Everything You Need to Know about a PC taxed as an S-Corp

PC Taxed As An S-Corp Case Study

Dr. ES was at a crossroads. A seasoned pathologist, she had dedicated years to her craft, her expertise invaluable in the intricate dance of diagnosing diseases. But the winds of change had swept through her professional landscape. The hospital where she had been practicing had made the abrupt decision to eliminate her contract, leaving her adrift in uncertainty.

Faced with this unexpected turn of events, she found herself contemplating her next move. It was during this period of introspection that she stumbled upon SimpliMD, a beacon of guidance in the tumultuous sea of career transitions for physicians. With a sense of hope rekindled, she reached out to explore the possibility of starting her own micro-corporation.

Enter SimpliMD Business Consultation – a journey that would redefine her professional trajectory.

In her first session with SimpliMD, Dr. ES met with me as a seasoned entrepreneur and physician advocate. From the outset, I listened intently to her story, understanding the unique challenges she faced and the aspirations that fueled her entrepreneurial spirit.

Together, we embarked on a comprehensive exploration of professional micro-corporation structures, weighing the pros and cons of various options. The concept of a Professional Limited Liability Company (PLLC) immediately caught Dr. ES attention, offering the flexibility of a three-fold tax election: pass-through, S-corp, and C-corp. This versatile structure resonated with her desire for adaptability in navigating the intricacies of taxation.

However, I also introduced another intriguing possibility – the Professional Corporation (PC), which provided a two-fold election option: S-corp versus C-corp. While not as multifaceted as the PLLC, the PC offered its own advantages, particularly in terms of simplicity and the benefits of management.

As we delved deeper into the nuances of each entity, Dr. ES gained valuable insights into the cost of formation and maintenance. The PLLC, with its broader spectrum of tax elections, inherently required more administrative upkeep, including additional paperwork and compliance measures. Conversely, the PC offered a streamlined approach, with lower overhead costs and simplified reporting requirements.

Despite the allure of both options, I guided Dr. ES towards a pivotal realization – the PC with an S-corp election emerged as the optimal choice for most physician micro-corporation owners. This winning combination not only provided the coveted pass-through taxation benefits but also offered enhanced liability protection and greater flexibility in income distribution. It would work perfectly for her plan to do locums work, but also look for an employment lite contracting option in a nearby city.

Armed with this newfound clarity, I embarked on the journey of connecting her to our SimpliMD professional network to set up her PC with an S-corp election. With SimpliMD's unwavering support and expert guidance, she navigated the intricate process of entity formation with confidence and poise.

In the months that followed, Dr. ES micro-corporation has flourished, becoming a testament to her resilience and entrepreneurial acumen. With SimpliMD by her side, she not only weathered the storm of professional upheaval but emerged stronger, empowered to forge her own path in the ever-evolving landscape of healthcare entrepreneurship.

As she reflects on her SimpliMD coaching experience, Dr ES is filled with gratitude for the guidance and mentorship that paved the way for her newfound success. Through the trials and triumphs of her journey, one thing remains abundantly clear – with the right support and expertise, anything is possible. And for Dr. ES, SimpliMD was the catalyst that transformed her aspirations into reality.

Common Question

As I perform weekly business consultations with doctors, the question of which corporate structure and tax election to choose comes up repeatedly. The real answer is that it depends, but generally speaking, for most doctors, choosing a Professional Corporation (PC) or Professional Limited Liability Company (PLLC) with S-corporation taxation is going to be their best option.

So let’s take a deeper like as to why that is the case with a primer of sorts about PC/PLLC’s as S-Corps.

Defining S-Corporations for Physicians

Understanding the Purpose: For physicians operating under a Professional Corporation (PC) or Professional Limited Liability Company (PLLC), electing S-Corp status offers a unique blend of liability protection and tax advantages. It allows them to enjoy the benefits of limited liability while being taxed as a pass-through entity, enhancing their financial flexibility and protecting personal assets.

Advantages of S-Corp Election

Tax Efficiency: One of the primary benefits for physicians electing S-Corp status is the favorable tax treatment. Unlike C-Corporations, where profits are subject to double taxation, S-Corps pass profits through to shareholders, avoiding corporate-level taxes. This can lead to significant tax savings for physicians, allowing them to retain more of their hard-earned income.

