Re: Re: Pllc vs s corp for start up

April 6, 2012

alsothe books by Nolo press are wonderful and come with state specific resourcesJean

Randy,

You need an accountant and/or a lawyer in NYC to answer this due to the laws of NYC. However, for everyone else and as background for you, I've added what follows:

Business entities are established on a state level. Not all states are the same. LLCs and PLLCs are relatively new business entities and some states don't have them. Because they are new, there is not a lot of legal precedence which makes business lawyers nervous. Delaware has a long history of being " early adopters " of different business entities. As a result, that state has the largest legal precedence ... which attracts businesses to form their company in Delaware. Everyone likes it when you know the rules and Delaware has the most defined rules. That's why you see most big companies " form " in Delaware. For example, Ford, which is based in the Detroit area, is actually a Delaware company.

You can form a company in any state. But if you are small, it's best to stick with your own state. Lots of reasons for this but I think too much for this post.

So in Michigan, I had the option of sole proprietor, PLLC, S-corp, and C-corp. I highly recommend against the sole proprietor b/c there is no corporate protection. In other words, you are the company and you take 100% risk of everything ... not just your medical decisions.

PLLCs were made to create an easy method for people to create the liability protection of a small company. With PLLCs (and LLC), the company is separate from the creator. So if someone sues the company, you are not liable ... with some caveats. In Michigan, I created a PLLC with a simple 2 page form which required maybe 10 words and $75 to complete. The annual fee is $75.

There is no good reason I can see to create an S-corp with your state. This is b/c you can still file as an S-corp with the IRS even though you are a PLLC (see below). C-corps provide lots of benefits but they are administratively burdensome. A really, really, really savvy IMP could do this and get enough fringe benefits to offset the increase costs.

So PLLC is the way to go for most IMPS (my opinion). Now for the IRS. The interesting thing is that the IRS does not recognize PLLCs. PLLCs are created under state law, not federal. Once you have your PLLC, you need to tell the IRS how you want your company to be treated. If you do nothing, the IRS will treat you as " disregarded entity " (a what??). I have no clue what it means to be disregarded (well, I guess I do from being disregarded in the past (joke)) but to the IRS that means they will treat you as a sole proprietor for federal taxes. This means you file a Sched C and your income equals your revenue minus expenses. Your state taxes follow from your IRS 1040.

The better thing to do (in my opinion), is to file the form (I can find if needed) with the IRS to be regarded as an S-corp by the IRS for taxes. The advantage of S-corp is that " profits " (income - expenses - your salary) are " passed through " to the owner. Pass-through means the profit is income to the the owner but no FICA payroll taxes are paid. This can provide significant savings. The disadvantage is tax preparation is more difficult. You have to file a 1120S by March 15th which generates a Sched K-1 to the owner. The owner then files by April 15th their salary (from W-2) and profits (from K-1). The state will then take your 1040 and go from there. HOWEVER, always talk to a qualified CPA and/or lawyer. In NYC, they have a GCT (General Corporate Tax) and NYC does not recognize the NY State nor Federal S-Corp designation. I have no clue what this means to you except the city wants your money.

A warning to PLLCs/LLCs that file as S-Corps. You have to pay yourself a " reasonable salary " . Obviously, a lower salary means higher profit which means less FICA taxes paid. The IRS knows this and is actively looking for S-corps who aren't paying " reasonable salaries " to the owners. What is " reasonable salary " ? Unknown. We know " zero " is not reasonable salary. paid himself $350,000 for being a lawyer for his S-corp which had profits of, I think, $20+ million. His " salary " was considered " reasonable " by the law community but this was never investigated by the IRS. If you are the lowest " salaried " provider in town, it's likely your salary is not " reasonable " . I'm paying myself a " reasonable " practice manager's salary with 3 years of experience b/c with a practice to open this month, I'll be doing a lot more practice management than doctoring.

IMP camp is a wonderful resource for information about many parts of running a practice. I gave a presentation on this topic during the past 2 IMP Camps. Come to Camp!!

Craig

>

> > **

> >

> > Hi everyone first time poster

> > I am starting a peds practice in the next few months in nyc.

> > I have struggled for the answer to this question since the difference

> > between the 2 is not obvious.

> > So the question i have is what would u choose if you were to open a

> > practice today pllc or s corp and why?

> > Thanks

> > randy

> >

> > Sent from my iPhone

> >

>

> --

> Anne Walch, MHS, PA-C

> Healing Path Integrative Medicine

> www.hpimed.com

>

-- MD ph fax

April 7, 2012

Thanks Craig.And the website www.nolo.com has quite a bit of free info, in addition to reasonably priced do it yourself books. The founder now has his own legal publishing company www.nolotech.com (I have no personal experience with that one.)

From the ever reliable Wikipedia's entry on Nolo:

Nolo, formerly known as Nolo Press, is a publisher in Berkeley, Californiathat produces do-it-yourself legal books and software that reduce the need for people to hire lawyers for simple legal matters such as making wills or writing business partnership contracts. In 2011, the company was purchased by Internet Brands, Inc.

.....

The company's logo shows the scales of justice tilted (in the favor of the reader). Some older Nolo publications feature an unofficial mascot, a shark depicted wearing a necktie and carrying a briefcase – showing the company's fondness for poking fun at their fellow members of the legal profession. This mascot was often accompanied by the motto " Don't feed the lawyers. Just say Nolo. " [4]

The Nolo shark officially retired in 2006 on the company’s 35th anniversary.

