I'm not sure I agree with your response. My understanding is that incorporating does not protect a physician against malpractice claims. That's a question you should discuss with an attorney, however.

With respect to an S-Corp, you raise a good question. Does the cost of establishing and maintaining a corporation exceed the potential benefits?

For the most part, whatever is deductible to a corporation is deductible to an individual as well. One notable difference is that the home office deduction is actually easier for an unincorporated business to claim.

The one benefit of an S-Corp is that you're entitled to take distributions from the S-Corp throughout the year, and those distributions are not subject to Medicare taxes of 2.9%. You can only take those distributions if you also take "reasonable salary" - or what you could earn as an employee at a similar practice.

Let's say the corporate profit for the year is $425,000, and you determine that reasonable compensation is $225,000. In this case, you could take $200k in S-Corp dividends, and save $5,800 in Medicare taxes. That's a pretty good tax savings.

There are a lot of variables to factor in. If you would like me to help you work through this issue in greater detail, please feel free to contact me via e-mail.

There have been a lot of articles in tax and accounting journals lately about how the IRS is scrutinizing S Corporations more and more with respect to "reasonable compensation". IRS has the right to recharacterize any payments made to a shareholder of an S Corporation as wages, and therefore, collect payroll taxes. It has been argued that the sole shareholder of an S Corporation that has no other employees other than the shareholder cannot justify taking ANY profit as distributions and must pay all profit as salary. This is an ongoing debate.

As far as the limited liability, my understanding is the same as Andrew's in that the corporation does not protect one from a malpractice claim.

I'm not a fan of the S Corporation due to the above and its inflexibility.

Zip Code: 11797