Eligibility Criteria for S-Corp Election

IRS Requirements and Restrictions: Physician-owned PCs or PLLCs seeking S-Corp election must meet specific eligibility criteria outlined by the IRS. These include being a domestic corporation, having only allowable shareholders (such as individuals, certain trusts, and estates), and not exceeding a certain number of shareholders (currently capped at 100). Additionally, S-Corps cannot have non-resident alien shareholders or certain types of corporations as shareholders.

Incorporating as an S-Corp for Physicians

Steps and Procedures: The process of incorporating as a PC or PLLC taxed as an S-Corp involves several steps tailored to physicians. This includes filing articles of incorporation with the state, obtaining an employer identification number (EIN) from the IRS, adopting corporate bylaws, and electing S-Corp status within the specified timeframe. You must ensure compliance with both state and federal regulations throughout this process.

Taxation Structure of PC/PLLC taxed as S-Corps for Physicians

Pass-through Taxation vs. Double Taxation: S-Corps offer you pass-through taxation, meaning that profits and losses flow directly to shareholders' individual tax returns. This contrasts with C-Corporations, where profits are taxed at both the corporate and individual levels. With S-Corp election, you can avoid double taxation and enjoy streamlined tax reporting, simplifying their financial management.

S-Corp vs. C-Corp Considerations for Physicians

Key Differences and Decision-making: You must carefully consider the differences between S-Corps and C-Corps to determine the best fit for your practice. While PC/PLLC taxed as S-Corps offer tax advantages and flexibility, C-Corps may be more suitable for larger practices with complex ownership structures. You should weigh the pros and cons of each entity type before making a decision.

Liability Protection for Physician Micro-corporation Owners

Safeguarding Personal Assets: One of the most significant benefits of electing PC/PLLC taxed as S-Corps status for physician-owned micro-corporations is the limited liability protection it provides. This shields your personal assets from business liabilities and debts, offering peace of mind and financial security in the face of potential legal challenges or creditor claims.

Shareholder Limitations and Requirements

Ownership Restrictions and Compliance: Physician-owned PC/PLLC taxed as S-Corps are subject to strict ownership limitations outlined by the IRS. Shareholders must meet specific criteria, and the corporation cannot exceed a certain number of shareholders. Physicians must ensure ongoing compliance with these requirements to maintain S-Corp status and avoid potential penalties.

Compensation and Reporting Requirements for Physician Shareholders

Structuring Compensation and Tax Reporting: Physician shareholders must carefully structure their compensation within a PC/PLLC taxed as S-Corps to optimize tax efficiency. While both salary and dividends are viable options, you should consider the tax implications of each and consult with financial professionals to develop a strategy that aligns with their financial goals and obligations.

Fringe Benefits and Retirement Plans

Perks and Investment Opportunities: PC/PLLC taxed as S-Corps owners, including physician entrepreneurs, have access to a range of fringe benefits and retirement plans that can help you save for the future and enhance their financial well-being. This includes health insurance, retirement savings plans such as 401(k)s or SEP-IRAs, and other perks such as education assistance or employee discounts.

Considerations and Consultation

Expert Guidance: Before electing S-Corp taxation for your PC or PLLC, it's essential to carefully consider the implications and seek expert guidance from legal and financial professionals. Reviewing your business goals, taxation preferences, and long-term strategy can help determine whether S-Corp taxation aligns with your objectives. Professional consultation ensures compliance with IRS regulations and state laws governing PC/PLLC taxed as S-Corps.

Conclusion

In conclusion, electing S-Corp taxation for your Professional Corporation (PC) or Professional Limited Liability Company (PLLC) can provide significant tax advantages and legal protections for your practice. By exploring this strategic option and consulting with professionals, you can optimize your tax strategy and position your practice for long-term success. Embrace the opportunities that S-Corp taxation offers, and unlock the full potential of your professional practice.

If you would like to discuss your unique situation and determine if a PC/PLLC taxed as S-Corps would beneficial to you, please reach out to me today for a consultation.