Episode Transcript
[00:00:01] Speaker A: You're listening to the Doc Lounge podcast. This is a place for candid conversations with the healthcare industry's top physicians, executives, and thought leaders.
This podcast is made possible by Pacific companies, your trusted advisor and physician recruitment.
[00:00:19] Speaker B: Welcome to the Doc Lounge, the podcast where we dive deep into the world of healthcare with industry experts and thought leaders. I'm your host, Stacey Doyle, and today we have a special guest joining us, Alexis Galotti, the founder and lead tax strategist at Cerebral Tax Advisors Cerebral Wealth Academy and the author of the book Advanced Tax Planning for medical professionals. With over 20 years of experience in high level strategic tax planning and multistate tax preparation, Alexis has trained at the highest level, holding two master's degrees.
She was raised with a family of physicians, and she's currently married to one and emphasizes all the financial challenges that she knows that medical professionals face from a day to day standpoint. So her personal connection has really inspired her to create accessible and unbiased tax solutions tailored to these healthcare professionals busy lives. So we're really excited to have her on today. She's going to share some insights on unlocking substantial tax savings with retirement tax planning for all the providers that are juggling both locum tenants and full time, and some really kind of some expert insights on creating a lucrative locum tenants business. So without further ado, I want to go ahead and welcome you, Alexis, to the doc lounge. Thank you so much for joining us today.
[00:01:40] Speaker C: Thank you so much for having me, Stacey. I'm excited to be here.
[00:01:43] Speaker B: We're excited to have you on. I know a lot of our listeners, obviously, we just kind of got through tax season. Some probably filed for an extension. I'm sure you were quite busy, but share with us a little bit about your journey and what inspired you to get into tax planning for medical professionals.
[00:02:03] Speaker C: Yeah, definitely. I mean, as you mentioned, I grew up in a physician household. My dad's a neurologist, private practice neurologist, and he's now all retired, but yeah, and then I married a physician as well. We actually met a couple of weeks into college. And so, you know, he and I went through that journey together of undergrad, med school, residency, and he's a neurosurgeon. And so that was a very, very long residency.
But in between all that, we got married and have four children. But, you know, when he was about 18 months out from his residence, from finishing his residency at that time, I was just working for local and regional CPA firms, and I really saw the writing on the wall. We were going to be hitting such a dramatic, different tax bracket than what we were currently at.
I was like, okay, well, why are the Bill Gates and the Warren Buffetts of the world getting this 15% tax bracket or even less? What are their secrets? Like, the code's out there for everybody, so why not my husband and I? And that's what really inspired me to go out on my own, start looking at the actual tax planning and looking at those strategies that could help reduce our own tax liability. And then very organically, you know, we've. The cerebral just grew into a practice that catered to healthcare professionals. Just, I think just those. The crowds we rolled with.
And so, you know, now my husband is just a private practice neurosurgeon, and I've worked with so many docs that, you know, you know, have w two, but then they'll also have a little bit of 1099 income, or maybe they're just a full time locum tenens, and, you know, being able to help create a structure for them, because I know a lot of physicians, when they start thinking about finances, it goes over their head or they get stressed out about it. And that's how I feel about medicine.
I'm not a science person.
I need it dumbed down like I'm a 15 year old.
But that's really how I wanted it to be for my clients and then anybody I worked with, for physicians, just to be able to learn, hey, here are those options for you in terms of tax reduction strategies or just even how to set up your business properly and try to just make it a less stressful process.
[00:05:11] Speaker B: I love that. I love. Because obviously, it's like, you have the expertise in the financial and the planning and then your husband's science. So it's really, you got to lean into these professionals and experts, and that's why I am so excited for you to help with some of the. Just, what are some of the misconceptions that you normally, you know, address with a lot of your, you know, physician clients?
So, misconceptions is there, you know, is there kind of, you know, overall advice that you would give to, let's first start with, you know, anybody that is, you know, a private practice or, you know, kind of a full time physician, and then maybe we'll go into locums because let's separate those out a bit.
[00:06:00] Speaker C: Got it. Got it.
Yeah. So when you're strictly w two, the tax code is not necessarily your friend, or the number of strategies that are available are a lot less.
