Sole Proprietorship, LLC, or other? (Independent Contractor)

[AliDMD]

I'm a recent dental graduate and will begin working at a local dental chain next month. At my last meeting with the owners, I was told that I will be considered an independent contractor, as are all of the other dentists who work for them, and that I will need a business bank account. Although I will need a "business" account, it will not be an actual business. There will be no growth and I won't be hiring any employees, other than myself. All I would need it for is to receive my pay every month and move a percentage of it to my personal account, leaving behind money to pay quarterly taxes. Knowing this, would the recommendation be to have a sole proprietorship with a DBA associated with the business account, or make an LLC/other? If it's just a sole proprietorship with DBA, am I still eligible for business tax deductions and other write-offs, or would I need an incorporated entity? I'm getting an initial consult with a CPA early next week, but I'm trying to learn as much as I can beforehand so I can have a decent conversation with him. I know a lot about dentistry, but they don't teach us much on business! lol Thanks in advance for any suggestions.

[vangogh]

The sole proprietorship will be the easier way to set up. It's how I'm set up. I registered my business name with the state and I have a business account at the same bank as my personal account. Business money goes in and out of the business account and I transfer money to my personal account as needed. It really doesn't make a difference if you're a sole proprietor, because as far as the IRS is concerned you and the business are the same thing.

You still get to take deductions on your income tax. There will be new forms to fill out and it might be good to have an accountant do your taxes, because an accountant will know about more possible deductions than you will.

The advantage of forming an LLC is mainly in the limited protection. There are additional tax breaks I think. One of our members built a great resource called the Limited Liability Company Center (http://www.limitedliabilitycompanycenter.com/). The site will probably answer any question you have about LLCs and there's some information about S Corps too.

I think the main reason to an LLC is the additional protection for any assets you have. Because you are seen as the business when you're a sole proprietor if something bad were to happen to your business financially, people could come after your personal assets to recover what you owe them. An LLC offers some protection, though I don't think it's all protection, hence the Limited in LLC.

Read through David's site. Anything I could tell you I learned form there. One night's reading and you'll have the information you want.

[tallen]

As a dentist you probably will have more liability exposure than a web designer, so you may want an entity with more protections than a sole proprietorship.

As an independent contractor, will you have to carry your own malpractice insurance (etcetera)? Do you have to provide your own dental tools? I guess I am kind of skeptical of this independent contractor arrangement... You should probably study up on the differences between being and independent contractor versus an employee, starting here: Independent Contractor (Self-Employed) or Employee? (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee)

[Freelancier]

I am kind of skeptical of this independent contractor arrangementMe too. Unless you control your hours and conditions of work, there's a good chance they're just trying to skirt the law and when one of the "contractors" gets pissed off enough and points the IRS at them, they'll owe a LOT of back taxes and have to make all the dentists "employees".

[turboguy]

I have always followed the rules for independent contractors very closely since I used them during a big part of my business life and always made sure I complied. I think your boss must have attended the same dental school you did with little taught about business. I think if the IRS ever questions it he will lose and be stuck paying a lot of back taxes and penalties. I would need to know more to say for sure but that is my guess. The good news is that you won't get in trouble or be facing any penalties.

I would agree with everyone else, you have some liability and an LLC would be the best choice.

[jamesray50]

If this dental office is controlling your hours, supplying you with equipment and tools to perform your job it's possible you are an employee. But, it may also be an industry standard to treat dentists as an IC. Sorry, I don'the actually have an answer to your question.

[AliDMD]

An independent contractor dentist isn't as unusual as it sounds, although I was surprised by it with this office since most multi-office dental practices have their dentists considered as employees. All equipment, staff, and patients will be provided by the office - so I just need to bring myself to work and do whatever is on the schedule. I've heard from several people, including some of my professors, that this is a top-notch office where the owners really try to cater to their dentists. So that was one reason I even considered them at all. The owners seem really nice and the dentist who I will be working with/mentoring me has worked with them for 10 years and loves it, so I guess it can't be all that bad. As for malpractice insurance, yes, I will carry my own as most dentists do regardless if the office offers coverage or not.

And thanks for the link Vangogh, I'll browse through that this weekend.

[turboguy]

Based on what you are saying I don't see any way the IRS would go along with the Independent contractor status. They may be able to slide by for quite some time on that basis however.

[AliDMD]

All this stuff is new to me so I'll take your word on that. I may take home a little less money due to the self-employment taxes and such, but at least I'll learn the basics on having my own company, learning about the different kind of write-offs, and keeping track of accounting for when I start my own office. At this point early in my career, I'm just happy I found an office with a dentist willing to mentor me. I'll just do what I can for this next year and re-assess next summer. My wife and I will most likely be moving back to our home state after she graduates from dental school.

[tallen]

OK, so one thing to be aware of is that you will need to pay Estimated Taxes on a quarterly basis. LLC's are "disregarded" entities as far as the IRS is concerned, although you could elected to be taxes as an S-corp rather than as a Sole Proprietorship (which would be the default for a single-member LLC). If you elect the S-corp route, note that owners who work for the corporation are required to pay themselves reasonable wages/salaries, and the S-corp is required to withhold payroll taxes, and file payroll tax returns (which then means you don't have to pay Estimated Taxes on that part of your income, just the remaining "profits."). Probably something to review with an Accountant and/or Attorney in order to figure out the best approach for your situation.

If you were in a partnership with other dentists, you might look into an LLP rather than an LLC.

With a quick search I turned up the following compilation of links that might be of interest: Business Management References for dental offices (http://www.drotterholt.com/references1.html)

[AliDMD]

Yeah, I read up on the quarterly taxes thing last week and that's one of the main reasons I'm meeting with an accountant next week. I have enough student loan debt as it is, no need to pick a fight with the IRS! lol And nice find on that link, looks like it has some decent info.

Edit:
So going through that website, there was a different link where it took me to a questionnaire regarding employee vs IC. It was about 20 questions and it said that if I answer 'Yes' to any of the questions I would be considered an employee. Well, I definitely answered yes to 18 of the 20 question so I guess I SHOULD be designated as an employee. But it is what it is. It's hard enough finding a good job in the area, even for a dentist. I don't think I want to fight them about this. Like I said, I'll learn the business of dentistry, get some experience, get some money, and re-assess what I want to do next summer. I'll comment back here on Tuesday after meeting with the CPA and let y'all know what he recommends regarding the business entity.