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The decision to incorporate and make an s-corp election has come up again and I wanted to get other doc's thoughts. I know the Biden tax plan hasn't been passed, and any discussion of whether it will is pure speculation, but the government has been spending like crazy, so a tax hike seems inevitable at some point. If the SS tax phase out continues to increase and its implemented at income above $400k, it really starts to squeeze typical physician wages.
I have the ability to incorporate as a single member LLC and that LLC would become a member of my practice's LLC (rather than me as an individual). That would enable me to make an S-Corp election and save on taxes. For easy math purposes, let's say the income from the practice is $400k and I paid myself a $150k salary and took $250k as a distribution. That would save $7,250 in taxes (250k x 2.9% medicare tax). Aside from a small filing fee each year, my state does not have any special tax or treatment of pass through entities. I would obviously have to pay state and federal unemployment which is probably close to $1k a year, and then an additional $1k for someone to run payroll and do the tax filings. That's still a $5,200 savings after expenses, which would almost fill up my Roth IRA for the year.
Am I missing something as to the savings? I really value simplicity, but it seems like a no-brainer for several thousand dollars in savings per year, especially as income increases.
Our household income is above the $415k QBI phase out and even if we did some major deductions, it would still be very close to that, so the QBI isn't much of a savings.
It would be great to hear others' thoughts.
I have the ability to incorporate as a single member LLC and that LLC would become a member of my practice's LLC (rather than me as an individual). That would enable me to make an S-Corp election and save on taxes. For easy math purposes, let's say the income from the practice is $400k and I paid myself a $150k salary and took $250k as a distribution. That would save $7,250 in taxes (250k x 2.9% medicare tax). Aside from a small filing fee each year, my state does not have any special tax or treatment of pass through entities. I would obviously have to pay state and federal unemployment which is probably close to $1k a year, and then an additional $1k for someone to run payroll and do the tax filings. That's still a $5,200 savings after expenses, which would almost fill up my Roth IRA for the year.
Am I missing something as to the savings? I really value simplicity, but it seems like a no-brainer for several thousand dollars in savings per year, especially as income increases.
Our household income is above the $415k QBI phase out and even if we did some major deductions, it would still be very close to that, so the QBI isn't much of a savings.
It would be great to hear others' thoughts.
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