On Gross and Net and Other Difficult Concepts

In which I –to quote the Princess Bride, again — “explain, and use small words”.

Why bother?

Well, as we're gearing up for POCA Tech, I find that I have a lot of motivation around preventing people from going to acupuncture schools — including ours — for the wrong reasons. We're going to be working up a series of videos about what it's really like to be a punk. But I'm also going to ask any prospective POCA Tech students to also watch these videos that are about our relationship with OCOM, in order to make sure we don't recreate any part of it with a new generation.

Author: lisafer

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  1. The OCOM representatives referred to the difference between gross income and net income a “data granularity”. Then admitted the reported income figures in the Alumni Surveys conducted in 2007 and 2010 are gross incomes. So it’s easy to cut the gross income figures in half to estimate what a graduate might be taking home for actual money to live on. The 2007 survey show $61,613 average gross income reported by respondents. The 2010 survey shows $82,291 average gross income reported. Since actual jobs for acu grads are dismal, their own surveys show the average grad takes home around $40,000 year. The article also does not detail any demographic data of the survey respondents such as gender, years in practice, or how many respondents work for OCOM itself. The demographic trends relating to female students and grad at OCOM have no direct relationship to the descriptors provided in the article or the data displayed in Table 1 . In fact, Table 2, shows what most people already know about the make up of the student body at OCOM…it is more heavily weighted by females. There is no direct correlation between the 2 tables of data.

    Here is a link to the article if you still haven’t read it yourself https://mettaconsulting.files.wordpress.com/2012/11/aav61fall2012_article-reprint-1.pdf

    The deletion of gross income vs net income is clearly a granularity alright. One that is blatantly misleading to prospective students who are faced with the decision to take out upwards of $100,000 in student loans to cover tuition, books, and living expenses to aquire this degree. Without $100,000 sitting in a bank account before starting a program such as the one offered by OCOM, prospective students have little chance to find funding for this program by any other means.

    Based on OCOM’s own data from the two Alumni Surveys conducted in 2007 and 2010, it is ill advised to take out any more than $40,000 in student loans for the entire program. This leaves very few people who can actually afford to become acupuncturists without taking on too great of a financial risk.

  2. To report income figures without deducting overhead costs is as useless as trying to carry-out a population census by just counting births and not subtracting deaths. Whenever I see this happen in studies like this, it tells me the people who did the study have never actually ran a practice themselves. And this study was published in a “peer reviewed” journal – those peers obviously also never having run their own practices.

    There is a real problem with these terms though. It is confusing to survey takers to ask them about “gross” and “net” incomes since the vast majority of people associate those terms with “before tax” and after “tax income” income. What we need to know is the “gross income” of those rare salaried employees and then the “including overhead” and “minus overhead” income of everyone else. I am working with the NCCAOM on their next Job Task Analysis and I am trying my best to get the right language in that survey so that it makes sense to survey takers. If anyone has suggestions of how to tease out those specifics while keeping the language simple enough to not confuse survey takers, please let me know.

  3. We don’t need to know the gross income of the rare salaried employees because they are rare. For example, I am an employee who makes $32,500 annually. But obviously, I have have taxes withheld so my actual take home pay is less than this but you don’t need to know my tax withholding status to get the full picture.

    Have a question that asks if some is self-employed (files a schedule C) or an employee (W2). If self-employeed, then you can ask what their gross income is and what their net take home pay is. Because even a clinic owner who has set themselves up on payroll is an ’employee’ and should answer that way giving an acurate answer to the question. Even if their clinic grosses $200,000, they will still be paid the same amount if they hold an ’employee’ status getting a regular paycheck. There will be markers in the survey to check for validity (I’m sure, right?) so if someone answers this question incorrectly, you know it should not be included in the data set.

  4. Oh Lord, Matt, are you telling me that for acupuncturists, gross and net really ARE difficult concepts? Now I’m depressed.

    I understand what you’re saying, though, and unfortunately, it reinforces my sense that most people are not really practicing. Because if, as Shauna said, most people are *not* salaried employees, they are most likely self employed somehow. Which means they should be filling out schedule C every year. (Could you just identify the appropriate line on schedule C and ask them about that?) If they’re not filling out schedule C, they are REALLY not working. Or they are evading their taxes. Neither bodes well for the acupuncture profession.

