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  • Pass through Business??

    As a EM physician paid on a 1099, would this benefit me/reduce my tax burden? I am not currently incorporated.

  • #2
    Please clarify - would what benefit you? Are you asking if you should form an s-corp or SMPLLC?
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      I took "this" as the latest iteration of the tax reform, but I might be wrong

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      • #4
        If you are an independent contractor who files Schedule C to report your 1099 income, then you are a pass-through sole proprietor. Whether the pass-through provisions of the tax bill will help you is anyone's guess. IF the special tax rate it offers is less than your current effective tax rate, and IF they decide to apply it to professionals like accountants and physicians, and IF that provision even sticks around through the compromise process that's currently underway between the House and Senate versions of the bill -- then maybe?

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        • #5




          If you are an independent contractor who files Schedule C to report your 1099 income, then you are a pass-through sole proprietor. Whether the pass-through provisions of the tax bill will help you is anyone’s guess. IF the special tax rate it offers is less than your current effective tax rate, and IF they decide to apply it to professionals like accountants and physicians, and IF that provision even sticks around through the compromise process that’s currently underway between the House and Senate versions of the bill — then maybe?
          Click to expand...


          So as it's currently understood, would a sole proprietor stand to benefit in the same way that an LLC filing as an S-corp would?

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          • #6







            If you are an independent contractor who files Schedule C to report your 1099 income, then you are a pass-through sole proprietor. Whether the pass-through provisions of the tax bill will help you is anyone’s guess. IF the special tax rate it offers is less than your current effective tax rate, and IF they decide to apply it to professionals like accountants and physicians, and IF that provision even sticks around through the compromise process that’s currently underway between the House and Senate versions of the bill — then maybe?
            Click to expand…


            So as it’s currently understood, would a sole proprietor stand to benefit in the same way that an LLC filing as an S-corp would?
            Click to expand...


            No. A SP is not a pass-through entity. It is indistinguishable from the owner.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              It appears that they are using the term pass-through to describe any business where the business's income is "passed through" to the personal 1040 return as opposed to a C-Corporation where the income is taxed to the business.

              The summaries are describing any business entity taxed as a sole proprietorship, partnership or S-Corp (including LLCs) as a pass-through entity. The purpose of this deduction is to allow any such business entity to receive a reduced tax rate similar to a C-Corp.

              This is going to cause a mad scramble for people to be classified as Independent Contractors (ICs). An unintended consequence of this may be the IRS really cracking down on the employee vs. IC classification. To date they really have not pushed very hard on this when the IC is a higher income professional.

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              • #8


                The summaries are describing any business entity taxed as a sole proprietorship, partnership or S-Corp including LLCs as a pass-through entity. The purpose of this deduction is to allow any such business entity to receive a reduced tax rate similar to a C-Corp.
                Click to expand...


                By jove, mate, did I blow that one?
                Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                • #9
                  This is all very crazy and it is very hard to pin down the particulars.

                  As I understand it, an S-Corp shareholder-employee's deduction is limited to no more than 50% of their W-2 wages. So the way I read it, an S-Corp would have to pay a minimum of 46% of some definition of net receipts as wages to get the full deduction. The house had a 70% requirement. The really crazy part is that the full deduction is limited to those with an AGI <= $250K (single) and <= $500K with fairly rapid phaseouts. If my understanding is correct (???) S-Corps are going to be dropping like flies.

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                  • #10
                    I'm just not sure. I want to see some more commentary and parsing before making any plans, hopefully that is coming soon. My talent is not in reading law and making sense of it all, but in putting a plan together based upon the facts and possibilities, so I need to suspend opinion for now. At least on this topic because it is tremendously complicated the way it's written. And the handwriting in the margins doesn't give me a heck of a lot of comfort  :roll: I do believe that C-corp's may be coming back into vogue.

                    "There is nothing new in the world except the history you do not know." Truman
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                    • #11
                      Johanna, Why do you think Ccorps back in vogue? Even with the lower 20% Corp rate, mustn’t one also pay cap gains rate on dividends to shareholders. Won’t aggregate rate still be above either a PLLC or SCorp set up (even if SCorp is limited to 50% wages requirement).

                      Also, Why would a doc PSC that pays all $ in W2 salary wages (and zeros corporate profit) benefit from switching to 20% corp tax plus cap gains tax on dividends. Won’t this still be above the EFFECTIVE tax rate of even most high earning docs paid by W2 salary from the PC?

                      Wouldn’t a current PC choosing to elect S Corp status still make most sense. I get that some docs will phase out of the 23% deduction at 350/600 AGI, and the 23% deduction only applies to roughly half income. But still seems the way to go, even if their will be short term transitional pain of having accounts receivable taxed during the S election transition.

                      Comment


                      • #12




                        Johanna, Why do you think Ccorps back in vogue? Even with the lower 20% Corp rate, mustn’t one also pay cap gains rate on dividends to shareholders. Won’t aggregate rate still be above either a PLLC or SCorp set up (even if SCorp is limited to 50% wages requirement).

                        Also, Why would a doc PSC that pays all $ in W2 salary wages (and zeros corporate profit) benefit from switching to 20% corp tax plus cap gains tax on dividends. Won’t this still be above the EFFECTIVE tax rate of even most high earning docs paid by W2 salary from the PC?