The guy who started it had his law degree from UC Berkeley. No financial incentives, just like supporting people who help me get things done well (and cheaply) and who poke fun at lawyers.

Sharon

Sharon McCoy MDRenaissance Family Medicine10 McClintock Court; Irvine, CA 92617PH: (949)387-5504 Fax: (949)281-2197 Toll free phone/fax:

www.SharonMD.com

April 7, 2012

You're idea of paying myself as a practice manager is intriguing. My fear is that I've filed for years as doctor so that may become a red flag. It's been 4 years since opening come this July and I'm not sure if it's too late to consider this. Thanks for sharing . I'll run it by my accountant.

To: Sent: Friday, April 6, 2012 4:42 PMSubject: Re: Pllc vs s corp for start up

Randy,You need an accountant and/or a lawyer in NYC to answer this due to the laws of NYC. However, for everyone else and as background for you, I've added what follows:Business entities are established on a state level. Not all states are the same. LLCs and PLLCs are relatively new business entities and some states don't have them. Because they are new, there is not a lot of legal precedence which makes business lawyers nervous. Delaware has a long history of being "early adopters" of different business entities. As a result, that state has the largest legal precedence ... which attracts businesses to form their company in Delaware. Everyone likes it when you know the rules and Delaware has the most defined rules. That's why you see most big companies "form" in Delaware. For example, Ford, which is based in the Detroit area, is actually a Delaware company.You can form a company in any state. But if you are small, it's best

to stick with your own state. Lots of reasons for this but I think too much for this post.So in Michigan, I had the option of sole proprietor, PLLC, S-corp, and C-corp. I highly recommend against the sole proprietor b/c there is no corporate protection. In other words, you are the company and you take 100% risk of everything ... not just your medical decisions.PLLCs were made to create an easy method for people to create the liability protection of a small company. With PLLCs (and LLC), the company is separate from the creator. So if someone sues the company, you are not liable ... with some caveats. In Michigan, I created a PLLC with a simple 2 page form which required maybe 10 words and $75 to complete. The annual fee is $75.There is no good reason I can see to create an S-corp with your state. This is b/c you can still file as an S-corp with the IRS even though you are a PLLC (see below). C-corps provide lots of benefits but

they are administratively burdensome. A really, really, really savvy IMP could do this and get enough fringe benefits to offset the increase costs.So PLLC is the way to go for most IMPS (my opinion). Now for the IRS. The interesting thing is that the IRS does not recognize PLLCs. PLLCs are created under state law, not federal. Once you have your PLLC, you need to tell the IRS how you want your company to be treated. If you do nothing, the IRS will treat you as "disregarded entity" (a what??). I have no clue what it means to be disregarded (well, I guess I do from being disregarded in the past (joke)) but to the IRS that means they will treat you as a sole proprietor for federal taxes. This means you file a Sched C and your income equals your revenue minus expenses. Your state taxes follow from your IRS 1040.The better thing to do (in my opinion), is to file the form (I can find if needed) with the IRS to be regarded as an S-corp by the

IRS for taxes. The advantage of S-corp is that "profits" (income - expenses - your salary) are "passed through" to the owner. Pass-through means the profit is income to the the owner but no FICA payroll taxes are paid. This can provide significant savings. The disadvantage is tax preparation is more difficult. You have to file a 1120S by March 15th which generates a Sched K-1 to the owner. The owner then files by April 15th their salary (from W-2) and profits (from K-1). The state will then take your 1040 and go from there. HOWEVER, always talk to a qualified CPA and/or lawyer. In NYC, they have a GCT (General Corporate Tax) and NYC does not recognize the NY State nor Federal S-Corp designation. I have no clue what this means to you except the city wants your money.A warning to PLLCs/LLCs that file as S-Corps. You have to pay yourself a "reasonable salary". Obviously, a lower salary means higher profit which means less FICA taxes paid. The IRS

knows this and is actively looking for S-corps who aren't paying "reasonable salaries" to the owners. What is "reasonable salary"? Unknown. We know "zero" is not reasonable salary. paid himself $350,000 for being a lawyer for his S-corp which had profits of, I think, $20+ million. His "salary" was considered "reasonable" by the law community but this was never investigated by the IRS. If you are the lowest "salaried" provider in town, it's likely your salary is not "reasonable". I'm paying myself a "reasonable" practice manager's salary with 3 years of experience b/c with a practice to open this month, I'll be doing a lot more practice management than doctoring.IMP camp is a wonderful resource for information about many parts of running a practice. I gave a presentation on this topic during the past 2 IMP Camps. Come to Camp!!Craig> > > **>

>> >> > Hi everyone first time poster> > I am starting a peds practice in the next few months in nyc.> > I have struggled for the answer to this question since the difference> > between the 2 is not obvious.> > So the question i have is what would u choose if you were to open a> > practice today pllc or s corp and why?> > Thanks> > randy> >> >> > Sent from my iPhone> >> > > >> > > > -- > Anne Walch, MHS, PA-C> Healing Path Integrative Medicine> www.hpimed.com>

April 7, 2012

Thank you all for your feedback.Greatly appreciatedSent from my iPhone