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Should I dissolve my S Corp?

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  • Should I dissolve my S Corp?

    I am planning to dissolve m S Corporation but thought I would get the forums opinions on this before I go through with it. A previous job required me to have an S Corp. My current job does not. I am a partner in a group and paid on a K-1 in California. This year I will make around $300k. As I make full partner, it will likely increase to $350-375. My CPA suggested I will likely save money and have fewer hassles by dissolving and moving back to sole proprietor. Anything else I should consider?

  • #2
    This is so state dependent that is why you are not getting replies. So your cpa probably knows how the numbers break down for California. I responded because you need to tell your accountant if making any money in a different state or if ever planning on moving.

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    • #3
      what is the alternative?

      presume the S corp now has zero income. The S corp doesn't own your ownership interest in the new group correct?

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      • #4
        The alternative is sole proprietor. And correct the S corp does not own any interest.

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        • #5
          Originally posted by creeker View Post
          The alternative is sole proprietor. And correct the S corp does not own any interest.
          not what I mean

          is S Corp owning the interest in the new practice even an option?

          what would you do if the income was to be 600k?

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          • #6
            An initial sole proprietorship vs S-Corp determination is subject to your specific facts and circumstances. If your taxable income makes you eligible for the QBI deduction, you may be better off as a sole proprietor.

            ​​​​​​However, there is an important additional consideration when you already have an S-Corp. If you terminate the S-Corp, you can not create a new one for five (5) years.

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            • #7
              It sounds like you maybe worked for TeamHealth and now work for CEP. If that is in fact the case, I recommend keeping the S-Corp, because you ever know when you’re going to change jobs or moonlight, and as per California law physicians are either employees or partners, so you’ll need the S Corp for many other work scenarios. The only liability that I see is the extra $800 or so that you have to pay annually to maintain it, but I could be wrong, I’m an ER doc (with an S Corp) not a CPA?

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              • #8
                Originally posted by jacoavlu View Post

                is S Corp owning the interest in the new practice even an option?
                I guess I don't understand this question. does it mean can I be paid as an incorporated partner ie can I even use the S corp at my new job? If that's the question, the answer is yes. I suspect I still don't understand the question.

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                • #9
                  If you could potentially still be paid via the S Corp at new job, then a competent CPA should be able to talk through your specific facts and circumstances and the pluses and minuses of the S Corp in your situation. Perhaps that has already happened

                  very generally yes at $300-$400k in CA an S Corp likely isn’t worth it. And the fact that a CPA told you so actually says a lot, assuming they’re competent. Bc most CPAs knee jerk to the opposite. Form S corps when they’re not worth it.

                  But it’s not a simple analysis. Total household income matters. Whether business expenses can be paid / reimbursed by the new practice. You could even get into guesses at future income and tax law changes and future income tax rates. Considering like spirit rider said you can’t form a new s Corp x 5 yrs after you dissolve. I’m sure there are other factors I’m not aware of.

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                  • #10
                    Originally posted by NorCalEDMD View Post
                    It sounds like you maybe worked for TeamHealth and now work for CEP. If that is in fact the case, I recommend keeping the S-Corp, because you ever know when you’re going to change jobs or moonlight, and as per California law physicians are either employees or partners, so you’ll need the S Corp for many other work scenarios. The only liability that I see is the extra $800 or so that you have to pay annually to maintain it, but I could be wrong, I’m an ER doc (with an S Corp) not a CPA?
                    That's a good point. I've been in my current job for one year and like it quite a bit. I hope to stay >5 years. Obviously I can't predict the future and maybe I'll want a job again that requires the S corp within that 5 year period.

                    Another downside besides the $500 is that my CPA charges me more to do incorporated taxes which my CPA has quoted me as ~$1000 more per year.

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                    • #11
                      Many interdependent areas to consider but, in general, I would say to dissolve it. Even in CA, you d/n generally need to use an S-corp for fairly minimal income unless you happen to work for one of the companies whose accountants d/n realize that the General Dynamics ruling later listed an exception for certain professionals, such as physicians. We work with many clients in CA who have 1099 income who have not formed s-corps and don’t plan to.

                      CA law AB 5 imposed additional requirements (as of 1/1/20) for 1099 workers to be paid as employees but “physicians and surgeons” (don’t really understand the distinction) are on the exempted list.

                      Unless you believe there is a possibility of changing/adding work in the next 5 yrs that will yield at least $400k/yr, I would recommend dissolution. BUT I’m not your CPA.
                      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                      • #12
                        I have spoken to my CPA about my specifics but wanted to see if there was anything else the forum could bring to my attention that I'm missing. I appreciate the input. Thanks everyone.

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