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Which Corporate Structure Is Best For Self-Employed Doctors Part 2

Jun 20, 2024

In my post one week ago, Which Corporate Structure Is Best For Self-Employed Doctors Part 1 we reviewed the the most common corporate structures that work best for you when you create a micro-corporations for your self-employment work.

Which Corporate Structure Is Best?

As you recall, I overall recommend that most of you will be best served by forming a single member professional corporation or a single member professional LLC that is taxed as an S-corp.

Compared to the simplicity of a single-member LLC, the expenses and complexity of an Single Member PC and Single Member PLLC are still relatively small—which is the first psychological hurdle that many of you need to overcome.

A PC and PLLC business structure both offer additional legal and financial benefits, but they do require a slightly higher level of administrative effort and upfront costs. However, the advantages they provide in terms of liability protection, tax optimization, and asset protection often outweigh the minor increase in complexity. It's crucial for you to understand and evaluate these options objectively to determine the most suitable structure for your micro-corporation and long-term goals.

You have been conditioned to believe that the business of medicine is too complex and the tasks of running a medical business and managing employees are just too burdensome.

Honestly, when it comes to traditional private practice, this mindset is absolutely valid and hard to refute. It’s not an insurmountable obstacle, but it’s is certainly more complex than other self-employment business structures.

The conventional approach to be self-employed in private practice has its merits, but you can't ignore the potential benefits of exploring alternative perspectives. By keeping an open mind and considering fresh ideas, you might uncover innovative solutions that could revolutionize the way we operate. Embracing change doesn't mean abandoning what works; it means enhancing it with new possibilities. Let's approach this with an open and curious mindset, ready to be convinced by compelling arguments and tangible advantages. Who knows? You might just discover a game-changing approach that takes your medical career to new heights.

Listen carefully, because this is a crucial distinction that many tend to overlook. I'm not suggesting you form a "private practice" corporation to operate a retail medical practice and compete in the healthcare arena.

That's where confusion often arises. Most assume that starting any professional medical corporation is synonymous with "private practice," which then translates to a retail space, medical office building, staff, equipment, third-party management, and so on. But that's not what I'm referring to at all.

The Modern Virtual Professional Micro-Corporation

Listen, I understand the traditional path of employment can feel limiting, but what I'm proposing is a game-changer. Imagine having a virtual professional micro-corporation that travels with you, an invisible entity that your work can seamlessly flow through. This isn't just a practice without walls; it's a liberating concept that puts you in control.

With this structure, you're not just an individual – you're an integrated business entity. You have the power to choose how you work, whether as an individual employee (W-2) or as a contractor through your corporate structure (1099). This flexibility is yours to apply to any and every professional opportunity that comes your way.

Think about it: no more being boxed in by traditional employment models. This professional micro-corporation empowers you in the marketplace, giving you the freedom to shape your career on your own terms. It's a game-changer, a chance to take control of your professional life like never before. You don't let this power you have earned pass you by.

So for the sake of our conversation I want to push forward the idea of your self-employment as an independent contractor. In this space, I think the best alternative to traditional employment is employment lite. This is a long term independent contracting model and I have loved doing it for over a decade!

Envision a world where your professional aspirations soar beyond boundaries. Imagine harnessing the power of technology to create a virtual medical corporation that transcends the limitations of traditional employment. This innovative approach empowers you to take control of your professional earnings, seamlessly managing your 1099 income, whether your services are delivered in person or through the boundless realms of the virtual world. Let this virtual medical corporation be the catalyst that ignites your entrepreneurial spirit, propelling you towards a future where your passion and purpose converge in perfect harmony.

In terms of administrative burdens in this structure—the only employee you have to manage is yourself—which should theoretically be simple! The other tax, legal, and accounting business management tasks can be easily and efficiently outsourced or self-managed—you get to decide as you have the autonomy and freedom to operate your own corporation.

I love my professional micro-corporation and outsource a good portion of the administrative elements, including hiring my wife as the book-keeper (there are fringe benefit and retirement advantages to this arrangement)

Now let’s drill down a bit more into single member LLC’s, single member PC’s, and single member PLCC’s, as it’s a common question about which is best. Let me start by saying the PC’s and PLLC’s are so similar, that either one can work for you.

What is the difference between a single-member PC and a single-member PLLC?

Both Single Member Professional Corporations (SMPCs) and Professional Limited Liability Companies (PLLCs) are business entities used by professionals to provide services to clients while protecting their personal assets from business liabilities. However, there are some key differences between the two:

  1. Formation: A SMPC and an SMPLLC can have only one shareholder—you as the physician-owner. Both corporations can be expanded to include more than one professional shareholder in the corporation.

