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S-Corp vs SMLLC

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  • jfoxcpacfp
    replied
    I get it - I still rag about the terrible OB who was on call when I had my 2nd baby and that was in 1983. Maybe that's my cynicism. But I still like and trust doctors.

    Leave a comment:


  • The White Coat Investor
    replied
    You're darn right that cynicism results from disappointment. Whether it clouds judgment or not, probably depends on the extreme to which it is carried.

    Want to know where the best cynicism incubator can be found? An emergency department, without a doubt. Want to lower your opinion of the average American? Go spend Saturday night in an ER.

    Leave a comment:


  • jfoxcpacfp
    replied









    Click to expand…


     

    I just wrote one with tips for finding a CPA – will post the link when it is up.
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    Tips for finding a CPA from a CPA. I’ll bet that post describes you very well.

    I always get a kick out of the articles about how to hire a financial advisor that always describe the financial advisor that wrote it. If the advisor has a CFP, the article says “make sure you find someone with a CFP.” If the advisor does not, the article say “designations don’t matter much.” If the advisor has 5 years experience, the article says “Make sure your advisor has at least 5 years of experience.” If he has 10, the article reads “Make sure your advisor has at least 10 years of experience.”

    It isn’t that there usually isn’t something useful in these articles, they just always lack face validity to me. I guess I’d rather see an article written by a financial advisor “How to choose an estate planner” and an article from a tax strategist “How to find an asset manager” and an article from an asset manager “How to find a tax strategist.”

    Just an observation.
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    Lol, probably. You are quite the cynic. Since I do all of those things (taxation, financial planning, investment, and estate planning) and that's what I know, that's what I'm best at discussing. I guess I could try to write an article on picking out building materials for a house, but it wouldn't be very useful. Since you mentioned it, here is the article ;-)

    I've seen quite a bit of crap in my industry, if you will, over the past 35 years. I've even blogged about my own financial mistakes. When I point a finger, I have 3 more pointed right back at me. I truly am trying to protect other people, not drum up business. Maybe that's not the case with some, but I tend to give the benefit of the doubt until observation and investigation tell me otherwise. You're not so bad at self-promotion, btw :-)

    Cynicism results from disappointment. It can cloud your judgment.

    Just an observation.

    Leave a comment:


  • The White Coat Investor
    replied






    Click to expand…


     

    I just wrote one with tips for finding a CPA – will post the link when it is up.
    Click to expand...


    Tips for finding a CPA from a CPA. I'll bet that post describes you very well.

    I always get a kick out of the articles about how to hire a financial advisor that always describe the financial advisor that wrote it. If the advisor has a CFP, the article says "make sure you find someone with a CFP." If the advisor does not, the article say "designations don't matter much." If the advisor has 5 years experience, the article says "Make sure your advisor has at least 5 years of experience." If he has 10, the article reads "Make sure your advisor has at least 10 years of experience."

    It isn't that there usually isn't something useful in these articles, they just always lack face validity to me. I guess I'd rather see an article written by a financial advisor "How to choose an estate planner" and an article from a tax strategist "How to find an asset manager" and an article from an asset manager "How to find a tax strategist."

    Just an observation.

    Leave a comment:


  • jfoxcpacfp
    replied
    Jim, you're taking this too personally.

    Leave a comment:


  • The White Coat Investor
    replied
    Johanna- You're taking this too personally. Let me give you an example. We had a leaky door, so we hired someone to come in and replace the door. They pulled it off, lifted up the carpet and found some dreaded black mold. They didn't have the equipment to properly do the job. So we had some bids some in and it turned out we needed the following done:

    1. Mold removal

    2. Molding replacement

    3. Drywall replacement

    4. Painting

    5. Carpet replacement

    6. Door installation


    They described each of the jobs and we decided we wanted a professional to do all of it except the painting, which we would do ourselves due to the fact that it would be easy for us to do, we already have plenty of experience, and we already had all the material.

    But any given professional would be quick to say that none of that is a do it yourself project. I say what is one person's do it yourself project is another person's "time to hire a pro."

