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Your Career is a Business
A successful career in healthcare today requires not just a broad knowledge of science and technology, but a keen awareness of medicine as a business - filled with more than its share of complicated insurance issues, confusing deadlines and potential regulatory pitfalls. Below, you'll find basic business concepts and definitions as well as some downloadable forms and links to helpful resources.
Please keep in mind that this section is not meant to offer accounting or legal advice, but rather to make you more aware of business and regulatory issues that affect physicians today. We recommend that you consult a CPA or attorney for your individual needs.
As an Independent Contractor, you have the option to structure your business in several ways. The four most common structures are: Sole Proprietorship, LLC/LLP, Corporation and S-Corporation. Each structure has legal and tax considerations that only you can determine are best for your situation. Much of the information provided below is taken from the IRS Small Business/Self Employed website. This site has a wealth of information on starting and running a business.
A sole proprietorship is an unincorporated business that is owned by one individual. It is the simplest form of business organization to start and maintain. The business has no existence apart from you, the owner. Its liabilities are your personal liabilities and you undertake the risks of the business for all assets owned, whether used in the business or personally owned. You include the income and expenses of the business on your own tax return.
In forming a corporation, prospective shareholders transfer money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to compute its taxable income. A corporation can also take special deductions. The profit of a corporation is taxed to both the corporation and to the shareholders when the profit is distributed as dividends. However, shareholders cannot deduct any loss of the corporation.
An eligible domestic corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation. An S corporation generally is exempt from federal income tax. Its shareholders, which can be just you, include on their tax returns their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of non-separately stated income or loss. NOTE: Choosing to structure as an S Corporation requires that you obtain a Federal Employer ID Number (EIN).
An S Corporation application (Form 2553) is submitted to the IRS after you have incorporated in the state of your choosing. Each state has different requirements and fees for incorporation.
LLCs or LLPs
An LLC (Limited Liability Company) or LLP (Limited Liability Partnership) makes an entity election with Form 8832, Entity Classification Election. An LLC may be a sole proprietorship, a corporation or a partnership. A minimum of two members is required for federal tax purposes to operate an LLC as a partnership. Consequently, the applicable tax forms, estimated tax payment requirements and related tax publications depend upon whether the LLC operates as a sole proprietorship, corporation or partnership. The default entity for federal tax treatment of an LLC with two or more members is a partnership. The default entity of an LLP is a partnership and the partnership tax forms, estimated tax payment requirements, and partnership publications apply.
Pros & Cons
Regardless of structure, one of the best benefits of being self-employed is the opportunity to form and contribute to several types of Retirement Benefit Plans like SEPs, IRAs, Purchase Pension and KEOGH Plans. If you are going to take advantage of a retirement plan through self-employment, you may want to consult your CPA or financial advisor before determining your business structure. Each structure can treat the taxability of your contribution differently.
As an independent contractor you are responsible for your own Federal, State, Social Security, and Medicare taxes. You can pay those taxes on a monthly or quarterly basis, which is done by filing a 1040-ES with the IRS.
A good site for tax and other small business advice is Quicken's Small Business site. It's easy to navigate, offers information in plain language and there are a number of tax tools, like a free self-employment tax calculator.
Other useful Tax and Small Business Links:
AOL Government Guide
American Express Small Business Center
Small Business Administration
National Business Association
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