Another option for a solo doctor is to form a corporation. There are several forms a corporation can take, including: S-Corp, C-Corp and Professional Association. Though there are many advantages to incorporating a practice, a doctor must fill a number of roles once the corporation is in place.
Posted in Legal Structure on Wednesday, June 15, 2016
Stockholder and Board of Directors
As the owner of the corporation, the chiropractor is a stockholder. There must be an elected board of directors. The board of directors usually consists of the doctor who serves as the director. As the director, the doctor must elect a president, vice president, secretary and treasurer. (You can fill all of these roles initially, if you so choose.) As the president and chief executive officer of the corporation, the doctor is responsible for hiring employees to help carry out day-to-day patient care duties. Thus, the doctor becomes an employee of his or her own corporation.
Money, Insurance and Taxes
By becoming an employee of the corporation, the doctor must be paid a salary, from which FICA, federal, state and local taxes are withheld. The corporation must pay payroll taxes on the doctor’s salary, as well as the employer's share of FICA, federal unemployment and state unemployment taxes.
Worker's compensation insurance premiums must also be paid on the doctor’s salary. Gross income and practice expenses are not reported on the doctor's personal income tax return.
Because the corporation is considered a legal entity, a separate income tax return must be filed annually. If the corporation has net income, it may be necessary to pay corporate income taxes. A corporation can generally keep taxable income to a minimum by increasing deductible expenses. If income exceeds deductible expenses, the result is a net income, taxable as corporate income.
Distributions, other than salary, by the corporation to you are generally considered dividends. Dividends are not deductible by a corporation but are income (and therefore taxable) for the doctor.
Pensions and More
Most chiropractors who incorporate a practice do so with the intent of establishing a corporate pension and/or profit sharing plan. In doing so, the doctor generally becomes the administrator of the plan, trustee of the trust and participant in the plan.
Doctors incorporating their practices must keep meticulous records. A corporation must keep minutes of stockholders and board meetings. Significant decisions, such as officer salaries, pension, profit sharing contributions and corporate loans, must be recorded. Even bank resolutions must be made to open an account or take out a loan.
If you’re considering forming a corporation, your accountant and/or attorney can advise whether an S-Corp, C-Corp or Professional Association is the best choice for your practice. Also, contact your malpractice carrier to discuss any coverage issues this may create. (For example, any group practice including a partnership may give rise to vicarious liability issues.)
The SBA provides an overview of the pros and cons of this type of business legal structure here.
Get Professional Advice
Since there are a myriad of legal and tax issues that go along with setting up your business legal structure, seek the proper accounting and legal advice from your practice support team.
PLEASE NOTE: The overviews and comparisons provided as links to this article are intended as general information only and may not include the latest developments. Check with your accountant or attorney for up-to-date information about which structure makes the most sense for your individual situation.