  5. Hey, I wonder if you could add a question: did you fill out Schedule C(Self Employment Tax) for the income you are describing here? If not, did you receive a W-2 (employed as an acupuncturist)?

    For that matter, if we could ask that about every acupuncturist who claims to be “practicing” — did you fill out a Schedule C or receive a W-2 for your acupuncture income — we would know if they were really working. Because if you didn’t have to fill out a schedule C, you’re not.

  6. Sorry Shauna but it is still not that straight forward. I wish it was. You are right that we don’t want to know the after tax income because that will depend on the individual’s tax rate and we don’t care about tax rates. What we want to know is their taxable income and that is referred to as “gross” income. When you get a paycheck, it will state your gross income and then after taxes are deducted, your “net” income. This is what most people equate with the terms “gross income” and “net income” – their before tax “gross” and after tax “net”. We don’t want to know their net. For people who are not self-employed it is easy to just ask for the gross income but not so easy to get at what we want to know for those who are self-employed.

    Most people who run their own practices do not set themselves up as an “employee”. They operate as a “sole proprietor”. In that arrangement, your taxable income is whatever income you have left after you pay all your business expenses. That is your “gross, taxable income” and that is not the same as the gross income of your business. What we really want to know then, is the “gross, taxable income” or just “taxable income” for everyone. I worry, however, that some of those who are self-employed may not understand the term “gross, taxable income” or “taxable income” and will confuse it with their “gross, business income” a.k.a., their before overhead is subtracted income.

    Lisa did a great service with her video that used “small words” because many in this field are not savvy at all about business principals and terms. I sure wasn’t. The challenge is finding accurate simple terms in a survey that distinguishes taxable income between those who are self-employed and those who are not. Just using the terms “gross” and “net” does not accomplish this. Matt Bauer

  7. These videos are awesome and I am always impressed with the articulate nature of the “profession” critiques that come from POCA.

    I wonder if something like asking about “take home pay after overhead & expenses are calculated” might help make things clearer for people answering a survey.

  8. It would be best if we could just ask about total taxable income but, again, I am not sure how many would understand just what that means. It actually gets much more complicated than my last posting and the idea of trying to first separate the self-employed from the employees because many have more than one source of acu-income that can combine employment and self-employment. How many part-time employed punks also see their own patients to supplement their incomes? Or those employed by AOM schools that have part-time practices? I am not saying getting that info can’t be done – we must find a way to do it. It would be much easier to do in a survey that is strictly about measuring income because then you could take the time to break thing down and explain the terminology. It is a shame that this has never been done – as the OCOM journal article points out –(although they did not identify this as a shameful failing of the AOM profession). I don’t think the schedule C angle will work either because people may only know that detail if they do their own taxes.

    But there are some additional concrete things that can be done about the issue of schools giving accurate information to prospective students. On the Council of Colleges of Acupuncture and Oriental Medicine’s (CCAOM) website FAQ section, they use a 2008 publication of the “Chronicle Guidance Brief” (more on this organization in a minute) to state the following about the question “ How much can I expect to earn?”

    “There are approximately 20,000-25,000 AOM licensees throughout the United States. A recent estimate, which is based on job postings, reports an annual income range between $30,000-$60,000 and notes that gross annual income can be as much as $105,000. Chronicle Guidance Brief 249 (2008) [Acupucturists]. Variables affecting income may include the nature of the acupuncturist’s practice, geographic location, and personal factors such as the ability of the practitioner to relate well to patients, professional demeanor, and marketing savvy.”

    OK – so this is misleading on several levels but especially because it does not “granulate” if these figures might actually be the gross, before overhead deductions of clinics or the gross taxable income of employees. The Chronicle Guidance Publications people ask for feedback to make corrections of the information they give in their briefs. So two possible action items would be to contact these publishers and let them know their figures are very misleading because they are most likely before overhead deduction figures AND there should also be a campaign to get the CCAOM to stop using such misleading figures and to pressure AOM schools to also only use factual information. I don’t know if the CCAOM has a code of ethics for its member schools (it should) but POCA has the potential to put pressure on the CCAOM by shining a light on the information they put on their website and calling for them to only post accurate, verifiable figures. If those figures don’t exist, they need to be forthcoming about it. They should also be the ones to fund an honest, independent study to find-out those income figures.

