One of the first steps in starting a medical practice is the formation of a limited liability company (LLC). An LLC awards a number of asset protections, and makes your business look legitimate and professional. It’s possible for a medical professional to pay themselves through their LLC. This guide outlines best practices for revenue distribution through your business.
The best structures for an LLC
An LLC can be structured as a sole proprietorship, S corporation, or C corporation. If you form an LLC and do not elect to be considered an S corp or C corp, you will be classified as your business’ sole proprietor by the IRS. This means you are not considered an employee of the LLC and all the profits just pass onto your personal tax return at the end of the year. This can cause trouble around tax time if you do not budget for it. If you decide not to elect as an S corp or C corp, you will pay yourself as an “owner’s draw” or “distribution.” To do this, write yourself a check, withdraw money from the bank, or transfer money over to another account. Make sure you document this distribution in your books for tax time.Taxation facts
LLC owners should be careful about their taxes. When a withdraw is made, it is not taxed until you report it. Therefore, if you are making owner’s draws frequently, you may be racking up more tax charges. This is why it is important to talk to a CPA about setting up a quarterly tax payment, so you do not have an overwhelming tax bill at the end of the year. The IRS states that your salary should be reasonable and the average for your profession. Nurse practitioner salaries vary widely throughout the country. Therefore, it is hard to determine what is “reasonable.” The mean hourly rate for a nurse practitioner is $61, according to the Bureau of Labor. Elite NP recommends “paying” yourself according to the national average. Distributions are passed onto your federal income tax, but they are not subject to employment taxes (Social Security and Medicare).Compensation for S corps
If you decide to file as an S corp, you will have to write yourself a legitimate paycheck. You will be considered a W-2 employee of the LLC. This means that every time you pay yourself, taxes will be taken out just like with a normal job. If you work 10 hours per week at your side practice and use the average national hourly rate, you will pay yourself $610 per week in salary. The remainder of the practice’s profits are distributed to you. In general, you usually will save a lot of money on taxes by utilizing an S corp and distributing the profits after you have paid yourself a salary. After you pay yourself through a reasonable salary and distributed profits, you might want to keep some retained earnings in the bank to cover expenses for the next year. Unfortunately, that amount will be taxed as your personal income in an S corp. That is one downside of this business structure.Compensation for C corps
If you decide to file as a C corp, you will pay yourself as an employee and through dividend payments. Dividend payments are not subject to payroll taxes, but they are subject to income taxes. In a C corp, the businesses profit is taxed before its distributed to its owners. Therefore, it is a “double” taxed entity. Retained profits are taxed at the flat 20% corporate tax rate, therefore you can keep money in the company at a lower tax rate than your higher income tax rate.Should I register my business an S corp or a C corp?
You should avoid a C corp unless you end up creating a massive enterprise and want the superior asset protections they offer. If you are operating small nurse practitioner-run side practices, you do not need to form an S corp. Stick to an LLC or an LLC with an S corp election. Paying yourself through these structures is easy and straight to the point.As always, consult with your CPA, legal professional or adviser before implementing any advice provided.
31 Responses
Absolutely brillianT!
Fantastic as usual. I need to talk to my CPA and elect as a S-corp for my LLC. I was hit hard last year on taxes….
got a question, I recently just set up my LLC through the Wyoming company that you recommended, so thanks! anyway I was online to file for my federal EIN number, but it asks where is my “physical address” of business. I do put my state right and not Wyoming, right?
That company also provides you a WY address, did you go with that package? If so, just use their address. If you did not, use whatever address you are operating out of.
@justin- I know Ive seen this info in here about “the WY package” or the WY company that you recommend. Can you please point me in the direction for where to find this. Right now, in MN, trying to find a good CPA as well.
Hi Mara,
This is who I use, very affordable and very fast: https://wyomingllcattorney.com/
In terms of an account, make sure to read this article HERE to help you find a good one.
Thank you for the valuable information
Question..I was thinking of offering multiple services under one LLC. Would you recommend that or start multiple LLC’s?
It really depends on what you are offering. I wouldn’t offer medical cannabis evaluations, weight loss, and IV infusion services under the same roof. If the services compliment each other, then yes. If they are completely different, then utilize different entities.
Different entities = 2 seperate LLC and 2 seperate EIN? I have 2 seperate businesses. Just want to make sure I’m clear on this
Yep, separate EINs
I’m about to start a full time job as a W-2 employee. Is it possible to start an LLC S corp and have them pay the LLC, then pay myself a reasonable salary from the LLC?