You can be obviously, maxing out any retirement that your employer provides. If you have a high deductible plan, you can do a health savings account. And basically, if you're depending upon the accountable plan or the way that your employer reimburses you for maybe business expenses that you incur, like license fees or membership dues, things like that, then you might be able to get reimbursed by your employer for those items. Usually big hospital systems don't provide those sort of benefits, but that's a really great way for you to kind of help lower your liability. But otherwise, then you're looking more into just investment type strategies, you know, like real estate or oil and gas, you know, things that you put money into that then provide a tax benefit.
Otherwise you need to then look into more sort of 1099 work where you are an independent contractor. Maybe you're doing like consulting or, you know, expert witness, locum tenens, things like that. And then the book really opens up in terms of the number of strategies you can do.
[00:07:34] Speaker B: Okay, that is, that's great advice. And then in terms of private practice, I'm assuming there's some things there from a real estate standpoint that you may recommend. Tell us your thoughts on that.
[00:07:49] Speaker C: Yes. So for real estate, if you own your own private practice, then there's the opportunity for you to purchase the real estate, the building that you're in, essentially. And the most common strategy around that, when you purchase your own building, then you're able to shift income from your practice and thus being taxed at, you know, depending upon what type of entity is. But let's say it's an s corporation, for example. Well, normally that income is passed down, any profit is passed to you and then taxed at your ordinary income tax rate. And so by having own your own building, you're able to shift the income from your higher tax bracket that's coming from your practice over to the entity that owns your building.
And then you can use the bonus depreciation, just even normal depreciation, the cost of owning that building to help offset that income. And so in theory, you'd want your rental income in your rent, in your real estate, LLC, to be offset by all of those expenses. And so essentially you're then able to save additional tax, and I have to pay tax on that income.
[00:09:20] Speaker B: Love that. Okay, that is a really big insight, and I hope anybody that's listening that is in private practice kind of heard that. That's amazing.
So let's get into, obviously at Pacific companies, we have locum tenens, and it's such a, it's a really, it's a growing field and the demand is just, you know, increasing with this type of work because of a lot of the physician shortages that are out there. And we know that this provides a lot of flexibility, you know, for those that maybe want to do it, you know, really as their main source of income or like you were saying, as an additional income stream. So tell us a little bit about this. You know, is there an advantage, you know, if you're going to do locums, how do you want to set yourself up for success?
[00:10:11] Speaker C: Yeah, so a little bit depends, like you said, whether or not you're going to still hold a w two job and you're doing maybe like a couple weekends a month or something like that and versus if you're fully 1099. So let's go and say you do have that w two and you're doing a little bit of 1099 work on the side, then that's almost kind of, that can be a best of both worlds sort of scenario. And that's because your w two employer is providing you some benefits. You know, maybe they're doing some sort of retirement match and then they're also doing preparing for your health insurance because that's usually a really big cost and they might even be covering malpractice as well.
And so by then having that little bit of 1099 income, you can do a whole bunch of other strategies and, or let's say you're full time 1099 again. So what you're then looking at is being able to have control of your money, as I like to put it. You're able to then move as many personal expenses to being legal business deductions to the business. So examples might be like office in the home for mileage, the ever popular TikTok advice of the Augusta rule, that 14 day rental rule, things like that, or even just, yeah, like, guess what? Now you can write off your extra cme that your w two employer isn't paying for. You can. Or the, or your membership dues, your licenses. You have to go out and buy, you know, loops, for example, that small equipment. So all of those things now are tax deductions. You're having to pay for them anyway. And now you're at least getting a benefit through your business as well as you can set up your own retirement. And this can be a huge advantage when it comes to tax savings and building that, that wealth. You know, try always trying to work towards that financial independence so you can set up like a 401k. You can even look at defined benefit plans. And then what you're able to do, too, is potentially hire. If you have children of the appropriate age, you can hire your children. You can even hire your spouse. And, you know, let's say your spouse that's not working, but they can maybe do some bookkeeping in your business or some sort of work in that, and then they can be on your retirement plan as well. And you can write off their expense, some of their expenses, too. So, like I said, it really opens up the book for everybody to really take advantage of moving as many personal expenses to being legitimate business deductions as possible, and again, being able to create that wealth.
[00:13:12] Speaker B: Love all those tips. And I feel like that is really strategic advice. We hear a lot of times people say, okay, should I do an LLC or should I do an S Corp corp? Tell us, what are the differences?
[00:13:26] Speaker C: Yeah, yeah. No, this is probably the number one thing. I should be an LLC. Like, okay, well, why? So the LLC is a actually a state formed entity, and the LLC can actually be taxed as a sole proprietorship, a partnership, an S corporation, or a C corporation.
