How To Choose the Right Corporate Structure for Your Medical Practice
Choosing the right corporate structure for a business can mean lowering your tax burden and limiting your liabilities but finding the best one for your medical practice can be confusing. In the healthcare industry, you can choose between sole proprietorship, two types of partnerships or three types of corporations for your practice, but the first step is knowing what those options are and what they entail.
Sole Proprietorship
With a sole proprietorship, you are unincorporated and solely responsible for the business. Although it is a cheap and easy way to get started, a sole proprietorship can leave you unprotected against liabilities. This means that if you are required to pay damages, it comes from your personal assets after the practice’s funds run out.
General Partnership
A general partnership is also an easy way to get your practice started and involves partnering with one or more others in the business. This can leave all the partners liable for business matters, however, even if the fault lies with only one.
Limited Liability Partnership
A limited liability partnership in the healthcare industry means that you are not personally liable for mistakes made by your partners, but your business still is. This can lead to bankruptcy of the practice if one partner gets sued.
C-Corporation
A C-corp lets you sell stock to investors, but taxes proceeds at both the business and personal level. Incorporating separates your business and personal entities and limits liability to what stake you have in the practice. This can offer you more protection, but more tax burden as your company’s profits are taxed and your personal income is as well. You can write off benefits paid to employees on your taxes as a C-corporation, however.
LLC and S-Corporation
An S-corp does not pay taxes at the business level and instead income is taxed as personal income. You get the same protection from liabilities as a C-corp but cannot write off employee benefits. An LLC, Limited Liability Corporation, can be taxed as a sole proprietorship or as an S-corp while offering the liability benefits of a corporation. Most tax professionals will recommend that you use the S-corp model for taxes and will usually recommend that corporate structure over an LLC.
Choosing a corporate structure for your healthcare industry business means weighing the tax burdens and potential liabilities for each type. Some will offer you a cheap and easy way to get started, but leave your personal assets on the hook if you are sued while others can limit your personal liability and tax medical practice income as well as personal income. You can work with a tax professional and your partners to choose the right model for your needs.
