To incorporate or not?

[Eyefixer]

Hello everyone,

I am not sure if this is the right question for this forum, but what do you all thing about creating a corporation for graduating resident going into private practice (self-employment)? What are the advantages of this? How much does it cost? Are there any tax benefits?

Thanks all!

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[IceMan0824]

Hello everyone,

I am not sure if this is the right question for this forum, but what do you all thing about creating a corporation for graduating resident going into private practice (self-employment)? What are the advantages of this? How much does it cost? Are there any tax benefits?

Thanks all!

Rather than list all the pro/cons of forming a c-corp (or a s-corp) versus a LLC, LLP, LP or similar entities, why don't you just answer a few questions and I can try to tell you what entity is best for you and why?

1. Do you have any partners?
2. How much liability are you willing to be exposed to?
3. Will you need financing, loans, e.t.c?
4. Do you plan on bringing partners in the future, or do you plan on sharing ownership?
5. Do you want control of the entity, or do you just want to make money from the entity?

I'm sure there are many more questions out there, but this is just the one that I can quickly think of.

 

[mshheaddoc]

By the way incorporating only decreases liability for employees/situations that you are not directly responsible for.

Something I found

The use of a corporation or LLC will not generally protect a professional from liabilty resulting from his or her own professional errors, omissions and acts of professional negligence, or from such acts of other persons (employees) under his or her direct supervision.

Forming a corporation or LLC may protect you from contractual liabilities, such as your lease, the utilities, etc., if the entity is the party named in the contract. Smart landlords and other creditors will insist on your personal guarantee even if you operate as a corporation or LLC.

One of the best reasons to form a corporation or LLC is to protect owners from errors made by employees or other professionals in the same practice. If Joe down the hall commits malpractice, and you have not been involved in the client's matter, you will not be liable. This does not hold true if you practice as a general partnership. Rule of thumb: If you practice with someone else, form a corporation or LLC (or in some states, a limited liabilty partnership [LLP]).

If you practice by yourself, it is very easy to set-up a single member LLC (available in most states). This doesn't reduce your liability for tortious acts, but it helps you separate your personal business from your professional business. You might be able to get your lease, utilities, etc. only in the name of the entity. Tax preparation still requires a Schedule C. You can, if desired, obtain a separate tax identfication number.

 

[Eyefixer]

OK, easy enough:

1. Do you have any partners? Not for the first 5 years

2. How much liability are you willing to be exposed to? I think I am able to tolerate a fair amount of liability (no kids, etc.)

3. Will you need financing, loans, e.t.c? I will likely require only minimal loans.

4. Do you plan on bringing partners in the future, or do you plan on sharing ownership? Yes, in 5 years.

5. Do you want control of the entity, or do you just want to make money from the entity? 'd like a full control.

Another question I have is: if a single physician in solo practice is incorporated, what tax advantages one can expect, if any? What are some other perks of being incorporated?

 

[f_w]

Another question I have is: if a single physician in solo practice is incorporated, what tax advantages one can expect, if any? What are some other perks of being incorporated?

To my understanding, the only 'tax advantage' of incorporation is that you have some control over how much self-employment tax you are paying. All the other things you can deduct as a sole proprietor as well.

One thing to look into are the retirement options available to you under the various scenarios. If you have a predictable income, it can be very attractive to set up your own retirement plan allowing you to sock away large amounts of pre-tax money. If you are not incorporated, your options are more limited such as SEP-IRAs and SIMPLE IRAs.

The moment you have staff and some sort of physical plant, most people tend to incorporate (so that person that slips and falls in your office parking lot is not a threat to your personal wealth and remains an isssue between your business insurance corp. and the slipandfall crook).

 

[Eyefixer]

Great advice, thanks everyone.

One more question. My tax guy says he can create a corporation for me; would you trust an accountant to do that or do I need a lawer?

Also, which type of corporation would you recommend for a solo practice, type S or LLC?

Thanks again!!!

 

[f_w]

Also, which type of corporation would you recommend for a solo practice, type S or LLC?

Whichever your state allows to practice medicine. Typically, an LLC requires less paperwork (-->$$) to create and maintain. Some states don't allow an LLC to practice medicine. Check with your state medical board (or the yellowpages, if 3/4 of all the practices in your area are LLCs ,it is probably legal).

 

[IceMan0824]

See quoted message

OK, easy enough:

1. Do you have any partners? Not for the first 5 years Remove LP or LLP

2. How much liability are you willing to be exposed to? I think I am able to tolerate a fair amount of liability (no kids, etc.) Remove Sole Proprietorship

3. Will you need financing, loans, e.t.c? I will likely require only minimal loans. Need a seperate entity if you want to separate your personal expenses from your business expenses. Think LLC, S-Corp or Inc.