The LLC itself is actually not a tax classification.
It's just your entity structure.
And for a lot of physicians, even they have to be PLLC's in many states, which is a professional limited liability company, and that's because you hold a license. And so a lot of times, I should say, too, actually, in some states, even they don't even recognize LLCs or PLLC's. California is one of those core states where if you are a physician and you want to do locum work there, you have to form a professional corporation. So pc, in order to do what you, in order to, if you want to have an ND, you can always stay in a sole proprietorship. But if you do create that LLC or PLLC and you don't say like, hey, I want to be taxed as an S corporation or a C corporation, then you do have to, then you're just sorry you're taxed as a sole proprietorship.
[00:14:54] Speaker B: Got it. Got it. So is LLC better than just being taxed personally, do you believe if you're a 1099 or. It really depends on certain things.
[00:15:06] Speaker C: Yeah. So it depends on certain things and what state you're in as well. So with an LLC, that's really about liability protection and, but, so, but as physicians, if you are negligent and you accidentally kill somebody, you know, then you're still going to be liable for, for your actions.
But where it is helpful is if you you know, are in, like, again, this all depends on the state, but let's say, for example, you're in a car accident while you're driving to the hospital. Then the person that might sue you for that accident, it would be more difficult for them to pierce your personal assets.
[00:15:56] Speaker B: Got it. Got it. Okay. So, yeah, it really depends on the state and kind of the situation around that.
[00:16:02] Speaker C: Yeah, there's no real. There's no tax advantage to being an LLC versus a sole proprietorship. It's more about the liability protection.
[00:16:12] Speaker B: Got it. Okay, that's really helpful. Now, for those that are doing locums, how should they really go about preparing themselves? Because obviously nothing is being held from a tax standpoint. Nothing's being withheld. How do you kind of advise your clients to work with that and structure their finances?
[00:16:35] Speaker C: Yes. This can be one area that people don't realize that, guess what? Now you're not w two, those wages are not being taken out on your behalf, and the IR's wants their money when you earn it, basically.
So they say, okay, you know, when you're w two, that's taken out on your behalf through your paycheck, but when you're 1099, you need to pay at least 110% or of your prior year tax or 90% of your current year tax in order to stay safe from underpayment penalties. So when you're looking at your tax situation. Okay, how much should I pay? The easiest thing to do, if you earn over $150,000 in a year, then you need to pay 110% of the prior year tax. That will keep you safe. But if you had a great year the prior year, and you're not going to be earning as much in, let's say, like, so. Like, in 2023, you had a stellar year, so you paid a bunch of tax, but then in 2024, maybe you're not gonna be doing as much. Then you might wanna do 90% of your current year tax. So then that way you're not overpaying the IR's. But, yeah, it's really important to make sure that you are following those payment schedules. So first is April 15, then it's June 15, September 15, and then January 15 is that fourth quarter payment for the current year.
[00:18:12] Speaker B: And it sounds like if you don't, there's going to be penalties involved, correct?
[00:18:17] Speaker C: Correct. Underpayment penalties, correct? Yep. So there might be an instance where you know you are safe from underpayment penalties because you've paid either that 110% of the prior year tax or 90% of the current year tax, but you still may owe something on your tax return. So it's not necessarily going to cover your complete liability, but it is going to keep you safe from those underpayment penalties.
[00:18:40] Speaker B: Got it. Okay. Great advice that will, I'm sure, help a lot of, a lot of our listeners. One of the things, too, I know, and you probably experienced this with your providers that are doing Locum's work is sometimes they're working in multiple states. So how does, you know, does that, I'm assuming that impacts their tax filing requirements. Is there any steps that they can take to kind of minimize the implications of working in different states?
[00:19:09] Speaker C: Yes. So it's important to remember that where you earn your income is where that money is taxed. So if you have someone that is a Florida residential and Florida doesn't have any state income tax, but you fly to New York and you do locum work in New York, then you're going to owe tax to New York state.
So, and, but let's say you work in, let's say Indiana, then in that Indiana does have a state income tax and then you, so you, sorry, let's say you live in Indiana and then you work in New York. Then the tax you pay, you're going to pay tax in Indiana on that income that you've earned in New York, but you'll get a state tax credit for the taxes you paid in New York. So you're not going to be paid twice on it. But you know, and, but you will need to pay like any, any difference if you're resident. State tax is higher than where you worked.
