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  • Sole Proprietor starting new practice

    Hello,

    Currently I am an independent contractor working in the ED getting paid with a 1099 and identified as a sole proprietor by the IRS.  All income comes into a business account(sole proprietor) and I pay myself.

     

    I will be adding a cash based practice and was wondering if

    1. I would need to establish a separate bank account for the income and pay myself from the business.  (to keep things separate) or can it go into the existing business account

    2. If I choose a different entity for this practice.. scorp.. llc.. would that alone require everything to be separate?

     

    Thank you everyone for all the help!

  • #2
    If it is the same line of work (income from professional medical services provided by you) i’d keep it all together.

    Comment


    • #3
      1099 sole proprietor ED doc here. Since we don’t have any employees and are separate entities when in comes to our places of practice, ie: you are practicing in a hospital owned ED and not your own practice, there really is no reason to jump through the hoops and get an LLC or S-Corp. The tax savings is essentially moot and not worth the cost to setup and maintain a business designation or corporation. I don’t have any separate business accounts and just have a separate tax withholdings savings account that I pay my quarterly taxes out of. I know there are different ways to go about this, but bring a sole proprietor in the ED without any employees makes it pretty simple.

      if you’re setting up a stand alone cash based practice on the side that is it’s own business I would do an llc or s-Corp as this is a different beast than your daily ED practice and if you are ever audited it makes the paper trail cleaner.

      Comment


      • #4
        I agree on the keeping it all together.  There's no tax or accounting reason to make it separate.

        It would be worth analyzing your situation to see if an S-corporation (an LLC taxed as an S-corporation or and Inc. taxed as an S-corporation) is a good fit.  But again, it would make sense to report all your income under that entity if an S-corporation is a good fit.

        I often recommend using a single-member LLC, which is taxed as a sole proprietor by default, to start.  This gives you the option of switching to an S-corp later without having to form a new legal entity.  And if an S-corporation never makes sense then you're no worse off.  My only caveat is if you're in CA or another state that assess tax on any LLC just for existing.  It's not worth it in that case unless you actually use an S-corporation.

        Comment


        • #5
          Curious about cash basis vs accrual basis accounting recommendations and legal entities in physician practices.

          Comment


          • #6
            I recommend using the cash basis.  Accrual basis is a lot of work to do correctly and you can end up with big disparities between the cash the owner is getting and what he/she's being taxed on.

            From a tax and accounting perspective, I almost always prefer an LLC or PLLC because it's very flexible in how it can be taxed.  I'm not sure about any liability differences you get.

            Comment


            • #7
              All physician practices I’ve ever worked with are cash basis. Maybe this is due to lack of experience (but maybe not) or because:

              • Receivables tend to be very high in a physician-owned practice so you get a year lag on reporting income from collections. In a growing practice, this can be material (not so much in a practice that is flat or declining in collections).

              • Payables tend to be much lower proportionate to receivables, so the year lag favors receivables over payables. Just the nature of the beast. Other businesses, such as manufacturing and startups, tend to be the opposite.


              Separate bank accounts, credit cards, and filing for different income streams are not necessary. The choice may be made by physicians based upon whether you need to keep finances separate (i.e., one of the entities may have a partner in the future) or for tracking profit and loss by entity. If for the 2nd reason, it is fairly easy to set up “classes” in QuickBooks to track the separate activities for reporting purposes while filing only 1 return.

              Unless you are doing business in CA (in which case, an LLC is not permitted for a physician, anyway) or will have employees, we recommend:

              • a simple sole proprietor for gross receipts of at least $350k (most states) to $400k (CA) and

              • running a cost-benefit analysis for businesses in which you expect to gross more (i.e. a growing practice). Factors include the cost of payroll services, state initial and ongoing licensing fees and F&E (Franchise and Excise) taxes, and the cost of filing a separate Form 1120S return for the corporation.


