Advisors for 1099 Physician Business

[zeloc]

I am going to be working on a 1099 income and will decide on a business structure. Can anyone recommend a CPA/team/etc, and what has your experience been with it?

I am considering Halon Tax which is $1200/yr. They specialize in LLCs that are taxed as S corporations. They have a calculator and articles on their website on the financial benefits of the structure compared to others (and physicians are not going to improve liability based on structure, so financial/tax factors become more important). While it is much more complex than a sole proprietor (having to do payroll, filing fees, holding meetings, shareholders, etc), they would be handling all of those details and claim that the savings from the structure greatly exceeds the costs at a relatively modest amount of income (although it seems to be the most benefit from the structure is at low and high incomes [when below and greatly over the SS base rate, respectively, due to the SS tax and later the 0.9% tax], and also I wonder if it matters by state, because some states have extremely high fees for becoming an LLC and most states it is quite cheap). It includes all tax advice and planning, filing the business tax return, with some one-time fees for establishing the structure and various filings.

It seems like a reasonable price which they are able to do because they assign you to a CPA with several ppl working under her. They reportedly have a large number of physician clients. Also since it's a national outfit they should have some economy of scale and be good at what they are doing, vs. finding a local CPA. At the same time I have not heard much about them, except a few positive, vague reviews.

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[The White Coat Investor]

It all seems reasonable as long as you're declaring at least $100K of your income as distribution instead of salary. If you're not doing that, might as well just be a sole proprietor and do your own taxes.

 

[zeloc]

Are you assuming maxing out the SS tax? Because for this yr, eg, it is less than half of the year remaining and I might not be doing it full-time (maybe 75% time or less), so the salary would be under the SS tax limit, with a significant savings there. It seems that this structure makes sense for both high and low income, but not in the middle (relative to the SS tax).

 

[RangerBob]

I'm a sole proprietor--it's so much simpler. My state also taxes s-corps, so there's that. Physicians can't form LLCs either in my state, so it was s-corp or sole proprietor.

I would clarify how your filing status impacts your pass-through deduction. I believe QBI does not include s-corp distributions. I'm not positive, but I thought when my accountant and I went over filing status I was going to be much better off financially as a sole proprietor as I would get a much larger pass through deduction (unless I didn't pay myself any distributions as an s corp, but that would negate the point of creating an s corp). What I know is as a sole proprietor, my entire physician income counted as QBI for the pass through deduction.

If you're going to be a really high earner and are phased out of the deduction then it doesn't matter.

As far as accountants/tax professionals, I asked what who other solo physicians I trusted/respected in my town were using.

 

[zeloc]

I'm a sole proprietor--it's so much simpler. My state also taxes s-corps, so there's that. Physicians can't form LLCs either in my state, so it was s-corp or sole proprietor.

I would clarify how your filing status impacts your pass-through deduction. I believe QBI does not include s-corp distributions. I'm not positive, but I thought when my accountant and I went over filing status I was going to be much better off financially as a sole proprietor as I would get a much larger pass through deduction (unless I didn't pay myself any distributions as an s corp, but that would negate the point of creating an s corp). What I know is as a sole proprietor, my entire physician income counted as QBI for the pass through deduction.

If you're going to be a really high earner and are phased out of the deduction then it doesn't matter.

As far as accountants/tax professionals, I asked what who other solo physicians I trusted/respected in my town were using.

Great point. You are right, the QBI deduction is reduced for S corporations (by the amount paid out as wages). So the negatives would be the reduction in that deduction and the massive paperwork, fees, payroll, filings for an S corporation, the benefit would be some lower SE taxes. State taxes and fees also heavily impacts the decision, and getting phased out also very important.
I talked to a couple CPAs and it is massively complicated to determine whether an S corp vs. sole proprietorship is better financially because there are so many variables that impact the decision, and they interact in strange ways because of the voluminous IRS quirks/rules. I wrote a detailed calculator to understand the rules, get an idea of what the savings would be at various incomes and based on business structure.

 

[RangerBob]

Great point. You are right, the QBI deduction is reduced for S corporations (by the amount paid out as wages). So the negatives would be the reduction in that deduction and the massive paperwork, fees, payroll, filings for an S corporation, the benefit would be some lower SE taxes. State taxes and fees also heavily impacts the decision, and getting phased out also very important.
I talked to a couple CPAs and it is massively complicated to determine whether an S corp vs. sole proprietorship is better financially because there are so many variables that impact the decision, and they interact in strange ways because of the voluminous IRS quirks/rules. I wrote a detailed calculator to understand the rules, get an idea of what the savings would be at various incomes and based on business structure.

I stressed a lot over the two when I started working. It seemed like sole proprietorship would save me a lot of money, but it was certain it would save time/hassle. I figured, if it's the simpler option, and probably save me more money, then that's the way I'd go.

I do know docs here who are s-corps, but locally it seems the majority are sole proprietorships.

Now, if you are going to have clinic space or any physical property, the s-corp may make more sense. I am a hospital physician, with no employees. It's literally just me. There is no one working for me who could get sued for sexual harassment, no floor I own/rent that someone could trip on, no ceiling tiles that could fall and injure someone, etc.

S-corp vs sole proprietorship doesn't affect liability in the case of malpractice (you're always personally liable, even if you're an employee of a hospital), but my understanding is if I put up a shingle as a sole proprietor, if someone sues me for an injury sustained on my property, then my personal assets are at stake (since I am the business). If you form an s-corp, then my understanding is your business is separate from you as a physician, and you would not be personally liable for judgements against your business.

 

[dpmd]

I stressed a lot over the two when I started working. It seemed like sole proprietorship would save me a lot of money, but it was certain it would save time/hassle. I figured, if it's the simpler option, and probably save me more money, then that's the way I'd go.

I do know docs here who are s-corps, but locally it seems the majority are sole proprietorships.

Now, if you are going to have clinic space or any physical property, the s-corp may make more sense. I am a hospital physician, with no employees. It's literally just me. There is no one working for me who could get sued for sexual harassment, no floor I own/rent that someone could trip on, no ceiling tiles that could fall and injure someone, etc.

S-corp vs sole proprietorship doesn't affect liability in the case of malpractice (you're always personally liable, even if you're an employee of a hospital), but my understanding is if I put up a shingle as a sole proprietor, if someone sues me for an injury sustained on my property, then my personal assets are at stake (since I am the business). If you form an s-corp, then my understanding is your business is separate from you as a physician, and you would not be personally liable for judgements against your business.

There are some requirements in how you manage your money and run the business in order for your assets to be protected. That said, commercial liability insurance would probably deal well enough with the issue without having to get the complexity of incorporating. Barring some rare scenarios I suppose.

 

[RangerBob]

There are some requirements in how you manage your money and run the business in order for your assets to be protected. That said, commercial liability insurance would probably deal well enough with the issue without having to get the complexity of incorporating. Barring some rare scenarios I suppose.

Correct. Liability insurance is relatively cheap and good reassurance.