And it's also important to realize, too, if you do, let's say, set up an LLC in your home state of Florida and you go work in New York, you then have to foreign register or foreign qualify that state or, sorry, your LLC in that state basically for the privilege of doing business in that state.
[00:20:41] Speaker B: Got it. Okay. Okay. So that you do need to be mindful of that and kind of watch it. This, to me, this sounds like where working with somebody like yourself could really be advantageous because it can start to be a little bit, it could get a little bit unwieldy. It sounds like if you're doing multiple, multiple states, definitely.
[00:21:03] Speaker C: Yes. And that's one thing we always tell our clients who are working in multiple states. Hey, as soon as you have that contract signed, make sure that you let us know. So then we can foreign qualify your business in that state and we can make any adjustments to payroll as well, got it.
[00:21:24] Speaker B: Love that. Okay. That will help, I'm sure, help a lot of people that are just getting into locums and trying to maybe go to different locations and enjoy the perks of travel and being able to explore new cities and things like that.
So are there any just overall, I would say, growth strategies that you help with your clients from a tax perspective that you want to share with our audience today?
We'd love any insights there?
[00:21:55] Speaker C: Yeah, definitely. So a lot of what we do when someone comes to us, let's just say, hey, I want to start doing locum tenants work. I'm in the process of getting credentialed, all of those things. Then we really take our clients from a to z in the process of setting up their business, educating them on what they need to be doing and how they should be doing it. You know, cerebral is a white glove handholding type of service. And so we want to make sure things are implemented properly and then, you know, reported properly on the tax return.
So, yeah, that's where we start, is talking to our clients and saying, hey, okay, where are you going to be working? How much are you going to be making?
We go through a series of questions just to determine first. Okay, what entity should you be? That's really kind of that first important step is trying to determine, you know, how you should be taxed for the most tax benefit. And then we look at that reasonable compensation. And a lot of people are like, oh, how much should I be paying myself? And it really depends on your specialty, where you're going to be working, how much you're going to be working, and the different types of jobs that you have in your business. Because when you're doing your own 1099 work, you have your own business. Yes, you're doing your work as a physician, but you're doing a whole lot of other jobs in your business. Your bookkeeper, you're your travel agent, you're your admin, et cetera. And all those different jobs have different pay rates. And so we have to determine what your reasonable compensation is based on everything you do in your business, not just your primary role.
And then we start to look at different deductions and credits. And so this is always fun to go through with clients. Okay, let's comb through your personal expenses. What, you know, we need to change your mindset. Okay. Oh, I just went to staples. That. Can this be office supplies? Well, yeah, I just bought printer paper and I use it within my printer. Okay, great. Get that mileage. Going to Staples is a business deduction your purchase is a business deduction, your mileage back to your home as a business owner. So we really go through trying to change your frame the way that you think now that you're a business owner.
And we'll talk about things like the home office, how to properly set that up and make sure that the IR's is going to be happy having all the documentation in place as well.
So then you're able to, if the IR's were to challenge anything, you know, you're in good shape, basically.
I love, one of my favorite strategies is hiring your kids. I mean, why else have children unless you're, you're gonna put them to work?
And it's the new modern age, it's not getting them to work on the farm, it's getting them to work in the business.
[00:25:06] Speaker B: Right?
[00:25:07] Speaker C: Yeah. So, you know, when you have a children, if the court tested age is seven years old. So my children, my youngest is six and my oldest is twelve at this time. And so I have, three of them are working for me and they have some administrative roles in my business and they're able to earn enough to put that money into their own Roth Ira. And so what that's doing is moving that income from your higher tax bracket down to their zero tax bracket. So it's a really great way to create deductions for your business while, you know, helping to save for their retirement or their education, etcetera.
[00:25:48] Speaker B: That's so smart. Oh, my gosh, I love that.
[00:25:51] Speaker C: Yeah. I mean, put those kids to work great.