              An LLC does not provide any additional asset protection for a professional and is pretty useless for a physician practice. I see no reason to set up an LLC and move to an s-corp as you can go directly from a sole prop to an s-corp .

              A sole proprietor is the default “organization” for a business and is less complex (my preference, all things being equal). Retirement plans and deductible expenses are no different for a sole proprietor or an LLC or an s-corp. By forming an LLC, a physician will be required to file annual reports and pay fees (at a minimum) to the state in which the LLC is formed - sometime F&E taxes, to boot.

              Note that, if you have elected to be taxed an s-corp before meeting the above thresholds but expect your gross to increase to or beyond those thresholds in the next few years, you will be required to wait 5 years after dissolving your s-corp before you can elect that status again. Keep this is mind before you make a rash decision based upon the above.
              Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

              Comment


              • #8
                Specifically regarding a cash basis practice, the revenue recognition would be “immediate “. But if expenses unpaid would fall into the next tax year. Things like support staff payroll and expenses paid on 30 day terms would result in revenues without expenses, So yes you have cash, but potentially pay higher taxes than necessary. In a cash based practice the delayed reimbursement from patients or insurance aren’t an issue. Timing differences on expenses would potentially be significant. That was the motive for the question. OP was dipping into a cash based practice. Just a thought of a reason to set it up as a separate LLC for accruing the expenses. Cash is one issue, tax is another. Just curious.

                Comment


                • #9


                  Just a thought of a reason to set it up as a separate LLC for accruing the expenses. Cash is one issue, tax is another. Just curious.
                  Click to expand...


                  Sole prop's can be accrual-based same as LLC's.
                  Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                  Comment


                  • #10
                    So OP is a 1099 sole proprietorship, cash basis.
                    Additional gig is cash basis practice. How can one sole proprietorship be accrual and another be cash basis?
                    Keeping separate records, multiple schedule C’s, same or different EIN’s? I simply was pointing out the potential for accounting for this is more than adding it on to the current 1099 sole proprietorship.
                    If the cash based business has few expenses, then any tax savings are non-factors.

                    Comment


                    • #11


                      So OP is a 1099 sole proprietorship, cash basis. Additional gig is cash basis practice. How can one sole proprietorship be accrual and another be cash basis?
                      Click to expand...


                      I don't know, never been asked that question, assume it's possible, but you stated above they were both cash basis, not sure of your question. Having one as an LLC and another as a sole-prop shouldn't make "the" difference, though.
                      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                      Comment


                      • #12
                        OP’s first two paragraphs described the situation. Since he isn’t providing details, it’s moot.
                        Typically a 1099 employee gets a paycheck.
                        Typically a cash basis practice pays at the counter.
                        That’s all I assumed.
                        If working ED , he is opening a FSER or simply contracting to provide services is a huge difference.
                        On the former, potentially huge expenses and the latter he just shows up. Cash only business is insufficient to make a recommendation. If he is the “owner” of a FSER, that is a completely different than moonlighting for income.

                        Comment


                        • #13
                          §446(d) allows the use of the cash and accrual method by the same taxpayer for different trades or businesses.

                          I agree with @jfoxcpacfp that cash is the best default for both physician practices and moonlighting income.  The collections cycle is just too long for accrual to make sense.

                          Comment


                          • #14


                            §446(d) allows the use of the cash and accrual method by the same taxpayer for different trades or businesses.
                            Click to expand...


                            Thanks - very helpful cite!
                            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                            Comment


                            • #15
                              “The collections cycle is just too long for accrual to make sense.”
                              How long is the delay on a cash only business?
                              Even credit cards are 24- 3 days. Many businesses have vendor payments that are once or twice a month. The size of the operating expense is really important in a cash only business. Using “rule of thumb cash basis “ without understanding the business (FSER are more a business than medicine) is not advisable. The product sold is convenience, not higher quality medicine.
                              Most hire 1099 employees with one doc owning it.

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