One of the most basic medical practice business tips you’ll encounter is the recommendation that you form a legal entity for your medical business. This is preferable to operating as an individual for a variety of reasons, including easier documentation of tax-deductible expenses. The biggest advantage of forming a legal entity, though, is liability protection. When a business is its own entity, it is responsible for its own liability. This helps shield you from personal liability for basic mishaps like a slip and fall on your property. There are a variety of choices when it comes to legal entities, though, and each have their own advantages and disadvantages.
The most basic and easiest to establish form of business entity is the sole proprietorship. Most states have minimal paperwork to declare this kind of business, and tax reporting is done through Schedule C on your personal income taxes. Its simplicity streamlines your paperwork while your practice is small, but there are good reasons to form a more complex entity, because the liability protections are not as robust as other business forms.
The limited liability company is one such entity. As its name indicates, it limits the personal liability of owners/partners. Most medical practice business tips that touch on this type of business recommend it to new entrepreneurs because it is relatively quick and simple to set up, and you have the choice of being taxed as a corporation, a sole proprietorship, or a limited partnership. The paperwork and filing process for this type of business varies from state to state, but the liability protections are consistent no matter where you open your business.
There is also the option to incorporate fully. Turning your practice into a corporation gives you certain tax and liability protections beyond those provided to LLCs, but they also come with more stringent oversight of your business practices in some areas. The two types of corporation typically available to medical business owners are S corps and C corps, and they vary primarily in how they are expected to report and pay taxes.
Consider your options, and remember, medical practice business tips push you to form a legal business entity for your own protection. Make sure you fully research how each choice will affect your company under your state and local laws before making your decision. That way, you can be sure your business operations work with your business model.