And then, yeah, my other really favorite strategy, just really around retirement, you know, a lot of people concentrate and they say, well, I really want to make sure that, you know, my kids have what they need to pay for school, etcetera. And that's very noble and I understand why people want to do that, especially physicians. Like, they're like, hey, I don't want my kids being saddled with any sort of student loan debt, etcetera. I totally get it. But it's always important to remember that you really need to prioritize your retirement first before you, you know, work on the kids. And that's just because you can't take loans out for retirement. You can take loans out for school, which you don't want to, but, you know, you also don't know if your kids going to be a star athlete or get some sort of academic scholarships, where then, you know, you may put that money into like a 529, which do have 529 plans, which are, you know, educational plans that some states do provide a tax benefit, which is nice, but you're going to get a bigger bang for your buck putting money into retirement because you're taking it out of the IR's pocket, putting it into your retirement, letting it grow tax free for hopefully as young as possible. So then that way you can really take advantage of compounding income or earnings and then you're getting a tax deduction out of it as well that you can then use to help pay off your student loans or go invest in real estate or just put it aside to even grow more. So then you're funding some of these other investments with pre tax dollars as to post tax dollars.
[00:27:48] Speaker B: Really? Yeah, that's really smart. And I think it's, when you were talking through that, one thing came to my mind. Are there any, are there any tax like benefits if you do still have student loans from when you went through all your medical schooling? Like is there anything strategic around that or is it, you know, it's just, it is what it is. You got those loans, you got it.
[00:28:17] Speaker C: Yes. Unfortunately, you know, when you get over a certain dollar amount, you're not allowed to deduct the student loan interest anymore, which most stocks tend to reach over that amount.
And then when you have your own business, you're like, okay, great, like I'll write off my student, you know, I'll do like a student loan interest repayment or you know, I'll have a tuition reimbursement program.
Unfortunately, if you're the owner of that business, if you own over 5% of that business, then you are not eligible for those sort of benefits.
[00:28:54] Speaker B: Got it? Okay, okay, okay. This is good enough talking to an expert like you, Alexis, we get all the scoop.
Well, I've learned so much and I'm sure most of our listeners have as well. So we're really, really grateful that you came on today. Tell us one thing, if people are thinking of starting to work with advisor, hopefully you and your team at cerebral, you guys sound amazing. When is the right time to do it? Like is there a certain time of year or does it matter? Like how does, how should they think about that really?
[00:29:32] Speaker C: The earlier in the year the better. And that's mainly because there are some strategies that you would need to implement as soon as possible. So let's say you are just a sole proprietorship and you know, it's determined, like, hey, you really should be an S corporation. Well, if you aren't already set up as an LLC, then you're not able the any income that you've earned up until that LLC is created will have to be reported on your schedule c on your as a sole proprietorship.
And then anything after that point would then be on your s corporation. So if you're trying to take advantage of, you know, federal tax savings by being an S corporation, then you want to start that process as early as possible.
[00:30:23] Speaker B: Got it. Okay. That's helpful information. How can our listeners and viewers get a hold of you, Alexis, and your team, if they want to have you help them strategically, obviously optimize all of their income?
[00:30:37] Speaker C: Yeah, definitely. So, yeah. Visiting our website, cerebraltaxadvisors.com dot. We've also created a page specific for Doc lounge, and it's a cerebraltaxadvisors.com doclounge. And on there, there's some free resources for, you know, especially for those that are locum tenens. There's some physician expense worksheets, and that will help them with expensing, seeing some specific physician related expenses, etcetera. You'll also have our website is on there as well. And learning more information about cerebral wealth Academy, which is specifically designed for physicians with side gigs or doing locum tenens. And this is a course I created to take you from a to z. This is the same sort of advice that I provide to my clients. And there are templates in there and other resources that allow you to, you know, hopefully do it yourself as much as possible. But if not, then, you know, we're cerebral tax advisors. If you want that handholding done for you type of service, then that's where you would wander over to the tax advisor side.
[00:31:55] Speaker B: Oh, perfect. So there's really two avenues here. One is, yeah, if they want to more self serve and educate themselves with the wealth academy, and then if not, like you're saying, if they want the consultative approach, I love that. Well, we will share that link with and embed that with everybody so that they can go to that and get access to that information. And that worksheet sounds amazing. So thank you. Thank you for building that out. We're excited to share that. Thank you so much, Alexis, for your time. It was such a pleasure to have you on today.
[00:32:28] Speaker C: Thank you so much, Stacey. I had a great time.
[00:32:31] Speaker A: Thank you to all of our listeners. If you would like to be notified when new episodes air, make sure to hit that subscribe button and a big thank you to Pacific companies. Without you guys, this podcast would not be possible. If you would like to be a guest, please go to www.pacificcompanies.com.
[00:32:48] Speaker B: Thank you.