    I've had all kinds of people tell me at one time or another that all of the following is not a do it yourself project:

    • Setting up an IRA

    • Deciding whether you want term or whole life insurance

    • Managing an investment portfolio

    • Tax preparation

    • Setting up an LLC

    • Setting up a corporation

    • Preparing a will

    • Setting up a trust

    • Drawing up a financial plan


    The list could go on and on. But I look at that list and I see some things I can easily do myself and some things that I either don't have the expertise for or the desire to do. The point is it is my decision. Just because I wouldn't do my own trust or set up my own corporation doesn't mean someone else wouldn't. Just because I think it is easy to open a Roth IRA and design an asset allocation doesn't mean someone else can do it.

    That's all.

     

     

    Leave a comment:


  • jfoxcpacfp
    replied

    Thank you, very helpful as always!  So would you say that for this new CPA I met with, if he didn’t know about dissolution, that it is not a good sign?  The main reason I want to switch is to have someone who DOES know all the ins and outs of laws.  I am so tired of doing all the research myself and having to teach my guy, that is just ridiculous.  You sound amazing, but I really hope to find someone local ?


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    I understand about wanting to find someone local. Just remember that if you don't have any luck, most of our clients are non-local, including many doctors. Now to your question. Obviously I don't know your guy, but if he is not familiar with corporate dissolution then, yes, I would take that as a bad sign.

    The "For Doctors Only" area on our new website has a Doctor Dilemmas section with answers to FAQs from doctors. I just wrote one with tips for finding a CPA - will post the link when it is up.

    Leave a comment:


  • Slav4ikMD
    replied
    Thank you, very helpful as always!  So would you say that for this new CPA I met with, if he didn't know about dissolution, that it is not a good sign?  The main reason I want to switch is to have someone who DOES know all the ins and outs of laws.  I am so tired of doing all the research myself and having to teach my guy, that is just ridiculous.  You sound amazing, but I really hope to find someone local

    Leave a comment:


  • jfoxcpacfp
    replied
    Actually, yes, you can shut down your s-corporation and continue to do business. It is called a "dissolution" and you file articles of dissolution with your SOS (Secretary of State) and a final tax return for the corporation. It sounds as if your accountant does not have a lot of experience with busines taxation.

    There are certain issues you must be aware of to prevent taxation on the shutdown, particularly in regard to assets the corporation owns. If you have no appreciated assets and if you do not sell any of them in the next 10 years, you will likely have NO problems. For more specifics regarding your particular situation, however, this is a conversation to have with your CPA. Again, this is not a DIY process :-)

    Leave a comment:


  • jfoxcpacfp
    replied
    Actually, yes, you can shut down your s-corporation and continue to do business. It is called a "dissolution" and you file articles of dissolution with your SOS (Secretary of State) and a final tax return for the corporation. It sounds as if your accountant does not have a lot of experience with busines taxation.

    There are certain issues you must be aware of to prevent taxation on the shutdown, particularly in regard to assets the corporation owns. If you have no appreciated assets and if you do not sell any of them in the next 10 years, you will likely have NO problems. For more specifics regarding your particular situation, however, this is a conversation to have with your CPA. Again, this is not a DIY process :-)

    Leave a comment:


  • Slav4ikMD
    replied
    If I may hijack the thread with a side question, maybe JoHanna can help with this:  so I've had my PLLC taxed as an S-corp, which I am not realizing was not the way to go - you were the one who told me that this is something to look into and I have, by looking for a new accountant and now starting to interview a few.  The guy I met with today also advised me that I should have just done schedule C - BUT says that now that I've elected to do the S-corp, I cannot simply switch to doing schedule C, so I married to doing what I've been doing.  Which sort of sucks, as I am barely saving anything and paying a lot of money for the quarterlies.  Do you know if what he said is accurate.  He said he is "almost sure."  Thanks!