                        Wouldn’t a current PC choosing to elect S Corp status still make most sense. I get that some docs will phase out of the 23% deduction at 350/600 AGI, and the 23% deduction only applies to roughly half income. But still seems the way to go, even if their will be short term transitional pain of having accounts receivable taxed during the S election transition.
                        Click to expand...


                        To clarify, I was not limiting my prediction to doctors. And I don't mean that C-corporations will be appropriate for everyone, just more than practically nobody, which is what we have currently. The option to not empty the coffers and pay out all profits each year will require a radical change in thought processes, I agree, and I believe may afford tax-planning opportunities as we get used to the idea.

                        • It can be beneficial for corporations to not distribute all profits and to build capital for future projects, such as an expansion.

                        • C-corp's offer some benefits that S-corps do not. You can deduct premiums for health insurance, disability, and long-term care and they are tax-free to the owners.

                        • A c-corp can allow doctors to control their salaries annually in order to control what goes on their form 1040 for tax planning purposes.

                        • Dividends can be beneficial for a retired doctor who is still an owner and in a lower tax bracket.


                        All I'm saying is that there are potential tax-planning opportunities with a c-corp. I have not been a fan, but I'm starting to thaw out on C-corp's and thinking about them. As far as being specific on 23%, $500k AGI, etc etc, I'm not even going there until the bill is final. Any calculations at this point are (to me) a waste of time. Just don't shut your mind off to some potential planning possibilities.

                        Honestly, tax "simplification" has handed the CPA community - at least those who spend brainpower on strategizing - a huge gift tied up with a big red bow. Planning decisions in the future are going to be more complicated than they ever were before.
                        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                        Comment


                        • #13







                          Johanna, Why do you think Ccorps back in vogue? Even with the lower 20% Corp rate, mustn’t one also pay cap gains rate on dividends to shareholders. Won’t aggregate rate still be above either a PLLC or SCorp set up (even if SCorp is limited to 50% wages requirement).

                          Also, Why would a doc PSC that pays all $ in W2 salary wages (and zeros corporate profit) benefit from switching to 20% corp tax plus cap gains tax on dividends. Won’t this still be above the EFFECTIVE tax rate of even most high earning docs paid by W2 salary from the PC?

                          Wouldn’t a current PC choosing to elect S Corp status still make most sense. I get that some docs will phase out of the 23% deduction at 350/600 AGI, and the 23% deduction only applies to roughly half income. But still seems the way to go, even if their will be short term transitional pain of having accounts receivable taxed during the S election transition.
                          Click to expand…


                          To clarify, I was not limiting my prediction to doctors. And I don’t mean that C-corporations will be appropriate for everyone, just more than practically nobody, which is what we have currently. The option to not empty the coffers and pay out all profits each year will require a radical change in thought processes, I agree, and I believe may afford tax-planning opportunities as we get used to the idea.

                          • It can be beneficial for corporations to not distribute all profits and to build capital for future projects, such as an expansion.

                          • C-corp’s offer some benefits that S-corps do not. You can deduct premiums for health insurance, disability, and long-term care and they are tax-free to the owners.

                          • A c-corp can allow doctors to control their salaries annually in order to control what goes on their form 1040 for tax planning purposes.

                          • Dividends can be beneficial for a retired doctor who is still an owner and in a lower tax bracket.


                          All I’m saying is that there are potential tax-planning opportunities with a c-corp. I have not been a fan, but I’m starting to thaw out on C-corp’s and thinking about them. As far as being specific on 23%, $500k AGI, etc etc, I’m not even going there until the bill is final. Any calculations at this point are (to me) a waste of time. Just don’t shut your mind off to some potential planning possibilities.

                          Honestly, tax “simplification” has handed the CPA community – at least those who spend brainpower on strategizing – a huge gift tied up with a big red bow. Planning decisions in the future are going to be more complicated than they ever were before.
                          Click to expand...


                          Why wont an S-Corp allow you to deduct health insurance premiums either as a 2% share holder or as business expense if you are providing the same benefit to your employees?

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                          • #14


                            Why wont an S-Corp allow you to deduct health insurance premiums either as a 2% share holder or as business expense if you are providing the same benefit to your employees?
                            Click to expand...


                            S-corps limit perks for >2% owners. i think the govt views s-corps as closer to a sole proprietorship than to a "true" corporation. In all honesty, however, the owners do get a benefit for health insurance in a roundabout way. The corp deducts the premiums but they go on the owner's W2 as taxable income. The owner then gets to deduct them as SEHI premiums "above the line" on pg 1 of your 1040. With multiple owners, it's not always a 1:1 deduction, but with a single owner it is. The LTDI insurance prem's are not deductible at all for owners, however, same as for sole prop's, while they are deductible for a c-corp.
                            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                            • #15
                              I see this happening more:  Ccorp or LLC that hire W2- employed physicians

                              1.  Pass through on earnings for the company is lower than most other earnings

                              2.  Sales of company shares is made easier to transfer to future shareholders

                              3.  setup benefit retirement and insurance plans easily and to manage

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