  2. Liability protection: Both SMPCs and SMPLLCs provide limited liability protection, which means that the personal assets of the owner(s) are protected from business liabilities. However, the specific details of the protection may vary depending on the state where the entity is formed.

  3. Taxation: SMPCs and SMPLLCs can elect to be taxed as an S-corp or C-corp. S-Corps are taxed as pass-through entities, which means that the profits and losses of the company pass through to the individual member(s) who report them on their personal tax returns.

  4. Corporate formalities: SMPCs are required to follow strict corporate formalities, such as holding annual shareholder meetings and keeping minutes of those meetings. SMPLLCs, on the other hand, have more flexibility and are generally not required to follow as many formalities.

Overall, both SMPCs and SMPLLCs offer liability protection and can be effective business structures for professionals. However, your specific needs and goals may determine which design is most appropriate for your particular situation. I recommend to consult with a legal or financial professional to determine which entity is right for you.

I believe the best approach is to let an experienced physician like myself coaches you and connect you to legal and accounting professionals who work out of the same playbook helping physicians. I suggest engaging with me at SimpliMD for only $500 and I will personally guide you through the process.

Alternatively you can schedule a $99 business consultation meeting with me at SimpliMD if you not sure what your next step should be and want to talk about it 1:1.

What is the difference between a single-member PC and a single-member LLC?

Different Structure

A single-member professional corporation(SMPC) is a type of corporation that is set up specifically for licensed professionals such as doctors, lawyers, and accountants. It provides liability protection to the individual owner from the debts and liabilities of the corporation, but not from the individual’s own professional malpractice.

On the other hand, a single-member LLC is a type of limited liability company that is owned and operated by one individual. It provides liability protection to the owner from the debts and liabilities of the LLC. Additionally, an SMLLC can elect to be taxed as a disregarded entity (pass-through taxation), which means that the profits and losses of the LLC are reported on the owner’s personal tax return.

While both entities offer limited liability protection, the main difference between an SMPC and an SMLLC is the type of business that they are designed to serve. The SMPC is designed for licensed professionals while the SMLLC is more flexible and can be used for a wide range of business purposes.

Different Tax Advantages

The following reviews general information about tax advantages associated with SMPCs and SMLLCs

  1. Potential for Lower Self-Employment Taxes: One potential advantage of a professional corporation is the ability to reduce self-employment taxes. In an LLC, all profits are subject to self-employment taxes, including the owner’s share of the profits. In a professional corporation, the owners can structure their income as a salary, which is subject to payroll taxes, and as dividends, which are generally not subject to self-employment taxes. By allocating a portion of the profits as dividends, PC owners may be able to lower their overall tax burden compared to a single-member LLC.

  2. More Flexible Tax Planning: Professional corporations may offer more flexibility in tax planning compared to single-member LLCs. PCs can provide various tax planning opportunities through different income allocation methods, distributions, and compensation structures. By working with a tax professional, PC owners can potentially optimize their tax strategies to take advantage of deductions, credits, and other tax benefits available to corporations.

  3. Deductible Business Expenses: Both professional corporations and single-member LLCs can generally deduct ordinary and necessary business expenses. However, it’s important to note that the deductibility of expenses can be subject to specific rules and limitations set by tax authorities.

  4. Retirement Plans: Professional corporations may have more options and flexibility when it comes to retirement planning. PCs can establish various types of retirement plans, such as 401(k) plans, SEP IRAs, or defined benefit pension plans, which can provide tax advantages for both the business and its owners. These retirement plans may offer higher contribution limits or more favorable contribution rules compared to what may be available to a single-member LLC.

What is the difference between a single-member LLC and a single-member PLLC?

The difference between a single-member LLC and a single-member PLLC is important for you to understand. A single-member LLC is a business structure that allows you to keep your personal assets separate from the business assets, while a single-member PLLC offers the same protection but with additional tax benefits. Both structures offer protection from personal liability, allowing you to focus on providing professional services without worrying about potential financial losses due to lawsuits or other liabilities. However, it is important to understand the differences between these two structures in order to make the best decision for your professional life.

A single-member LLC is called a “disregarded entity”. Its business and financial activities are associated with your personal social security number (TIN). Whereas a PLLC is a separate check box on the W-9 form and must have an Employer Identification Number (EIN) associated with it. That is because it is a business considered separate from its owner and thus must file its own corporate taxes annually. Meaning you will have individual AND corporate taxes to file each year.

