How do you run your PLLC?

[aredoubleyou]

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Do you have a seperate checking/ savings account? Credit Card? Do you employ family members (to increase retirement savings, other reasons?) Lease vs Buy your car? Etc, etc, etc? Made any mistakes you regret?

Nothing like tax season to make me think about all of this stuff.

 

[Shadowfax8]

I have a separate checking account and business credit card for my PLLC. DO NOT accept a debit card for your PLLC since most banks will not cover charges accrued by fraud or theft with a debit card. They will however do so for stolen checks and credit cards.
I strictly used checks and a PLLC credit card which I payoff every couple of weeks.
In terms of a vehicle, my PLLC owns a brand new full-size SUV (Escalade). I recommend buying a new full size SUV because the IRS allows businesses to write off the depreciation on vehicles exceeding a certain curb weight (the exact number eludes me, but my CPA showed me an IRS list of approved vehicles and most full-size SUVs are on it.
An important point is to keep your business and personal finances clearly separate and demarcated between you PLLC and your personal accounts. The only transactions occurring between the two should be payroll funds, dividends, and disbursements going from your PLLC account to your personal account.
Hiring a CPA to help you manage your payroll, retirement (with profit sharing) and taxes can also be paid for with pre-tax dollars out of your PLLC. I pay $300/month pre-tax for this service and feel it's way worth it... especially come tax season.

 

[urge]

For the not so business savvy, could you guys explain a little more how the pllc works?

 

[Shadowfax8]

For the not so business savvy, could you guys explain a little more how the pllc works?

A PLLC allows you to function as a corporation utilizing minimal workforce, in an anesthesiologists case that's usually one person... the anesthesiologist.
The reasons for doing so are primarily to buffer the tax burden placed on high income earners, NOT for asset protection.
Now, PLLCs (and LLCs) are not recognized by the IRS, they're recognized at the state level and thus formed through your state secretary's office. The IRS only recognizes individuals, corporations, partnerships, and sole proprietorships as taxable entities with corporations being further divided in to either an S-corp or a C-corp based on number of employees.
Now, you simply cannot work without paying uncle sam, so you must declare your entity (in this case your PLLC) as a taxable entity by filling out IRS Form 2553 when you create your PLLC. It is to your benefit to classify your entity (PLLC) as an S-corporation so as to avoid double taxation (both your corporation and you getting taxed separately).
By running your practice as PLLC all collected income goes to your PLLC's business account. Out of this account you can pay for any and all business expenses (conferences including travel expenses, software, books, stethoscopes, business cards) out of the PLLC account. Your PLLC can also own and maintain a vehicle and pay for gas at a percentage of business miles driven. Your PLLC can also participate in profit sharing towards a retirement account. In my case, I have a SoloK (essentially a SEP IRA but with profit sharing), I contribute 33.3% of my income to retirement and my PLLC covers the remaining allowed 66.7% to maximize the allowable tax-free investment into a retirement account while at the same time allowing me to claim less income. Now, an interesting point is: in terms of salary, how much do you pay yourself out of your PLLC account for salary? In addition to seeking consultation with my CPA on this question, I also have a documented phone conversation with an IRS agent. Both provided the same answer--> the IRS does not give any formulas or guidelines for paying yourself a reasonable salary out of a PLLC but the tax code does say you must pay yourself a "reasonable" salary. Both my CPA and the IRS agent said the the current standard set by precedent is 50% of your PLLC's earnings. I have colleagues that pay way under this in order to remain in a lower tax bracket, but they're likely subject to substantial fines if they were to be audited. I could go on and on about PLLCs, but I hope this at least begins to elucidate the benefits of managing your practice with one.

 

[amyl]

sounds like you have a really good accountant. is s/he looking for new clients? if so would you pm me info? i think i need a new accountant....

