rajat_bhattParticipantStatus: PhysicianPosts: 5Joined: 03/04/2019
Am about to start a clinic practice. Should I start off as sole proprietorship to take advantage of 20% pass through this year and change to s corp next year or simply file form 2553 and change to s corp now?May 11, 2019 at 4:24 pm MST #213932jacoavluModeratorStatus: Physician, Small Business OwnerPosts: 2273Joined: 03/01/2018
It’s not that simple. Specific facts and circumstances matter. Are you working with a CPA?
The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVAPedsParticipantStatus: PhysicianPosts: 4229Joined: 01/08/2016
It might be.May 11, 2019 at 6:36 pm MST #213979rajat_bhattParticipantStatus: PhysicianPosts: 5Joined: 03/04/2019May 11, 2019 at 7:50 pm MST #213991jacoavluModeratorStatus: Physician, Small Business OwnerPosts: 2273Joined: 03/01/2018
“About to start a clinic practice” is pretty vague.
With a physical location? Own or rent a space? Employees? Equipment? Expenses? Contracts with any facilities? How about with payers? How much income are you expecting? Practice retirement plan? Married or single? Gross family income? How about liability considerations?
I’m sure there are lots more pertinent considerations that I haven’t mentioned off the top of my head.
The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVAMay 11, 2019 at 9:16 pm MST #214016jfoxcpacfpModeratorStatus: Financial Advisor, Accountant, Small Business OwnerPosts: 7950Joined: 01/09/2016
Financial Naive MDParticipantStatus: PhysicianPosts: 30Joined: 05/05/2019
- If you will have employees, you don’t want a SP, you need a PLLC or s-corp for asset protection.
- You are eligible for the 20% pass-through deduction under all 3 of the above entities. C-corp is the only entity disallowed (it’s not a “pass-through” entity)
- Tax deductions, retirement plan options, etc. are the same under all 3 entities.
- Should you elect to be an s-corp and then change your mind because you’re “not quite there” yet, you must wait 5 years until you can elect again. This wait could cost you thousands of extra dollars in FICA taxes if your business grows rapidly, so it is very important to consider timing of election carefully.
- The deadline for electing s-corp status is 2-1/2 mos after the business is active. However, you can start out as a PLLC and elect s-corp status retroactively on your first-filed income tax return. The problem with this is that you need to have a paycheck equal to at least the amount of distributions you take in the tax year. @spiritrider recommends a 2:1 proportion. You cannot do this for the prior year if you wait to decide until you file the income tax return. You need to carefully consider by working through well-timed projections and specific calculations before the year closes (at least a couple of months).
- This is a highly complex area and I 100% agree with @jacoavlu. If you are not working with a CPA experienced in this area who does not automatically default to recommending s-corp for new practices, you need to be. This is NOT an area to cheap out.
Sole proprietorship offers no asset protection benefits, I would not do it. There are so many rules, regulations, taxes, operations that you need to know, probably can’t do it by yourself. I would find a good accountant that has experience in medical field or has many physicians as clients and go from there.May 12, 2019 at 5:53 pm MST #214148jfoxcpacfpModeratorStatus: Financial Advisor, Accountant, Small Business OwnerPosts: 7950Joined: 01/09/2016
Sole proprietorship offers no asset protection benefits, I would not do it. There are so many rules, regulations, taxes, operations that you need to know, probably can’t do it by yourself. I would find a good accountant that has experience in medical field or has many physicians as clients and go from there.Click to expand…
Agree to an extent. A consideration, however, if a physician has no employees, is that a SP may be the best and simplest option, as there are no assets at risk other than the professional abilities protected only under a professional liability insurance policy.