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Key Considerations To Starting Your Micro-Corporation

Jun 08, 2024

I want to start out this post with a story from one of my business guide clients. Note his name as been changed to a pseudonym.

A New Beginning: From Divorce to Micro-Corporation

Dr. Michael Reynolds had weathered the storm of a painful divorce. The West Coast, once a place of shared dreams and laughter, now held memories that cut deep. He needed a fresh start, a place where he could heal and rebuild. So, he packed his belongings, left behind the crashing waves of the Pacific, and headed to the quiet embrace of the Upper Midwest.

The crisp air of Minnesota welcomed him as he settled into his small apartment. Dr. Reynolds had always been a fighter—a relentless advocate for his patients. But this time, he was fighting for himself. His medical skills were intact, but emotionally, he was bruised. The healing process required more than just time; it demanded purpose.

And so, when an opportunity arose—a self-employed contractor job that allowed him to practice medicine while maintaining a semblance of independence—he seized it. The promise of e-visits and flexible hours appealed to him. It was a chance to regain control, to find solace in the rhythm of patient consultations without the bureaucracy of a large hospital.

But there was a catch: Dr. Reynolds needed to set up his micro-corporation. The term sounded grand, but the reality was daunting. He sat at his kitchen table, laptop open, staring at the blank screen. The cursor blinked mockingly. “Micro-corporation,” he whispered. “What does that even mean?”

He reached out to me at SimpliMD’s to do a business consult. I reviewed his situation and then guided him through the labyrinth of considerations for forming a business as we discussed his optimal Legal structure—a phrase that seemed innocuous but carried immense weight. Should he be a Professional Corporation (PC), a PLLC, a single member LLC, or a sole proprietor? The choices swirled in his mind like autumn leaves caught in a gust.

“Choose wisely,” is what I cautioned. “Your decision affects liability, taxes, and your financial future.” Since I am not an attorney, I need to connect you a legal professional who is familiar with physicians who work as micro-corporations.” I connected him to an expert in our SimpliMD professional network for a legal engagement to help him get things started.

Dr. Reynolds settled on a PC. It felt right—an armor against the uncertainties of life. But then came the avalanche of questions. Tax planning—a realm he had never explored. Payroll tax? Income tax? Were they cousins or distant relatives? He felt like a novice in a complex game of chess.

“You’re not alone,” I assured him. “Many physicians focus on medicine, not accounting. But understanding the basics is crucial.”

He nodded, grateful for their patience. “How much should I pay myself?” he asked. “And when can I deduct expenses?”

“Ah, the delicate dance,” I replied. “Pay yourself reasonably, but don’t starve. Deduct legitimate business expenses—office rent, equipment, even that ergonomic chair you’re eyeing.”

Dr. Reynolds scribbled notes, feeling both overwhelmed and empowered. I recommended accounting software —QuickBooks, a digital ally that would track income, expenses, and balance sheets. It was like handing him a compass in a dense forest.

I also recommended he get connected to a CPA who could help him navigate through all this. When you start a micro-corporation, the heavy lifting to get is starting is working with the lawyer, but after you get it started the heavy lifting with operating it is connected to your CPA. These are two separate steps, but inter-twined optimally by a similar business and tax optimization playbook for both the lawyer and CPA. That is why it is critical to choose professionals who understand doctors, and why it’s so valuable to allow me to guide you through this at SimpliMD. My professional guide services save you huge amounts of time and money, and for only $500 efficiently connects you to our SimpliMD vetted legal and accounting professionals. Let me help you do things the right way!

As the days passed, Dr. Reynolds navigated the intricacies of his micro-corporation. He filed his payroll tax for the first quarter of 2024, a feat that felt like scaling Everest. The numbers danced before his eyes, but he persisted. The SimpliMD network became his lifeline—a chorus of experts guiding him through the financial symphony.

On his first day as a PC, Dr. Reynolds sat in his home office, the hum of his computer filling the room. Patients appeared on his screen, their ailments and worries laid bare. He listened, diagnosed, and prescribed. But beyond the virtual exam room, he knew something profound: he wasn’t alone.

Micro-corporations weren’t just about medicine; they were about understanding the language of business. Doctors needed allies on their team—lawyers, accountants, business coaches, wealth advisors, and software—to harmonize healing with financial stability. Dr. Reynolds had learned that lesson well.

And so, as the sun dipped below the Minnesota horizon, he closed his laptop, a smile tugging at his lips. The micro-corporation was more than numbers; it was his second chance—a bridge from heartache to hope.

“Thank you,” he whispered to the inspiration and guidance from me at SimpliMD. “For helping me heal, one deduction at a time.”

And in that quiet room, Dr. Michael Reynolds began his new chapter—a physician, a micro-entrepreneur, and a believer in the power of collaboration. πŸŒŸπŸ’ΌπŸ’™

Line Up Your Team

Starting a micro-corporation can be an exciting venture, but it’s essential to approach it with careful planning and consideration. As a self-employed physician, you have unique needs and challenges. Let’s explore the key factors to keep in mind when launching your micro-corporation.