 

[lfesiam]

A PLLC allows you to function as a corporation utilizing minimal workforce, in an anesthesiologists case that's usually one person... the anesthesiologist.
The reasons for doing so are primarily to buffer the tax burden placed on high income earners, NOT for asset protection.
Now, PLLCs (and LLCs) are not recognized by the IRS, they're recognized at the state level and thus formed through your state secretary's office. The IRS only recognizes individuals, corporations, partnerships, and sole proprietorships as taxable entities with corporations being further divided in to either an S-corp or a C-corp based on number of employees.
Now, you simply cannot work without paying uncle sam, so you must declare your entity (in this case your PLLC) as a taxable entity by filling out IRS Form 2553 when you create your PLLC. It is to your benefit to classify your entity (PLLC) as an S-corporation so as to avoid double taxation (both your corporation and you getting taxed separately).
By running your practice as PLLC all collected income goes to your PLLC's business account. Out of this account you can pay for any and all business expenses (conferences including travel expenses, software, books, stethoscopes, business cards) out of the PLLC account. Your PLLC can also own and maintain a vehicle and pay for gas at a percentage of business miles driven. Your PLLC can also participate in profit sharing towards a retirement account. In my case, I have a SoloK (essentially a SEP IRA but with profit sharing), I contribute 33.3% of my income to retirement and my PLLC covers the remaining allowed 66.7% to maximize the allowable tax-free investment into a retirement account while at the same time allowing me to claim less income. Now, an interesting point is: in terms of salary, how much do you pay yourself out of your PLLC account for salary? In addition to seeking consultation with my CPA on this question, I also have a documented phone conversation with an IRS agent. Both provided the same answer--> the IRS does not give any formulas or guidelines for paying yourself a reasonable salary out of a PLLC but the tax code does say you must pay yourself a "reasonable" salary. Both my CPA and the IRS agent said the the current standard set by precedent is 50% of your PLLC's earnings. I have colleagues that pay way under this in order to remain in a lower tax bracket, but they're likely subject to substantial fines if they were to be audited. I could go on and on about PLLCs, but I hope this at least begins to elucidate the benefits of managing your practice with one.

Thank you for sharing your wisdom shadow! I've been reading a bit about this too 🙂 👍👍👍

 

[SexPanther]

sounds like you have a really good accountant. is s/he looking for new clients? if so would you pm me info? i think i need a new accountant....

Dude, I need an accountant bad too. My wife is a sole proprietor as an Optometrist and TurboTax just isn't cutting it anymore. If anybody knows any great CPAs in the Nashville area please let me know.

 

[SexPanther]

A PLLC allows you to function as a corporation utilizing minimal workforce, in an anesthesiologists case that's usually one person... the anesthesiologist.
The reasons for doing so are primarily to buffer the tax burden placed on high income earners, NOT for asset protection.
Now, PLLCs (and LLCs) are not recognized by the IRS, they're recognized at the state level and thus formed through your state secretary's office. The IRS only recognizes individuals, corporations, partnerships, and sole proprietorships as taxable entities with corporations being further divided in to either an S-corp or a C-corp based on number of employees.
Now, you simply cannot work without paying uncle sam, so you must declare your entity (in this case your PLLC) as a taxable entity by filling out IRS Form 2553 when you create your PLLC. It is to your benefit to classify your entity (PLLC) as an S-corporation so as to avoid double taxation (both your corporation and you getting taxed separately).
By running your practice as PLLC all collected income goes to your PLLC's business account. Out of this account you can pay for any and all business expenses (conferences including travel expenses, software, books, stethoscopes, business cards) out of the PLLC account. Your PLLC can also own and maintain a vehicle and pay for gas at a percentage of business miles driven. Your PLLC can also participate in profit sharing towards a retirement account. In my case, I have a SoloK (essentially a SEP IRA but with profit sharing), I contribute 33.3% of my income to retirement and my PLLC covers the remaining allowed 66.7% to maximize the allowable tax-free investment into a retirement account while at the same time allowing me to claim less income. Now, an interesting point is: in terms of salary, how much do you pay yourself out of your PLLC account for salary? In addition to seeking consultation with my CPA on this question, I also have a documented phone conversation with an IRS agent. Both provided the same answer--> the IRS does not give any formulas or guidelines for paying yourself a reasonable salary out of a PLLC but the tax code does say you must pay yourself a "reasonable" salary. Both my CPA and the IRS agent said the the current standard set by precedent is 50% of your PLLC's earnings. I have colleagues that pay way under this in order to remain in a lower tax bracket, but they're likely subject to substantial fines if they were to be audited. I could go on and on about PLLCs, but I hope this at least begins to elucidate the benefits of managing your practice with one.

