Choosing the right business structure for your dental practice is a matter of saving thousands in tax dollars annually, in addition to making your practice run smoothly. The right structure will not only impact how the business pays taxes, but also how the dentists are compensated. Here’s a breakdown of your options.
Limited liability company
While LLCs offer some form of legal protection, dentists can still be held liable for malpractice or negligence, and setting up a legal entity can offer protection from the repercussions of other dentists’ or hygienists’ actions. With low setup and maintenance costs, LLCs work best for smaller, single-owner practices that distribute all or most of the business income. Having more than one owner will change how the entity is reported for tax purposes and how income and losses flow through to the owners, who are considered partners in the case of LLCs.
Professional limited liability company
Similar to an LLC in terms of asset protection, a PLLC is made available or required by in some states for licensed professionals who are subject to different tax rules, including deductions. PPLCs function best in dental practices that operate like corporations and have employees file W2s. PPLCs typically include an attorney and tax advisor as part of their team of advisors.
When an LLC is not an advisable option based on geographic location, dental practices that function as corporations can effectively set up a PA to protect assets, as well as offer multiple options for taxes and consequences. While a PA does not shield against malpractice or liability actions, it can protect your practice against the actions or omissions of the practice’s associates.
S-corporations aid dental practices, typically medium to larger practices that are experiencing a high level of growth, in sheltering income from the Federal Insurance Contributions Act and Obamacare taxes on high wage earners. As an S-corporation, dentists can pay themselves wages that will be subject to self-employment tax but can be deducted from business income, the remainder of which will be shared among the owners on a pro rata basis and will not be subject to self-employment tax.
Contact the experts at Professional Transition Strategies to get input into the different types of dental practice ownership structures, how it will affect your future prospectus, and which is right for you.