You would not be able to do that as a W2 employee… A 1099 would be possible, but you would have to justify why you aren’t paying yourself the full amount they are paying you as it isn’t really a “business” vs just an LLC that is being paid for contract work. I would talk with your CPA but I don’t think that would fly.
Im looking to start a telehealth business then go brick and mortar for weight loss and men’s health. I’m also going to start IV infusions with aesthetics-botox and fillers. Should these be two different entities or could I incorporate them all into one? Medical & Aesthetics….
Stacy, I think all of those are very complimentary services. This is what a typical “wellness spa” type of practice does. I see no issue. The only hangup might be men’s health though. So instead of just men’s health, provide HRT to both sexes because a lot of your Botox clients will want HRT as well! Deliver what your patient wants!
I have paid for a registered agent in Massachusetts for PLLC but they still require me to state a physical address for my business… say it cant be the address of the registered agent or a PO Box. So if I want to protect my home address now I need to also pay for a virtual office address?
Megan,
Yes, you need a virtual address if you do not want to have your home address listed on your LLC. That or use a friends/family members address. There is just little way around this.
Justin
You respond all questions. I am in the process to start mobil wound care.
I have purchased your course, it is very informative. Thank you so much.
From your blogs,
1. -the first thing to start the business is get LLC, With Wyoming or Nevada ; okay
2.:Then have article of organization and operating agreement:
—–would you elaborate what is organizational article and operating agreement. I also read they can be obtained from goole. Can any templet works enough
3.The next step is to apply for FEIN. this is clear
Habtom,
You are welcome! A pleasure to help 🙂
Do not worry too much about the articles of organization or operating agreement. You will get this from the LLC creation service you use to form the LLC for you. I recommend the Wyoming LLC Attorney as it is affordable and quick. They form LLCs in all states. Here is a link: https://wyomingllcattorney.com/Blog/LLC-for-Nurse-Practitioner-NP?utm_source=elite%20np&utm_medium=partnership&utm_campaign=recommended
If you use the above service, they can get the EIN for you as well, but I recommend not paying for it as it takes 5 minutes on the IRS website.
Hi Justin,
when you mentioned the States licenses from the article, do you mean I have to apply all of them in BOTH Wyoming and my home state? Thanks
You don’t need a state license in WY to have an LLC there. An LLC is totally separate from your NP license.
Hey Justin,
Did you file as an s-corp with your Wyoming LLC because that is the one that manages the assets? Or the local state llc? Or both? My understanding is that the local LLC handles the business expenses but all the profits are funneled up the the Wyoming LLC, where you pay your “salary” and distribute extra income?
Thanks.
Mike,
Either or works. At the end of the day, all the profits just pass through to your personal tax return anyways. Just ensure one of them are an s-corp so you can take advantage of the tax savings.
Hi Justin, do I need to open an LLC if I want to work as a 1099 nurse. I am currently working per diem and as a travel nurse. A CRNA I work with recommended creating an LLC to become a 1099 nurse? Or should I just get an EIN number until I start side businesses? Thanks so much
Its just a tax reduction strategy. I would recommend it. The Power Of The 1099.
hello
I’m a NP being paid as a contractor on a 1099NEC. The company who pays me carries their own malpractice insurance which covers all NPs and PAs who work there.
my CPA is recommending an LLC ASAP. my question is could that affect whether or not I am covered by the malpractice insurance I have through the employer?
Which type of LLC would you recommended for a part time worker being paid on a 1099?
finally, would I have to file anything with DOPL?
It shouldn’t affect you from a malpractice standpoint. Just ask them to add your LLC to the policy though to be on the safe side.
A standard LLC is fine.
Don’t know what DOPL is.
Hi Justin,
Two questions regarding this. I have LLC and work 2 jobs as 1099 for now. I have my own malpractice but it is as an individual, do I still add my LLC to that or no because I am a single member it doesn’t matter.
Second question, when sending invoices for my work done as a 1099, Do I put my name on the invoice as well or just the LLC? The one company was not thrilled I made the contract out between my LLC and them so not sure if I am doing this right or over thinking things. TIA.
I would have the LLC endorsed for it. For invoices, just the LLC
Do we link our EIN to assigned DEA number as well?
No