Incorporation

[elcidb05]

I'm part of a small private practice group (12 anesthesiologists) that is Incorporated as a C Corp. The more I read, everyone seems to be an S Corp or an LLC with each individual physician being their own individual S corp.
We inquired with our CPA about whether we may benefit from a change in structure in avoiding Medicare taxes, etc. His response was essentially, "It would save you some money, but it would be a hassle for me."
I'd like to know what some other group's incorporation status is and why that route was chosen.
As background, we are all paid W2. Any profit is distributed every quarter to avoid corporate taxes.

[jfoxcpacfp]

I'm glad you asked and look forward to reading others' answers. While this might be a hassle for your CPA, I'm sure he will want to do what is best for you. If you haven't read this article on WCI blog, might be helpful. I wrote it specifically for doctors like you.

[TheGipper]

I'd be interested in hearing responses as well.  The older docs in our groups are individual S corps, the younger docs are not.  To be honest I'm not even sure the overall corporate structure.

[Son of a Doctor]

 

elcidb05 wrote:

I’m part of a small private practice group (12 anesthesiologists) that is Incorporated as a C Corp. The more I read, everyone seems to be an S Corp or an LLC with each individual physician being their own individual S corp.
We inquired with our CPA about whether we may benefit from a change in structure in avoiding Medicare taxes, etc. His response was essentially, “It would save you some money, but it would be a hassle for me.”
I’d like to know what some other group’s incorporation status is and why that route was chosen.
As background, we are all paid W2. Any profit is distributed every quarter to avoid corporate taxes.

Click to expand...

C-corps are almost never the best option nowadays, and I suspect that your practice is at least 15-20 years old.  The s-corp vs. LLC and other structural questions need to factor state taxes.  What state is practice located in?

[elcidb05]

South Carolina. It is about 20 years old.

[Son of a Doctor]

From a brief review online, it appears that S.C. charges income tax of 5% to C-corps but only a corporate license fee to s-corps.  LLC's taxed as partnerships do not appear to be subject to either tax. It is very circumstantial, and your CPA or attorney can run the numbers to determine what is the best path, but it appears that there is potential tax savings from using a different structure.

I'm not sure if WIC has written on reasonable compensation issues before, but that is one of the problems with c-corps and s-corps.  With c-corps, the problem is that the small corporation reports no profit and pays no dividend, but instead bonuses all remaining would-be-profit at the end of the year to avoid the dividend.  The IRS will then step in, say that the compensation was unreasonably high, reduce some of the compensation and reclassify it as a dividend.  With s-corps, the problem is the opposite in that the owners want to pay themselves too little to minimize employment taxes, and so the IRS will step in and reclassify some of the dividend as wages. For these reasons, switching to an s-corp may not result in the type of windfall that is expected, if the s-corp pays its shareholder-employees a reasonable wage.