1. Legal Structure

Choosing the right legal structure is crucial for your micro-corporation. Here are some things to consider for the most common micro-corporation options.

Professional Corporation (PC)

  • Benefits:

    • Liability Protection: PCs provide strong liability protection, shielding personal assets from professional malpractice claims.

    • Professional Status: Physicians can maintain their professional credentials and status, which is important for reputation and practice requirements.

    • Tax Benefits: Electing S-corp taxation allows PCs to avoid double taxation. Shareholders only pay taxes on their earnings, not on the corporation's profits.

    • Retirement Plans: PCs can establish favorable retirement plans for their employees, including the physician-owner.

  • Downsides:

    • Administrative Complexity: PCs require more administrative tasks, such as regular board meetings and detailed record-keeping.

    • Strict Regulations: PCs must adhere to stricter regulations and formalities compared to other structures.

    • Less Flexibility: PCs offer less flexibility in terms of ownership transfer and profit distribution compared to other structures.

Professional Limited Liability Company (PLLC)

  • Benefits:

    • Liability Protection: PLLCs offer robust liability protection, protecting personal assets from business liabilities.

    • Pass-Through Taxation: Electing S-corp taxation enables PLLCs to avoid double taxation, with earnings reported on the individual owner's tax return.

    • Operational Flexibility: PLLCs provide greater flexibility in management structure and profit distribution compared to PCs.

    • Simpler Formation: PLLCs generally have simpler formation processes and fewer formalities than PCs.

  • Downsides:

    • State-Specific Requirements: The process and requirements for forming a PLLC can vary by state, which can complicate setup.

    • Self-Employment Taxes: PLLC owners may be subject to self-employment taxes on their share of the income, though this can be mitigated with S-corp election.

    • Limited Ownership: Ownership is often restricted to licensed professionals, which may limit operational flexibility.

Single Member LLC

  • Benefits:

    • Liability Protection: Single Member LLCs provide limited liability, safeguarding personal assets from business debts and liabilities.

    • Pass-Through Taxation: With S-corp election, Single Member LLCs can avoid double taxation, with profits and losses passing through to the owner's personal tax return.

    • Simplified Management: Single Member LLCs require fewer formalities and simpler management compared to PCs and PLLCs.

    • Past Through Taxation: Owners can elect to be an disregarded entity that is a pass-through entity.

  • Downsides:

    • Self-Employment Taxes: Without electing S-corp status, owners may face self-employment taxes on earnings.

    • Eligibility Criteria: Some states have specific eligibility requirements that must be met, potentially limiting who can form a Single Member LLC.

    • Perceived Credibility: Single Member LLCs may sometimes be perceived as less credible than PCs or PLLCs, particularly in professional fields.

    • Operating Agreements: While not always legally required, drafting an operating agreement is recommended to outline the structure and operation of the LLC, adding to the initial setup effort.

Avoid the sole proprietorship option due to its lack of asset protection, especially considering your high income and net worth.

2. Tax Planning

Effective tax planning is essential for maximizing your deductions and minimizing your tax liability. Here’s what to consider:

  • Work with a Tax Professional: Collaborate with a tax advisor who understands the intricacies of self-employment and can create a customized tax optimization strategy. I can’t emphasize how important this is to do.

  • Leverage Tax Minimization Options: Unlike W-2 workers, small business owners have more opportunities to reduce their tax burden. Explore deductions related to business expenses, retirement contributions, and healthcare costs.

  • The W-2 Trap: While W-2 employment offers stability, it often comes with hidden tax inefficiencies. As a self-employed professional, you can find a better way to manage your tax liability.

3. Insurance Coverage

As a self-employed physician, insurance is critical. Consider the following:

  • Malpractice Insurance: Protect yourself against professional liability claims. Malpractice insurance is essential for healthcare professionals.

  • Health Insurance: Secure comprehensive health coverage. Since you won’t have employer-sponsored benefits, explore private health insurance options.

  • Disability Insurance: Prepare for unexpected events by having disability insurance. It ensures financial stability if you’re unable to work due to illness or injury.

4. Contracts and Agreements

Review contracts and agreements carefully to safeguard your interests:

  • Professional Services Agreement (PSA): Most independent contractor agreements fall under this category. Ensure that the terms align with your goals and protect your rights.

  • Non-Compete Clauses: Be aware of any restrictions on practicing medicine elsewhere. Negotiate terms that allow flexibility while maintaining ethical boundaries.

Remember that starting a micro-corporation involves both business acumen and legal awareness. Seek professional guidance with me at SimpliMD, stay informed, and build a solid foundation for your entrepreneurial journey. This $500 service will provide you with over $5000 in SimpliMD business products.

Your micro-corporation can thrive with the right planning and execution! πŸŒŸπŸ“ˆπŸ’Ό