legal matters
Choosing a Legal Structure for Your Dental Practice
by Jason T . Hirst
Starting or buying a dental practice is a complicated process that requires a lot of important decisions . One of those decisions is what legal structure you ’ ll use for the ownership of your practice . A number of issues should be considered when making this decision , many of which are often overlooked or misunderstood .
Federal Income Tax Status
The effect on federal income taxes is often the primary ( and sometimes the only ) consideration when setting up a legal structure for any business . While this is certainly an important factor , it should not be focused on to the exclusion of the other issues addressed here . Many are not aware that a company ’ s legal form – organized under state law – is often independent from how the IRS treats the company . Because of the so-called “ check-the-box ” regulations , each legal structure generally has more than one option of how it will be treated for federal income tax purposes .
Even though the federal income tax treatment can be separated from the actual legal form of the company , most people , including professional advisors , often speak of them as if they are the same . A limited liability company ( LLC , or PLLC for its professional counterpart in Texas ), for instance , is not a type of tax classification . An LLC , depending on its ownership and tax elections filed , could be treated by the IRS as a disregarded entity ( in which case all income and expenses are reported on the individual ’ s tax return , primarily using Schedule C ), as a partnership , or as a corporation taxed under subchapter C ( a “ C Corp ”) or under Subchapter S ( an “ S Corp ”). An LLC offers the most flexibility for income tax options , but does not have its own tax regime . Other legal entity types , and other factors , may restrict your tax options .
Unless you are an experienced veteran with the tax rules , you should consult with a competent advisor who is familiar with the tax rules and with dentistry . Your chosen tax structure will not only affect the amount of taxes that you will pay to the IRS , but it will also impose certain reporting requirements and may place limits on future legal structuring options .
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