With more and more CRNAs shifting to 1099, it’s time to start thinking about how to best position yourself from a tax standpoint as your finances change. Today, Jeremy Stanley, CFP® will share nine tax strategies that most S corporations can utilize each year to maximize their earnings and minimize what they owe.
Check out the timestamps below to help you navigate through the many topics we discussed.
On This Episode:
Right now we’re seeing an enormous rise in CRNAs taking 1099 positions and with that move comes a conversation about taxes and what type of entity you’ll be.
There are different options when doing this but, overwhelmingly, CRNAs are choosing to have their entities taxed as an S corporation. In order to truly take advantage of this structure, you need to make a certain amount and that’s something we can run the numbers on and help you determine. But since this is becoming the common path for many people, let’s talk about some strategies you can apply.
The first strategy comes with the salary you’ll be paying yourself. Remember, any time you have an S corporation, the IRS requires you to run a salary. Just like you get a paycheck from the hospital if you’re a W2 employee, you have to do the same thing through your S corporation.
This is the first place you can save a little money on taxes because you can pay yourself a smaller salary to reduce the payroll taxes you’ll be responsible for and then take the rest of your money out as distributions, which aren’t subject to self-employment taxes. Now, your salary needs to be reasonable, but you could be able to save the thousands in taxes that we often see CRNAs overpaying.
The second strategy relates to the healthcare premiums you’re paying. When the S corporation establishes a health insurance plan for the owner, those premiums are then included on the owner’s W2 and are taxable wages. As long as the owner qualifies for the self-insured health insurance deduction, which they should, they are able to deduct that premium back. With the cost of insurance today, that can be a significant amount of money.
The third strategy is to include your children in the business. The S corporation can employ the child so you might be better off paying them rather than yourself since they can earn up to $12,950 in 2022 and not have to pay any federal income taxes. Keep in mind that the downside to this is you’ll be responsible for self-employment taxes on that money but you should still come out ahead by employing your children.
Our fourth strategy is reimbursement of home office expenses. This only applies if you use a home office for your S corporation but it provides a deduction for the corporation and tax-free income for the owner. It gets deducted as office expenses on the company return so make sure you’re documenting it.
The fifth strategy on our list is one that you’ve probably never thought about. You can actually rent your home to your S corporation. There has to be a viable reason for doing this but the S corporation can rent your entire home for 14 days or fewer throughout the year and that could provide a huge benefit for you. Doing this would allow the corporation to deduct the rent and the owner can realize this income completely free from income tax.
The sixth strategy involves reimbursing you for depreciating expenses. The S corporation can reimburse the owner for business use of a vehicle and home office. That’s another tax deduction for the corporation and tax-free income for the owner.
The seventh strategy is related to this as well. If you’re using the home as your principal place of work (your office), then you no longer have a commute for work. That means any travel you do for administering anesthesia at the hospital becomes deductible mileage.
Strategy number eight is a big one. When the S corporation owner incurs travel expenses in connection with work and their business, you can be reimbursed. The key is that you have to seek that reimbursement from the corporation by submitting an expense report. That’s where people often go wrong so it’s important to remember these details.
The final strategy we’ll share today is taking advantage of cell phone expenses. If an S corporation provides an employee with a smartphone primarily for business reasons, it becomes excludable from income. That means your company can buy you a cell phone and pay for your service and it’s deductible to the corporation.
There are other tax strategies we use with our CRNA clients every year. If you’d like to learn more, set up a meeting with us and we’ll assess your situation and develop a financial plan tailored to your needs. As you can see from this list, many tax opportunities exist if you know about them and understand all the details involved, and that’s where your financial advisor can provide tremendous value for you and your family.
If you want to learn more about tax strategies, connect with Jeremy at CRNA Financial Planning.
Check it out at the top of the page and use the timestamps to help you navigate through the many topics we discussed.
2:36 – Background on our topic
3:40 – Reasons for not being S corporation
5:40 – Strategy #1: Taking money out as distributions
7:49 – Strategy #2: Deduct health insurance premiums.
9:22 – Strategy #3: Employee your children
12:40 – Strategy #4: Reimbursement of home office expenses
13:36 – Strategy #5: Rent your home to your S corp
15:41 – Strategy #6: Reimburse you for depreciating expenses
17:13 – Strategy #7: Vehicle deductions
20:57 – Strategy #8: Reimbursement of travel expenses
23:49 – Strategy #9: Cell phone expenses
26:23 – Final thoughts
“The PLLC or the entity that you set up really doesn’t save taxes. The thing that could save you some in taxes would be the S corporation and that’s why people do it.”-Jeremy Stanley, CFP®