I routinely hear stories of new Doctors of Chiropractic struggling to earn $60,000 per year. Maybe you went to a chiro school, and they sold you on the dream of making six figures all while helping patients overcome pain and improve their lives. This is an unfortunate reality of chiropractic debt.
The truth is that the six-figure lifestyle touted by so many schools is not accurate for most graduates who go into chiropractic practice with huge student debt. The median chiropractor earns an estimated wage of $68,640, according to the Bureau of Labor Statistics.
We’re in the business of making custom student loan plans for chiropractors so they don’t have to be stressed out about their financial future. Along the way, I’ve realized that owning your own practice is the best way to financial security as a DC. Ownership also is the best option for paying back chiropractic debt, just not in the way that you might think.
Owners have far more opportunities to save money paying off chiropractic student loans compared to associates. We’ll show you a few examples of why you should be thinking about how to start or purchase your own chiropractic practice with huge student debt over six figures.
What is the Range of Incomes for Chiropractors?
That median salary for chiropractors does not tell the full story when it comes to the cost vs. reward of chiropractor school. The range of compensation for doctors is incredibly wide. The bottom 10% might barely crack $34,000, while the top 90% earn around $144,000.
That number includes all chiropractors, from those who have been in the profession for 20 years and own their own office to brand new graduates working as associates.
Notice that the top 10% of the profession is still not wealthy. $144,730 is no joke, but it’s also not an extravagant six-figure lifestyle.
Our sample size is biased in that we mostly deal with DCs with large student loan debt balances. That said, I would say the average income for young chiropractors that we come across is about $50,000 to $60,000.
We have seen some associates struggling to get full-time hours making $40,000, and we’ve seen a handful of owners making around $80,000 per year. I might have come across one chiropractor making six figures who graduated with a large student debt load in the past couple years.
One recurring theme: the top-earning chiropractors are owners. Since the revenue of a chiropractic practice is usually not close to the seven-figure level, there is not a ton of money left over to pay an associate.
If you want to earn a good living from your DC degree, you want to run your own chiropractic practice.
How a Chiropractic Practice Grows Your Wealth
You generally want to minimize your taxable income so you can pay less in taxes. As a W-2 employee, you have very little control over what shows up on your tax return. If you made $60,000, the main way you can reduce that is by saving for retirement.
However, even then you might not have access to the best retirement plan, the 401k. You could be relegated to setting up your own Traditional IRA, with a limit of $5,500 in annual contributions. A 401k can reduce your taxable income by up to $18,500. However, your employer must offer it in order for you to participate in one.
As an owner of a chiropractic practice, you can reinvest some of the revenue of your business into its growth. Marketing, advertising, and other legitimate business expenses could grow your patient base as well as your recurring long-term revenue.
However, if your chiropractic practice grows, you do not have to pay tax on that growth until you sell it many years down the line. Even then, the tax would be at lower capital gains rates instead of higher ordinary income tax rates.
Owning a business can come with more uncertainty and headaches. However, in reality, you’re exposed to someone else’s business risk as an employee whether you like it or not. You might as well put your economic stability in your own hands instead of someone else’s.
After a decade or more of work, you would be able to sell your chiropractic practice for a multiple of your earnings. This is an asset that you would not have if you worked for years as an associate. You’ll do the work, and you might as well be rewarded for it through higher net worth.
Buying the Real Estate Where Your Practice is Located as a Chiropractor
Not all doctors own the real estate where their practice is located. That said, let’s assume you do, and you purchase a $200,000 building to operate your practice in.
The IRS allows you to depreciate the value of your commercial real estate with a 39-year useful life. That means you would be able to reduce your taxable income by $5,128 per year if you own your real estate.
Assuming a 30-year fixed rate mortgage at 5%, you’d be able to deduct another $9,933 of interest from your taxable income with a $200,000 mortgage.
Your monthly payment for the building would be $1,073. You would be able to deduct other expenses as well such as property taxes, commercial insurance, and utilities.
