Setting up C corp

[mdfamily]

Hi, I am an ER doc doing locums only in a few states.
I keep hearing a C corp is the way to go for this type of venture, and I am trying to work it out...

I had an LLC registered in NYC initially (that's where I initially lived) but I moved it to Wyoming last June or July

What is the next step?

Can I file as a c corp for this year?

Someone told me I have to do payroll (or pay someone to do payroll) before I can file as a c corp - is that true?

Any help on this would be much appreciated.

Thank you!

[spiritrider]

Hearing from whom and for what specific reasons. A C-Corp can be advantageous for certain doctors in very specific circumstances.

There are many cases where the conventional wisdom for the use of C-Corps as well as S-Corps exaggerates the benefit and in some cases is downright counter-productive.

[Kamban]

Double check the tax situation in your case for C Corp before you embark on it. It is great for large companies but I doubt a one or two person company will derive any benefit from it. The paperwork is more complex. Years ago I was told that money left undistributed gets taxed in the C Corp and you pay taxes again when it is distributed to you. No sure if it applies now.

LLC or S Corp is the way to go.

[ajm184]

Disclaimer, I am not a lawyer.  You can file paperwork to establish a C-Corp and have it setup by the end of the week if you were so inclined.  Said paperwork would be IMO best filed/ established by a lawyer.  Depending upon the state, you can say have a C-Corp in Delaware and actually practice in Illinois.  A potential reason to register a C-Corp in a state different that the one you are practicing is the depth and breadth of legal judgments that would potentially be applicable in case of a lawsuit.

It is early October, so though you could set up a C-Corp and get income flowing through it relatively quickly. unless there is a specific reason to do so sooner vs. later I would wait to get it established very early next year.  A potential scenario creating a c-corp sooner vs later would be whereby you are looking to fully fund a 401k prior to year end.  Reason to wait would be the incurred cost with limited time until year end, i.e. start with a fresh year.

As part of the c-corp, you will get a TIN (Tax ID Number).  You will have to do (or pay someone to do) payroll once the c-corp is setup and you pay yourself. In additional to paying yourself, you will be paying taxes including income (Feds and State (some states no income tax)), Social Security and FICA (Feds), and unemployment (Feds and State). To calculate and send in the payroll is a lot less daunting than it sounds and can be done relatively quickly once you setup an excel file.  My limited experience with accountants in this area is that they charge alot of money for a service that takes like 20 minutes max of work (tracking and paying) each time you pay yourself.  An accountant/CPA should be engaged in order to provide a W-2 each year and a separate c-corp annual tax return is prepared (deadline is March 15ish versus April 15ish for individuals).  You will likely also need a c-corp bank account, easy to setup once you have registered/have articles of incorporation.

[mdfamily]

So S corp is preferred?

So many different opinions out there, and I am talking about accountants, not regular folk...


With S corp, you pay yourself a salary, correct? Does that mean you only pay taxes on the salary you pay yourself?
If so what happens with all the money you are not paying yourself and stays in the S corp bank account? I

[ReFinDoc]

Why did you move your LLC to Wyoming? Did you move there yourself?

[mdfamily]

Because I read it's better taxation wise compared with new York

[ajm184]

Kamban wrote:

Double check the tax situation in your case for C Corp before you embark on it. It is great for large companies but I doubt a one a two person company will derive any benefit from it. The paperwork is more complex. Years ago I was told that money left undistributed gets taxed in the C Corp and you pay taxes again when it is distributed to you. No sure if it applies now.

LLC or S Corp is the way to go.

Click to expand...

There is a double taxation potentially present, but is based on the 'profits' of the C-Corp.  As a solo physician, this part will be extremely easy to manage the C-Corp profit level.  The C-Corp 'making' $500 per year and paying 35% on that number isn't going to make a difference financially.

[jfoxcpacfp]

My bet is you keep hearing wrong. A c-corp is probably overkill, more expensive, and less flexible than what you need. Depending upon how much $ you're earning doing locums, you should consider either an S-corp or a sole proprietorship. If you are bringing in < $300k - $350k but don't have good malpractice coverage, you might want to consider an SMLLC (Single Member LLC) although this formation is not available for you in CA.