Great post. I need to read up on this stuff. Can you do a PLLC/S-corp even if you are an employee receiving a W-2? What other qualifications apply? Thanks.

 

[aredoubleyou]

In my case, I have a SoloK (essentially a SEP IRA but with profit sharing), I contribute 33.3% of my income to retirement and my PLLC covers the remaining allowed 66.7% to maximize the allowable tax-free investment into a retirement account while at the same time allowing me to claim less income.

Awesome. This is why I keep coming back to this forum.

Both my CPA and the IRS agent said the the current standard set by precedent is 50% of your PLLC's earnings.

Is that to say you write yourself a check each month for 50% revenue, or do you estimate your annual salary and deduct a monthly annuity? I wonder if you take 50% of an everchanging weekly/ monthly income if that would red flag you (especially if you took a three week vacation during your first year out with the predictable significant drop in accounts receivable).

 

[aredoubleyou]

Great post. I need to read up on this stuff. Can you do a PLLC/S-corp even if you are an employee receiving a W-2? What other qualifications apply? Thanks.

Typically not. Some groups will specifically not pay a PLLC, even as partners. Gets back to the whole s/ C corp thing, I believe. In other words, your corporation cannot be an employee.

Your group needs to be set up essentially as independent contractors to file a 1099. There are definitely advantages to this, but there is a lot more headache as well.

 

[Shadowfax8]

Great post. I need to read up on this stuff. Can you do a PLLC/S-corp even if you are an employee receiving a W-2? What other qualifications apply? Thanks.

SexPanther,
To be honest, I'm not sure about this. I would think that the contract would need to be redrafted to show that your PLLC, not you as an individual, as the subject of the contract. That's what the anesthesiologists in my group do, and then we hire CRNA's as employees of our group, which is set up as a separate entity. I personally end up with a W-2 in my name showing my PLLC as my employer.

 

[Shadowfax8]

Awesome. This is why I keep coming back to this forum.



Is that to say you write yourself a check each month for 50% revenue, or do you estimate your annual salary and deduct a monthly annuity? I wonder if you take 50% of an everchanging weekly/ monthly income if that would red flag you (especially if you took a three week vacation during your first year out with the predictable significant drop in accounts receivable).

Aredoubleyou,
They way we (my CPA and I) set up my salary is by looking at the average income for a partner in our group over the last 4 years. While there is some variability to these numbers, they are relatively consistent.

Now we forecast expenses the PLLC will take on over the year (car payment, car insurance, fuel, oil change, maintenance including car washes, dry cleaning, travel expenses for conferences, retirement contributions, my CPA's fee, malpractice insurance, etc.). By the way, company owned cars exceeding a certain weight qualify for a tax deductible depreciation which ends up back in your pocket.

Next we figure what I as the employee will contribute to retirement and to tax deductible charities (my wife and I set up a budget for charities at the beginning of each year).

Up to this point, all the aforementioned expenses are paid for with pre-tax dollars. The remainder of the projected annual balance in the PLLC account is considered my income. From this figure we calculate what I'll owe in federal and state income taxes for the year based off what my PLLC pays me after the pre-tax expenses, and this is divided over 12 payments for state tax and 24 federal payments (I pay uncle sam every time i pay myself so that I'm not slapped in the face with one BIG payment at the end of the year... it's kinda like withholding for high-income earners). These tax funds are automatically drafted out of my PLLC account.

The funds existing after the taxes have been figured are divided over 26 paychecks since my PLLC pays me twice a month (on the 15th and on that last day of the calendar month). There always seems to be a remainder at the end of the month since we purposefully overestimate business expenses, I pay this remainder out of the PLLC to myself as a dividend and adjust taxes accordingly.

It's interesting to note that the taxes I pay utilizing a PLLC are amazingly lower that if I were to run my practice as an individual without the benefits of my PLLC owning my car and utilizing profit sharing to contribute to my retirement.

 

[deleted126335]

Typically not. Some groups will specifically not pay a PLLC, even as partners. Gets back to the whole s/ C corp thing, I believe. In other words, your corporation cannot be an employee.

Your group needs to be set up essentially as independent contractors to file a 1099. There are definitely advantages to this, but there is a lot more headache as well.

I would change that to most groups.