4. Do you plan on bringing partners in the future, or do you plan on sharing ownership? Yes, in 5 years. This makes it tricky. I guess if you form a entity that's not a partnership, you can (1. Take them on as employees, 2. Have them buy their way into the entity ownership, and you can change article of incorporation (or organization)

5. Do you want control of the entity, or do you just want to make money from the entity? 'd like a full control. Forget Corporation (Inc.), unless you plan to be the sole holder of the stock certificate

Another question I have is: if a single physician in solo practice is incorporated, what tax advantages one can expect, if any? What are some other perks of being incorporated?

 

[IceMan0824]

At this point, you are looking at either forming a LLC, S-Corp, and in worst case scenario, a C-Corp (Inc.).

IRS page on LLC
IRS page on S-Corp
IRS page on C-Corp - Beware the double taxation of a corporation structure

All entities
P.S.

I didn't look to see if you are allowed to form these entities for a profession organization in your state. (You can form an entity in another state though and qualify (as a foreign entity) the entities in your state to do business.)
I just gave entities suggestions based on what it looks like your preference and needs are.

This by no means should be construed as a recommendation or a approval to act, create or perform anything. You should do your own research into these entities to verify that they are indeed right for you.

Good Luck

 

[f_w]

May I tap your brain for a second.

Is P.C. or P.A. only another name for a c-corp or s-corp if all partners are licensed professionals ?

 

[Eyefixer]

Thanks for awsome awsome advice guys!

Can you clear one more thing up for me? I am at the point where I need to start applying for medicare, medicaid privilages, etc. If I go corporation route, do I need a EIN number? I can't use my SSN, correct?

Sorry for dumb questions.

 

[f_w]

Can you clear one more thing up for me? I am at the point where I need to start applying for medicare, medicaid privilages, etc. If I go corporation route, do I need a EIN number? I can't use my SSN, correct?

I think you need a good accountant/attorney to really go through the steps with you. Some banks and accounting firms have departments specifically dealing with the nuts and bolts of helping someone to start their own practice.

Btw, getting an EIN is as easy as filling out a form for the feds, within a couple of days you get your EIN.

Forming a corp or LLC is not entirely trivial. In addition to the usual headaches of starting out in practice (getting medicare priviledges etc. ) you have to deal with that aspect as well.

What is your business plan anyway. From your handle it sounds like you are an ophtho. Are you planning to open your own practice (with a physical plant) or do you have an offer for some independent contractor type position ?

 

[Eyefixer]

I am doing ophthalmology. I will likely be taking over an older doc's practice, but his situation is complicated. He is a big name in the field, but he doesn't have a "physical plant", per se. He is a part of a multispeciality group, has a separate office for refractive patients, and also sees patients in another location. We haven't negotiated details yet, but most likely I'll be taking over his overflow in all of these locations for now. We'll see how it goes after that. I did speak with my accountant; it seems that with 3 separate incomes corporation is the way to go. Physicians can't form an S-corp in CA, so he recommends a C-corp.

 

[f_w]

I did speak with my accountant; it seems that with 3 separate incomes corporation is the way to go. Physicians can't form an S-corp in CA, so he recommends a C-corp.

It also creates the most income for him

Does cali allow you to practice as an LLC ?

 

[Eyefixer]

It also creates the most income for him

Does cali allow you to practice as an LLC ?

Can you please elaborate on that? The accountant told me that the cost of creating a C-corp is $675 with the first year fee waived. It's $800/year after that. Seems reasonable with all the legal protection and retirement accounts benefits, etc. Is LLC cheaper to maintain? Is he just trying to make money off of me?

 

[f_w]

Can you please elaborate on that? The accountant told me that the cost of creating a C-corp is $675 with the first year fee waived. It's $800/year after that. Seems reasonable with all the legal protection and retirement accounts benefits, etc. Is LLC cheaper to maintain? Is he just trying to make money off of me?

LLCs don't have much of a requirement for ongoing business filings. Setting up an LLC (e.g. to isolate the liability from owning a boat or plane) takes an hour or two and doesn't require much work after that. A C-corp requires you to file annual reports about your business activity with the secretary of state etc.

Also, I believe the tax filings for a C-corp are more complex than an S-corp (don't know how it is relative to a LLC).

I'm not accusing your accountant of trying to fleece you, it is just curious that he advises you to go with the most complex option.

 

[BlueSky01]

Great advice, thanks everyone.

One more question. My tax guy says he can create a corporation for me; would you trust an accountant to do that or do I need a lawer?

Also, which type of corporation would you recommend for a solo practice, type S or LLC?

Thanks again!!!

It seems like you're well along the way already with your tax guy, so this might be too late for you. Never-the-less, given the complexity of the legal issues and, perhaps more importantly, the significant liability implications associated with an incorrectly established corporation, you really should have some sort of a discussion with a lawyer too.

Your tax guy might be able to give you great tax advice, but the lawyer will understand the legal nuances and liability concerns to a much greater degree. You really should look at both sides of the coin if you're doing this for the long term.