! Finding this blog definitely felt like a little xmas present.

        1. Yes, that is an expense. You can pay yourself through the LLC, but ensure you have some sort of legitimate business function through the LLC outside of the 1099. No post on self employed insurance plans, I would just call various insurance companies and get quotes. Stick with a high deductible plan and then max out your HSA with those pretax dollars.

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