When it comes to private practice physicians, the strong and continuing trend is to work as an independent contractor versus an employee of the practice. As a result, when you started practicing medicine in Texas you most likely established a Professional Limited Liability Company (PLLC). Among other benefits, conducting business under a PLLC formation provides you with important asset protection, which is critical for malpractice suits.

But have you ever considered also forming an S-Corporation?

While there are obvious benefits to incorporating under any structure, S-Corps offer unique and worthwhile benefits that other structures do not. Here’s a quick list of some of the most important…

Advantage #1: SELF EMPLOYMENT TAX SAVINGS

The main benefit an S-Corp is the tax savings realized on self-employment taxes (Social Security and Medicare). While an S-Corp is required to pay shareholders a reasonable salary, that salary reduces profits. Any profits that remain after deducting that salary, along with all other tax deductions, are no longer subject to self-employment tax. In determining what your reasonable salary should be, ask yourself “if you hired an individual to take over your duties, what would you pay them?” Once you’ve finalized your reasonable salary amount, get setup on regular monthly payroll.

Advantage #2: DEDUCTABLE HEALTH INSURANCE PREMIUMS

S-Corps shareholders could also save additional payroll tax by having their S-Corp pay for health insurance coverage. While the premiums included as wages are taxable personally and subject to income tax withholding, the amount paid is deductible (as wages expensed by the S-Corp), and the premiums are exempt from employment taxes (FUTA, Social Security or Medicare). This means that the premium is considered self-employed health insurance and therefore is deductible on a shareholder personal income tax return as well which results in income tax savings.

Advantage #3: SUPPORTS TAX-ADVANTAGED RETIREMENT CONTRIBUTIONS

Consider establishing a retirement plan, whether it’s an IRA or 401(k), a S-Corp can provide retirement contributions up to a certain percentage of shareholders’ compensation, thus reducing S-Corp profit (more tax savings) and you get the added benefit of saving for your future. Make sure to contribute before your tax filing deadline to make the most of your contributions.

Advantage #4: REIMBURSMENT OF OUT-OF-POCKET EXPENSES

If the S-Corp establishes an Accountable Plan, shareholders out of pocket business expenses such as home office rent, car mileage or transportation costs, cell phone and internet plans can be reimbursed by the S-Corp. An Accountable Plan requires expenses to be substantiated for business purposes. Due to COVID, a large amount of administrative work has shifted to the home office, so now’s a good time to setup an Accountable Plan.

BONUS: Below this post you can request a copy of a Sample Accountable Plan designed to be adapted with the help of appropriate legal counsel.

Considering a change in business structure for your situation can sometimes be tricky. While this article highlights some of the advantages you may experience by forming an S Corporation, each physician’s situation is unique. The team at STAC Bizness Solutions is here to help you make the best choice for your individual circumstance. If we can help, just let us know!

FREE RESOURCE:
Request a copy of a Sample Accountable Plan!

(It’s completely free, there’s no obligation, and we’ll NEVER share your information)