You have to pay yourself a reasonable salary, which in most cases would be more than the Social security cap for a 50% + FTE private practice.. Besides the Medicare tax (?2.9%?), any other savings on the distributions?
My state qualifies for the pass-through entity (PTE) elective tax deduction that's meant to circumvent the federal SALT tax that you can't get as a sole proprietor but can as a professional corporation. The corporation pays your state taxes and it counts as a business deduction.
Yeah I'd have the same questions as the above post. Especially ever since the pass through tax deduction which automatically makes 20% of your self employment income deductible as a sole prop/solo LLC (and which will honestly probably survive for the near future given the incoming administration), you have to be making a buttload to save >10K in taxes comparing a solo LLC to S corp. Corp status also doesn't impact what business deductions you can take, so you can take the same deductions basically no matter what your filing status.
This is going to be very specific to your specific financial circumstance. For me, the pass through tax deduction (section 199A) doesn't apply. Since I'm married filing jointly, over the annual income limit, and make the income from a specified service trade or business (SSTB) aka physician services, I don't qualify for this.
Distributions are taxed as ordinary income so the only difference you save is the self employment tax. Any "reasonable salary" for a full time physician is almost certainly going to be over the $176,100 net earnings subject to social security. So it's only the 2.9% + 0.9% extra medicare tax possibly over 200K/250K (depending on filing status). 10K is 3.8% of $263,157...so roughly that's what the net earnings difference would have to be to get 10K difference in tax savings.
This requires a thorough analysis taking into account how much more your accountant is charging you to file the incorporation tax documents for you, the start up costs, etc. I wouldn't recommend that anyone do it. I didn't do it for years until my income reached a high enough amount that it made sense for me to do it. It wasn't worth the extra administrative paperwork, figuring out a new business system, updating all of my accounts with my new EIN and legal business entity, extra cost to incorporate, pay business licenses, and file taxes.
In my case, your number is lower than what I needed to make to save 5 figures in my analysis as this doesn't take into account the costs of starting and running a corporation.
Again OP I've said this before but a lot of attendings (even more recently graduated ones) honestly don't know what they're talking about with this stuff and just trust whatever accountant they heard from their buddies was good or something. Most of them have never even done their own taxes. A lot of accountants (including your own sounds like you're using one) realize that S corp tax filing is way more complicated than a sole prop or solo LLC and they can charge a lot more for this....also makes you keep them using them as an accountant if it seems like the taxes are too complicated to file yourself. Especially ever since 2017 with the pass through deduction, it's become much less beneficial financially overall to setup an S corp unless you're at very high income levels. I would tell the accountant to run you projected numbers comparing both a solo LLC and S corp so you can actually compare them...if they can't do and prove what they bring to the table will actually benefit you then they're probably not a very good accountant.
I think there's a lot of benefit to filing your taxes yourself at least once. You'll keep better records, understand what kind of things you can deduct and what you can't, and you get to do and understand the math for yourself rather than having someone else or a software do it for you. You talk to many physicians about taxes though, and their eyes just gloss over. They don't want to understand it even though it's much easier than anything they've done in medical school.
I agree with this but I would also add on to factor in the numbers that most people don't take into consideration when thinking about incorporating: accountant fees, state filing fees, payroll setup fee, monthly payroll fee, more stringent bookkeeping fees (I was doing it myself before but then I needed some help when I incorporated to button it up), registered agent fee if you're not doing it yourself, publishing fee if your state requires you to publicly announce your business, etc. If at the end the savings is more than these fees, then you can decide whether the hassle is worth it for yourself. For a majority of private practice psychiatrists, I would think it's easier and more financially beneficial to stay a sole proprietor, which I think would be the case for OP with a 10 hour per week practice.