Over time, the real estate value would likely appreciate, so you would benefit from that as well. You would also save your business rental expense.
Setting Up Their Own 401k Plan as an Owner of a Chiropractic Practice with Huge Student Debt
Don’t forget that owners can choose what retirement plan they want for their business. That means you could choose a 401k with low-cost index funds and put $18,500 in this plan plus an employer match, which would reduce your taxes further.
Saving for retirement is an important step that many chiropractors overlook. You’ll want to save as much as you can for your future because of the demanding, physical nature of the job.
Why Becoming a Chiropractic Practice Owner is Important if You Owe a Lot of Student Debt
To illustrate the idea of why you want to own instead of associate if you have chiropractic student debt, let’s look at an example. Assume Jerry earns $60,000 per year as an associate and really enjoys the work. His employer offers no retirement plan, so he maxes out his Traditional IRA at $5,500 per year. Hence, his taxable income is $54,500.
Amy has her own chiropractic practice, and she earns about $90,000 after paying her staff. Amy set up her own 401k for the practice, and she makes an employer contribution of $3,600 (4% of pay) plus the employee contribution of $18,500 for a total of $22,100.
She also deducts the interest, property taxes, utilities, maintenance, insurance, and depreciation on her building. That yields another deduction of approximately $20,000.
Her net income is thus $47,900. Let’s examine how Jerry and Amy would pay down their $250,000 of student debt from chiropractic school. Assume a 5% 10-year fixed rate for refinancing just to have something to compare the Pay As You Earn program (PAYE) to.
Amy was able to shield more of her income from taxes compared to Jerry even though she made about 50% more money. That means she was able to pay less on her PAYE program towards her student loans over 20 years.
Her slightly higher tax bomb was easily offset by her lower payments since her taxable income was less.
Huge Difference in Net Worth for Owners of Chiropractic Practices Versus Associates
At the end of their careers, Jerry might have an IRA in the low six figures. Amy the owner might have a 401k in the low seven figures.
Jerry would have no practice equity to speak of. Amy would have a chiropractic practice that could be sold to another practitioner for a low to mid-six-figure sum. She might also own the real estate and could profit handsomely off the sale of the building as well.
In short, Amy the chiropractor who owns her own practice could have a net worth as high as $2 to $3 million with only modest assumptions. Jerry the associate chiropractor would have to have a 70% savings rate and even then, it would still not be enough most likely.
To top it off, Amy the owner paid less on her student loans because she lowered her Adjusted Gross Income (AGI). This number is what the government uses to calculate your student loan payment. The lower your AGI, the lower your payment and the higher your potential for federal loan forgiveness for chiropractors.
Get the Confidence You Need to Run Your Own Practice as a Chiropractor
You might need to use a Small Business Administration (SBA) loan to finance your practice if you cannot secure conventional funding from a bank. That’s ok, but it means you might need to place as much as 10% down on the loan.
Eliminate your credit card debt, get $20,000 cash in the bank, don’t take on a huge car loan, and wait to buy a buy house, and you might be able to be your own boss much sooner than you think.
A cautionary tale: I have heard of stories from more than one chiropractor of older doctors who have tried to overstate earnings or misstate key business information in order to try to wrangle a higher price from buyers. Make sure you have a CPA or other experienced professional on your team to make sure you are paying for a legitimate business with real earnings.
It’s bad enough that your chiropractic school sold you on the dream of making a huge six-figure income without much effort. Don’t make things worse by refusing to take the entrepreneurial risk of running your own chiropractic practice with huge student debt. The good news is that you can still secure a wonderful financial future for your family even though you have six figures of student debt.
You just need to grow your wealth by becoming a practice owner long term. If you want a custom plan for your chiropractic student debt, we can help with that.
Take the risk and be your own boss. Your bank account will thank you later.
Do you have experience as a private practice owner? Do you agree or disagree with the points I made above? Let us know in the comments section and share your experience!