Corporate Law Changing an existing medical practice from SP to LLC

[kristeneb]

HI there,

We have an existing medical practice in Texas that is currently a Sole Proprietorship. We are looking to change to an LLC for liability and tax purposes. We currently have an LLC for our Pediatric Night Clinic that is a separate business, but we started it as an LLC. My concern is transitioning from a SP to an LLC with an existing business? I'm nervous about timing, taxes, and also dealing with changing our info in all of the medicaid, medicare and private insurance databases.

Any info and/or reassurance would be greatly appreciated.

 

[BobMacK]

The question is do you another owner? If you form a LLC with only one member (owner), it IS a sole proprietorship. There have been two court cases that affirm that. Albracht in CO and another case in CA. The IRS disregards a one member LLC and has you fill out a schedule C that sole props use. Most people don't realize these facts. A husband and wife count as one for determining the number of owners.

Most operating businesses should be a corporation. If you are solo, you probably should be an S Corp. If you have assets, do not have them inside your business. Have an LP own the assets and rent them to the operating corp. That way if the company goes under for any number of reasons, you still have the assets and can start again tomorrow by filing as another corporation.

If you are the only owner, you save a lot of money by switching to an S Corp. With the LLC/sole prop, all your earnings are subject to the self-employment tax. With the S Corp, not all the earnings are taxed. With the S, you take a reasonable salary or commission and the rest is not subject to SE tax. For example, you make 150K after expenses and you take a salary of 75k and you pay the 15.3% on the 75k not the SE tax on the whole amount. You save a bunch on the SE tax. You will pay income tax on the entire amount in both situations since the S, LLC and sole prop flow through to the 1040.

Never use an LLC for an operating business if you are the only owner. You would pay more in taxes and have ZERO liability protection.

 

[BobMacK]

With a second business, you might consider using am S Corp for one and a C Corp for the other. The S has the money flow to your tax return while the C pays its own taxes. The first 50k of income for the C corp is taxed at 15%. The C also allows for better fringe benefits such as health reimbursement and health insurance that the S doesn't provide.

So you could have one business as a C Corp, another as an S Corp and all the assets in a Wyoming limited partnership and rent the assets to the operating businesses. That way you will be asset protected and pay less in taxes. Wyoming is my preferred state to use for LPs since it has charging order protection, which most states do not have. You will want that.

I really can't stress it enough, if you are the sole owner of a business DO NOT USE AN LLC!!!!!!!!!!!!!!