    Leave a comment:


  • jfoxcpacfp
    replied


    “It’s not a do it yourself process. You should hire me to do it!” I’ve heard that about a lot of things in life. It’s probably true about some of them but I dislike it as a blanket answer. Why not just explain what it takes to do and let the person decide if they want to try to do it themselves or not instead of trying to generate business?
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    WCI, sometimes the best answer really is "This is not a DIY process." I was not trolling for business. I was trying to be helpful. Trying to go further on a free-advice forum without knowing more would be, imo, bordering on an ethical violation. The OP also asked for "a step by step guide as how best to set this up". At the very least, that would be a 1,000+ word article and even then I would not be comfortable giving specific information without knowing a lot more. (You know that's true because I've sent you a guest post on this topic.) I know it's your nature to look up the answer and then decide whether you need to hire somebody. Everybody is not you. People can cause themselves a lot of grief by trying to do what you're not capable of doing because you don't know what you don't know.

    I realize you've been burned but your anecdotal evidence should not be a blanket answer, either. Reading deceit into what I believed (and continue to believe) was an appropriate response is a bit insulting. Jeez! The decision of whether to form an LLC or S-corp goes a lot deeper than filling out an 11-question form. That is the end result of a very fact-dependent and personal situation. A doctor of all people should realize the danger of DIY when a professional is called for.

    Leave a comment:


  • The White Coat Investor
    replied




    Sadly WCI, S corps are not really do-it-yourself operations (to give it a try: https://www.irs.gov/pub/irs-pdf/i2553.pdf) due to need for precise accounting which sometimes calls into question whether you should do it at all. So first the costs of setup ($6k?) must be less than the benefit. For a physician who sets a reasonable wage this means saving only on Medicare taxes. So saving 2.9% with a setup cost of $6k means the first $200k in dividends has no savings.

    Secondly, and most importantly, the cost of state tax law, must not be forgotten. Please see: http://www.scorporationsexplained.com/how-do-states-treat-s-corporations.htm which outlines some basic principles. I’m in a state that does not recognize s corps so if you file one it would fall under c corp laws so for me an s corp would increase my tax bill.

    On another matter, I personally do not see any benefit of an LLC for a physician. If I am personally sued all my assets would be at risk no matter an LLC.

    So for those who do not understand the language of this discussion, if you work as independent contractor and you do not elect to setup a pass through you are by default a sole proprietorship, and you can still deduct business expenses.
    Click to expand...


    A corporation is more complicated to set up than an LLC. The LLC can be downright trivial. Either can elect to be taxed as an S Corp. It's an 11 question form for an LLC. https://www.irs.gov/pub/irs-pdf/f8832.pdf

     

    Not a huge deal. But nothing wrong with hiring someone to help if you need it.

    Whether you do this yourself or hire help you should at least read up on what it involves and the pluses and minuses of doing it. That's free.

    And that link to Nelson's article is great.

    Leave a comment:


  • Docbeans
    replied
    Thank you all for bringing forth and explaining the different aspects of this matter!

    Leave a comment:


  • docnews
    replied
    Sadly WCI, S corps are not really do-it-yourself operations (to give it a try: https://www.irs.gov/pub/irs-pdf/i2553.pdf) due to need for precise accounting which sometimes calls into question whether you should do it at all. So first the costs of setup ($6k?) must be less than the benefit. For a physician who sets a reasonable wage this means saving only on Medicare taxes. So saving 2.9% with a setup cost of $6k means the first $200k in dividends has no savings.

    Secondly, and most importantly, the cost of state tax law, must not be forgotten. Please see: http://www.scorporationsexplained.com/how-do-states-treat-s-corporations.htm which outlines some basic principles. I'm in a state that does not recognize s corps so if you file one it would fall under c corp laws so for me an s corp would increase my tax bill.

    On another matter, I personally do not see any benefit of an LLC for a physician. If I am personally sued all my assets would be at risk no matter an LLC.

    So for those who do not understand the language of this discussion, if you work as independent contractor and you do not elect to setup a pass through you are by default a sole proprietorship, and you can still deduct business expenses.

    Leave a comment:

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