Glenn Henderson, CPA/ABV, CVA, AEP
Partner, CCK Strategies, PLLC
An LLC that Files As An S Corporation
One of the most important things that sole practitioners or small partnerships of anesthesiologists can do is actually become an LLC that files for federal income tax as an S corporation. If they didn’t do anything else, that helps to split their income into earned income as well as a return on equity. Put in tax terms, we can avoid payroll taxes on the return on equity while we still pay them what’s considered to be a reasonable wage.
What we avoid, then, is actually more than just the payroll tax. If your wages are over 250,000, you’re required to pay what we call ObamaCare taxes, which are an add-on to your income tax. However, S corporation income is not included in that income that’s taxed at a higher rate. That’s an additional 3.8%. Although that starts off sounding like a small amount, when some of your income is already unnecessarily being taxed at 19% or 20%, basically already adding 50% to your tax burden. So just with some basic restructuring, we can avoid some of those taxes and reduce your income tax burden by about a third, so that it becomes significant when you add those things up.
Forming a C Corporation
For our clients who already have an S corporation, another structural change that we suggest and accommodate is forming a C corporation with a fiscal year end. That C corporation’s purpose is to help with the marketing, the strategic planning, and with logistics of an anesthesia practice.
Deferral is a significant and important part of this structure. We can defer some of the net income of your S corp into a C corp for up to 11 more months until the tax is due. Then, at the same time, we can also set up some other things and look at some other opportunities, especially for retirement in that new C corp.
And finally, I did want to tell everybody that you have to have what’s called a “reasonable wage” for those that are providing services to the S corp or the C corp. So while we can’t eliminate payroll taxes altogether, we can minimize that wage to a reasonable amount, and then everything that exceeds that wage would enjoy the benefits of the reduced tax. And that’s really what I would offer as the first advice for any sole practitioners and small partnerships. It’s really just some simple structural changes, but they can make an enormous impact by saving about one-third of the tax on a large chunk of the providers’ incomes.
If you’d have any questions about taxes and your anesthesia practice, you can reach out directly to Glenn via email at [email protected].
About The Author
Glenn Henderson has been a CPA for over 43 years. After running his own practice for 27+ years, Glenn saw an opportunity to partner with a forward thinking practice and expand service offerings to his clients. He merged his practice with the CCK Strategies team and now specializes in mergers and acquisitions as the partner over the Texas office. He has worked successfully with small and large anesthesia practices throughout the years.
About CCK Strategies, PLLC
CCK Strategies is a Tax and Business Consulting firm that combines a broad scope of expertise with personalized service. With a team of more than 125 people serving clients worldwide, CCK provides innovative solutions and creates value at every stage of a business’s life cycle.
CCK offers the depth of resources, both domestic and international, required to be successful in today’s business marketplace. We are more than a firm, we are your partners.
Headquartered in Tulsa, CCK also expanded into a Texas office in Plano, TX in 2017.
CCK Strategies, PLLC Website: https://www.cckcpa.com/