Solo View

Listen, I get it – the single-member business structure is a game-changer, and you'd be wise to embrace it for all your professional endeavors. The benefits of virtual and single-member corporate setups are only going to become more pronounced, especially for professionals like you. Think about it – streamlined operations, tax advantages, and the flexibility to adapt to an ever-changing marketplace. It's a no-brainer, really. Don't get left behind; take control of your future and leverage the power of these cutting-edge business models. Trust me, you won't regret it.

The traditional model of a doctor working in a single location is rapidly becoming obsolete. The modern era demands a more flexible and dynamic approach, where a single doctor can leverage their expertise across multiple jobs and locations worldwide. This paradigm shift is a compelling opportunity to break free from the constraints of locally owned small private practices. Instead, you can position yourself as a highly sought-after professional, offering your services to larger corporations that truly value your skills as contracted labor. This model not only provides financial stability but also opens doors to diverse experiences and professional growth. Embrace this transformative trend and seize the chance to redefine the boundaries of your medical career.

Listen, the reality is that the future of healthcare is rapidly changing, and you need to adapt. Most of you will eventually transition to receiving 1099 income in some form, which means they'll have to make a crucial decision: operate as a sole proprietor or form a single-member professional micro-corporation. This choice isn't just about paperwork; it's about taking control of your financial future and maximizing your earning potential. By carefully considering the pros and cons of each option, you can position yourself for long-term success in this evolving landscape. Don't let this opportunity pass you by – take charge of your income and secure your financial well-being.

Summary of Which Option is Best For You?

The choice between a single-member LLC, single-member PC, or single-member PLLC for a physician working as a contractor can depend on various factors, including legal considerations, personal preferences, and the specific rules and regulations in your jurisdiction. It's essential to consult with a qualified attorney or tax advisor who is familiar with your local laws and can provide advice based on your specific circumstances. The best approach is to hire a business guide & coach like myself at SimpliMD who for only $500 will help you connect you to professionals who understand the needs for self-employed doctors.

That being said, here's some general information about each structure:

  1. Single-Member LLC (Limited Liability Company): A single-member LLC provides liability protection by separating personal assets from business liabilities. It offers flexibility in management and taxation. As a physician working as a contractor, an LLC may be a suitable choice, as it allows for pass-through taxation, meaning the business’s income and expenses flow through to your personal tax return. This structure is relatively easy to set up and maintain, and it provides personal liability protection, shielding your personal assets from potential business liabilities.

    If you had to choose a business entities that uses your personal tax identification number (social security number)—a sole proprietor or single member LLC—I would recommend all doctors choose an SMLLC due to its asset protection structure.

  2. Single-Member PC (Professional Corporation): A single-member PC is a corporate structure specifically designed for licensed professionals such as physicians, lawyers, and accountants. PC offers limited liability protection similar to an LLC. The primary advantage of a PC is the potential for reducing self-employment taxes by splitting income between salary and dividends, as mentioned earlier. However, the ability to use this income-splitting strategy may depend on your jurisdiction’s laws and regulations. The reduction in self-employment taxes along with more robust retirement options are what makes me favor this business structure over an SMPLLC.

  3. Single-Member PLLC (Professional Limited Liability Company): A single-member PLLC is a specific type of LLC designed for licensed professionals. It combines the liability protection benefits of an LLC with the professional designations and requirements of certain occupations. The exact regulations and requirements for PLLCs can vary by jurisdiction, so it’s crucial to consult with an attorney or tax advisor familiar with the rules in your area. Based on the state in which you reside, an SMPLLC may have some advantages over an SMPC.

When determining which structure is best for you as a physician contractor, consider factors such as liability protection, taxation, regulatory requirements, administrative burdens, and any restrictions or advantages specific to your jurisdiction. Consulting with a professional advisor can help you navigate these considerations and make an informed decision based on your unique circumstances. Let me help navigate you through this process, you can get started here.

Forming a professional micro-corporation for your independent contracting work is a strategic move that can unlock numerous benefits and propel your success. By taking this crucial step, you gain a heightened level of credibility and professionalism that sets you apart from the competition. It demonstrates your commitment to your craft and your dedication to providing top-notch services to your clients. Moreover, a micro-corporation offers invaluable legal and financial advantages, shielding you from personal liability and providing a structured framework for managing your business operations. Don't miss out on this opportunity to elevate your independent contracting endeavors to new heights. Take action today and establish your professional micro-corporation – the key to unlocking a world of possibilities and securing a prosperous future in your field.

Let’s chat if your unsure if it’s best for you, for only $99 I’ll do a 1:1 micro-business consult with you, take this step today!