  9. Oh – I forgot to say that I would be happy to work with anyone from POCA on this. Anytime I suggest POCA do something- just assume I would be willing to work on it too. Matt

  10. In the spirit of using small words, how about a set of simple questions when asking about total taxable income: 1) Did you file a tax return last year? 2) Yes? Great! Was it a 1040? 3) Yes? Super- that’s what most people file. Okay, now go get your 1040 from last year; we’ll wait. 3) Got your 1040? Okay, what does it say on line 7? That will list any income you earned as someone else’s employee. Did you get a w-2 from a non-acupuncture job? If so, subtract that amount from what’s on line 7. 4) Don’t put that 1040 away yet! What does it say on line 12? That’s your self-employment and/or independent contractor income after subtracting your schedule C expenses. 5) Take your answers to #3 and #4, add ’em together, and voila! That’s the taxable income you earned as an acupuncturist.

    Ridiculous? Maybe. And there would have to be additional questions for someone married filing jointly to separate out the spouse’s income. But that’s one way to calculate taxable income.

  11. Hi Matt –

    Yes, I have read this Chronicle article. It is a poor piece of work for ‘acupuncturists’ and since the BLS doesn’t recognized us as a stand alone profession it is very misleading as well. It does not even give 1 credible resource for any facts and figures described in the document https://www.pihma.edu/pdfs/CGP249_Acupuncturists.pdf

    So if what you’re thinking is true, that many acupuncturists don’t know the difference between gross income, gross taxable income and net income, we have bigger problems in the profession than we ever expected. Additionally, not knowing what your schedule C states or what your 1040 states when tax time rolls is absolutely no excuse. You sign it whether or not you prepare your own taxes. If someones is a small business owner, it is ultimately their responsibility to report accurate information to the IRS.

  12. Alexa – Thanks for your suggestions and I think something like that could work in the right type of format but what I am trying to contribute to is the NCCAOM’s JTA analysis and that is a long survey whose main goal is to understand what skills practitioners are practicing .

    Shauna – It seems the Chronicle thing was written even before the last NCCAOM JTA was published showing lower figures than they used but, again, the gross vs. gross taxable, vs. net income was not teased-out so the true gross taxable income must have been lower than those figures. I hope POCA will consider contacting that organization ( I plan to do so myself but I am just an individual) and let them know that those figures are misleading and are being used in a misleading manner. There should also be an effort to formally approach the CCAOM to get them to address the information they use on their website about income figures and to find-out if that organization has any policy about its member schools use of such figures for prospective students and to push for a policy of ethical disclosure. I will be doing this myself but again – I am just one individual.

    People should know the difference between gross income, gross taxable income, and net income if those terms are explained. So as for finding simple language that allows us to compare apples to apples – I am thinking something like asking for – gross, taxable income (if self-employed this figure is after subtracting all overhead expenses but before paying income taxes).

  13. I would also like to know how many of the total licensees out there are currently practicing whether it be as an employee, an independent contractor, or somehow self-employed. My graduating class from Tri-State College of Acupuncture in NYC had about 46 graduates. That’s just one of several schools in the city and I know they are in bed with OCOM. So, what percentage of graduates are able to find work in the profession? You can have a number of graduates making $100,000 a year (gross), but if that number is say only like 20% of the grads with licenses in the profession then you shouldn’t only report that acupuncturists are making $100,000 a year because that is also misleading. If 80% of the graduates of acupuncture schools give up or decide that life is too short to keep banging their head against a wall and pursue another source of income then I think we should have that information as well to give a more realistic sense of reasonable employment expectations after having attained the degree and the license. Does that make sense? I have looked over numerous salary websites and see such a large variation in income of acupuncturists and it never tells you what percentage of graduates go on to be successful in the profession. I’ve seen salary ranges of $25,000-$100,000 but it doesn’t detail whether it is part time or full time income.

  14. These last two videos are great. I just have a suggestion. And it is free. So you get what you pay for. TED talks are 18 minutes for a reason. I can’t remember the reason, but I remember it was a good one. I would suggest future video’s be kept closer to 18 minutes.

    Keep up the good work,


  15. Lisa,

    I second the comment that the videos could be shortened a tad. The contents are awesome. Loved the sub- (super?) titles on the second video, which really emphasized the points you were making.

    Cheers, -A77