1099 (Independent Contractor) vs W2 (Employee)

1. 1099 (Independent Contractor)vsW2 (Employee) What you need to know (This is a big deal)

2. Taxes These next slides are the most important thing for you to understand if you are an independent contractor. They can RUIN your life’s work if you get this wrong. Please pay attention

3. FICAFederal Insurance Contributions Act FICA tax is typically 7.65% of earnings up to $127,200 (2017 figure). Employees pay 6.2% of their earnings for Social Security retirement benefits and their employer pays 6.2% for a total of 12.4% of a worker's income. An additional 1.45% tax is also collected to fund Medicare benefits and this, too, is matched by employers.

4. Taxes • 1099 (15.3%) • You pay ALL OF FICA • You pay quarterly taxes • Penalty if you get it wrong • You can deduct employee portion (get an accountant) W2 (7.65%) • Employer pays ½ of your FICA • Monthly withholding • Square up end of year Just FICA $300,000 x 7.65% = $22,950

5. Retirement • Defer as much PRE-TAX INCOME AS POSSIBLE • No taxes now (grows tax free), but taxes when you take it out • $300,000 – no deferment • Taxes are $114,000 • Taxes with 401k Max ($55,000) • Taxes are $92,340 • Immediate $21,660 More Money • (20% Immediate ROI)

6. Retirement W2 • Usually 401k • Employee contribution $18,500 • May have a match up to 6% • May have pension (rare)

7. Retirement 1099 • SEP-IRA • 25% of your net (~18.6%) • Max $55,000 • Very Easy to setup • If you have normal 401k (not solo) and SEP-IRA Solo 401k • Max $53,000 • Can add more after age 60 • Employee contribution(18k) can be converted to ROTH • Can borrow from Just Get a Financial Planner if 1099

8. Roth IRA • Max contribution $5,500 • Must “Backdoor” if income is over $189,000 • Grows tax-free and comes out tax free • Never have to withdrawal (70.5 years for IRA/401k) • I believe you and significant other should all have one now

9. W2 Employee Benefits • Health/Vision/Dental • Disability • NEVER BUY SHORT-TERM • MAKE SURE PORTABLE • Life Insurance • Paid Vacation? • 401k match • CME Allowance • Student loan forgiveness? • Sign on bonus?

10. Health Insurance • Cheapest for 35 year old • $200/month • Catastrophic plan • Most expensive • $700/month • I would recommend if you are healthy, get a high deductible, HSA eligible plan • Allows another $3,350 ($6,750 for family) of deductible expense

11. Family Insurance • Costs way more • A friend of mine pays $1750 per month premium with co-pays for a completely healthy family • Do you all know with what a premium, deductible and co-pay mean?

12. Disability • Short-term • Don’t buy it • Add up all your expenses for the year and put 6 months in money market account • CapitalOne 360 = 1.85% APR

13. Long Term Disability • MCES • $5,000 group • I don’t have that when I leave the group • Personal • $9,000 per month ($435) • Completely Portable – stays with me wherever I go • Plan on spending +/- $1000 per month on disability

14. Life insurance • Whether 1099 or W2 only get term life insurance • “GET IT NOW” Amy Lee, MD • $2 million/20 year term = $600/year • Put it in irrevocable trust before signing up

15. 1099 Advantages • More deductions (need to maximize these) • Need to be diligent in record keeping • Get credit cards in business name = more free points • Hourly rate is more likely to be negotiable

16. Deductions • Home office • % off space used (e.g. 10%) • % of utilities • Phone • % of calls – need detailed records • Unreimbursed Travel • 54.5 cents per mile • Parking • Flights • 50% of business meals (not lunch)

17. More deductions • Licensing, CME, dues • Postage • Equipment • Shoes, scrubs, stethoscopes, pens • Computer (must be for business use or %) • Printer, toner, paper

18. Flexibility of Schedule • Usually very flexible

19. Hourly rate • Negotiable • Going rate in Michigan ~ $200 per hour • Range $180-$300 per hour • For example • 2 years ago I was on vacation and they wanted me to work a shift and it was my only day off • Normally $180 per hour, I asked for $300 and they said no. • 2 days later, they still needed help and offered my $300, I said no and said my rate now is $400 • I was paid $4800 for a single 12 hour shift

20. Hybrid • I get W2 benefits through MCES • I take advantage of 1099 benefits as well • I get a SEP-IRA as well • Employee Max 401 k ($53,000) • Roth IRA ($11,000) • SEP-IRA (~$20,000 in 2017, much less in 2018) • 2017 My wife and I saved around $84,000 PRETAX

21. Should I do a 1099 or W2 • Find the job and lifestyle you want • If you are disciplined and take the time to shop around for insurance, etc…. Oftentimes 1099 you will come out ahead • You all should have accountant • If 1099 only, get a financial planner

22. My investing philosophy • Buy a house • You are literally throwing money away • If you want to talk about it more, let me know. • Very easy to do with $0 and closing costs • Defer as much tax free income as you can • THIS IS FREE MONEY • Keep 3 to 6 months cash on hand • Pay down your debt early – high interest > low interest • My personal opinion varies from the “smart thing to do’ … I want to be debt free • Then open brokerage account

23. FINALE • No right or wrong answer • Find what works for you • Your job, income and investments should be aligned with your long term goals • If you are blessed enough to have a life partner and/or family to share this with – make sure that you are on same page • Never, ever outlive your means – then you work to pay bills, not show up to your calling