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When to Form PC? What benefits?

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  • When to Form PC? What benefits?

    I’m curious to get input on when it makes sense, from a tax perspective, to form a PC rather than being an individual member of a practice. Our practice is set up in such a way that there’s already limited liability, but some physicians are members as individuals and others have their own professional corporations that are members of the practice for tax purposes.

    I’ve spoken to a few different CPAs and they all have differing opinions. One said it always makes sense because you save a lot in taxes, and another said the money you would save on taxes would get eaten up by the administrative fees and time of having and managing a PC.

    For physicians here, at what income level did you find it made sense to form a PC?

    Are there any other benefits to consider aside from taxes? Our practice already has a 401k plan for employees, but would I be able to set up my own retirement account if I don’t contribute to the practice’s?

  • #2
    Does a professional corporation mean electing to be taxed as an S-Corp? I doubt C-Corp... And you imply something different from a sole proprietorship.

    If S-Corp... then the debate between being taxed as a sole proprietorship & S-Corp is well discussed. I usually read it takes ~$400,000 in income before an S-Corp is worth is, due to the additional fees & administrative work.

    Also the QBI deduction adds a high level of complexity to the decision.

    As a sole proprietorship, you can set up an individual 401k, S-Corp not needed.
    "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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    • #3
      Originally posted by Cubicle View Post
      Does a professional corporation mean electing to be taxed as an S-Corp? I doubt C-Corp... And you imply something different from a sole proprietorship.

      If S-Corp... then the debate between being taxed as a sole proprietorship & S-Corp is well discussed. I usually read it takes ~$400,000 in income before an S-Corp is worth is, due to the additional fees & administrative work.

      Also the QBI deduction adds a high level of complexity to the decision.

      As a sole proprietorship, you can set up an individual 401k, S-Corp not needed.
      Much appreciated. I’ve read anywhere from 300-600k. If the practice already has a 401k for staff and employees, am I still able to set up an individual 401k?

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      • #4
        Originally posted by SeattlePilot View Post

        Much appreciated. I’ve read anywhere from 300-600k. If the practice already has a 401k for staff and employees, am I still able to set up an individual 401k?
        No, you can not set up your own solo 401k plan with this arrangement as long as your income source is the practice, which makes the practice the employer that has the sole responsibility to set up a retirement plan for the whole group. You form an affiliated service group with other entities set up by other partners, so it does not matter how many entities you set up, as long as they all get paid through the practice, they are all a single entity with respect to retirement plan set up. Technically you can set up separate plans for the 'personal' entities, but they would be tested together with the main practice plan, so you would only get a single 415 limit (not two separate limits in the case of unrelated employers). If you want to contribute more money to a retirement plan, you can consider setting up a Cash Balance plan for the group, and this way you can potentially get a higher % to owner and contribute more money tax deferred, and only those who want to contribute more can use this type of plan:

        https://www.whitecoatinvestor.com/ca...oup-practices/
        Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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        • #5
          Originally posted by litovskyassetmanagement View Post

          No, you can not set up your own solo 401k plan with this arrangement as long as your income source is the practice, which makes the practice the employer that has the sole responsibility to set up a retirement plan for the whole group. You form an affiliated service group with other entities set up by other partners, so it does not matter how many entities you set up, as long as they all get paid through the practice, they are all a single entity with respect to retirement plan set up. Technically you can set up separate plans for the 'personal' entities, but they would be tested together with the main practice plan, so you would only get a single 415 limit (not two separate limits in the case of unrelated employers). If you want to contribute more money to a retirement plan, you can consider setting up a Cash Balance plan for the group, and this way you can potentially get a higher % to owner and contribute more money tax deferred, and only those who want to contribute more can use this type of plan:

          https://www.whitecoatinvestor.com/ca...oup-practices/
          Thanks!

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