I have a small part - time Private Practice ( mental health ) that brings in about 15K annually in gross income . My expenses are about 13K related to my business . Is it worth paying the extra $ 1100 per year to file as an S - Corp or should I just file as a sole proprietor ?
Estate Planning Attorney
Your question is more appropriately a business question; I have changed the subject matter accordingly. The answer to your question will depend on the circumstances of your particular case. Additionally, if you decide to go with a corp., you should have an attorney assist you with proper formation and filing. The purpose of the $800 minimum annual tax is, essentially for the benefit of doing business with limited liability to yourself. Considering the types of claims one could allege against your practice and the level at which the corporate entity will protect you is one of the justifications for incorporating. Additionally, you might consider whether it is beneficial for employees, health plans, retirement arrangements, etc. Speaking with an attorney about your particular needs and goals will benefit you.
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mrs. Cook is licensed to practice law throughout the state of California with offices in San Diego County. She is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
As a sole proprietor, you are responsible for the debts and obligations of your business. The benefit of forming an S-corporation (assuming you form and run the company properly) is that you can protect your personal assets from business debts and obligations such as personal injury at your office, employee lawsuits, etc.
With that being said, commercial liability insurance also protects your business. So the real benefit of the S-corporation is for any liability above and beyond the amount of insurance you have. For example, let's say you have a commercial liability policy for $100,000. If a patient gets hurt in your office and gets a judgment against you for $150,000, your business would be responsible for the additional $50,000. If you are a sole proprietor, the patient could sue you personally to collect the $50,000 from your bank accounts, home equity, etc. If you have a properly formed and operated S-corporation, only the company would be responsible for that $50,000.
Therefore, the answer to your question boils down to this: what is your commercial liability policy limit and are you willing to personally take on the risk for any potential liability above that amount? If you choose not to take on this risk, you will want to operate your business as an S-corporation.
If you decide to form an S-corporation, I suggest you contact a business attorney. You will probably need a professional corporation, depending on your credentials, and you will want to confirm that an S-corporation is the proper entity.
I just want to add that professional malpractice insurance should also be considered as a means of protecting the assets of the person who asked the question.
You are spending $1100 for additional protection against claims that might be made against you for malpractice, or for accidental injuries while on your premises. If you have proper insurance coverage (including Errors and Omissions for your practice) you should not need the corporation in your waning years. It is a judgment call. if you violate the law you will want the extra protection.
The advice provided is in good faith but not a guaranty of accuracy under all circumstances.