Moving the company to WY is not useful as you'll still be required to file and pay taxes in NY as an alien company. You'll write yourself payroll checks with a corporation but not with a sole proprietor or SMLLC.

Your profile states that you are a physician, financial advisor, and an attorney. If that's not a typo, your education and experience will hopefully be of some use in trying to make this determination.

This article may help:

What Business Entity Should I Choose?

[spiritrider]

mdfamily wrote:

So S corp is preferred?

So many different opinions out there, and I am talking about accountants, not regular folk…

With S corp, you pay yourself a salary, correct? Does that mean you only pay taxes on the salary you pay yourself?
If so what happens with all the money you are not paying yourself and stays in the S corp bank account? I

Click to expand...

No, an S-Corp is not necessarily preferred. Leaving the single member LLC as a default disregarded entity and filing as a sole proprietor may even be the better choice. Each situation is different. Depending on your income level and the states you will be taxed in, an S-Corp may be a better solution.

As sad as it is, many CPAs and tax professional do not always give the best advice when it comes to business entity type. Very often they just take a one-size-fits-all approach to business entity types. Also, I'm not casting aspersions on the profession as a whole, but some may be influenced by the fact they will receive far more in fees for a corporation/personal return than a personal return with Schedules C & SE.

Yes, with an S-Corp, you pay yourself a "reasonable" salary which is subject to income and payroll taxes. However, most doctor's salaries will be greater than the amount (2017 = $127,200) subject to the 12.4% Social Security (SS ) component (6.2% employee + 6.2% employer). This means that you are only saving the 2.9% Medicare component (1.45% employee + 1.45% employer) and the ACA 0.9% Medicare surtax (> $200K S, $250K MFJ) over that of being self-employed.

The remaining amount is paid and reported as distributions. You will still pay income taxes on the S-Corp's distributions, but no payroll taxes. This is the source of the you will "save taxes" with an S-Corp. However, you have to balance this saving in payroll taxes with the cost to run the payroll, state annual fees and taxes for being an S-Corp and the accounting and additional fees to file as an S-Corp. So then the determination is, do you save enough in payroll taxes to offset those other costs. Also, even if you do save a marginal amount, is it worth the extra hassle and your personal time to do so.

There may be other reasons for an S-Corp, but there again this is dependent on specific circumstances.

[mdfamily]

Hi!
I am indeed a physician, finished first year of law school and now finishing the accredited wealth management advisor course.

Still this is all theoretical stuff and can't replace real world answer to a specific issue.

As for Wyoming, if im only partially working in New York state I understand this will be beneficial.

I believe I'm ok with malpractice as this is typically covered by the staffing company or hospital I work at.
Income is in the 500-600 range.

Regarding S corp - what happens with income I am not paying myself? Does it get taxed?

[spiritrider]

mdfamily wrote:

Regarding S corp – what happens with income I am not paying myself? Does it get taxed?

Click to expand...

Yes, as I said in my previous reply, net income not received as wages, is classified as distributions, reported on Form 1040 Line 17 and included in your AGI and taxed as ordinary income.

With that level of income, an S-Corp likely makes sense. Whether a C-Corp could make sense is probably to difficult to determine in an online forum.

[mdfamily]

Thanks for the excellent answer spiritrider.

What about retirement?

When I was employed I could put away about 17500 pre tax and I think employer put the same, although there was vesting and I didn't eventually get the full employer contribution.

What is the max I can put in retirement as pre tax money meaning I can save on tax payments?

Thank you

[spiritrider]

$54K. Easy in a one-participant 401k with an $18K employee deferral and $36K employer contribution. Also possible in a SEP IRA with >= $270K in W-2 wages.

If you are just starting out, you are probably too young, but at some point a cash balance plan will allow you to put even more away.

[Kamban]

mdfamily wrote:

Regarding S corp – what happens with income I am not paying myself? Does it get taxed?

Click to expand...

You take the money at the end of each year. Nothing is left behind. You take part of it as salary and part as distributions. It comes to your personal income tax folio and you pay taxes on it.

Next year the S corp starts with balance of zero until you add income to it.