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s corp verus sole proprietorship

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  • Avatar rajat_bhatt 
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    Status: Physician
    Posts: 5
    Joined: 03/04/2019
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    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?

     

     

    #213932 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2273
    Joined: 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/6cZKVA

    #213974 Reply
    Liked by Peds
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 4229
    Joined: 01/08/2016

    It might be.

    #213979 Reply
    Avatar rajat_bhatt 
    Participant
    Status: Physician
    Posts: 5
    Joined: 03/04/2019

    what specific circumstances to be looked at ?

    #213991 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2273
    Joined: 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/6cZKVA

    #214016 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7950
    Joined: 01/09/2016
    • 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.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #214029 Reply
    Liked by Tim
    Avatar Financial Naive MD 
    Participant
    Status: Physician
    Posts: 30
    Joined: 05/05/2019

    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.

    #214148 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7950
    Joined: 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.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #214211 Reply
    Liked by Hank

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