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General Tax Planning for Doctors and other healthcare professionals

Zaher Fallahi Certified Public Accountant (CPA) licensed in California and Washington D.C., has specialized in advising MDs, DDSs, chiropractors, pharmacists, nurses, psychologists, and other healthcare and medical professionals since 1992, with their taxes, audit representation, accounting and tax planning. Please call: (310) 719-1040 (Los Angeles), (714) 546-4272 (Orange County), and (877) 687-7558 Toll Free Nationwide.


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Zaher Fallahi has completed "Negotiation and Leadership” and "Leveraging the Power of Emotions as You Negotiate” Certificate Programs at Harvard Law School.

 

General Tax Planning for Doctors and other healthcare professionals

Disclaimer: The tax and legal tips contained herein below are for general informational purposes only. They are not intended for, and may not be construed as, rendering tax or legal advice. For your specific situation, please consult us or your tax or legal advisor.

(1) If you are a healthcare professional sole proprietor or other small to mid-sized business with gross receipts in excess of $100,000 per year, you are more susceptible to an IRS audit than an average taxpayer. Consult an attorney to incorporate your practice. To inquire about proper incorporation, visit Corporate Attorney.

(2) Incorporating a dental, medical practice or any other professional services does not protect the owner from malpractice. Therefore, sufficient insurance coverage must be obtained.

(3) After incorporation, consult a lawyer to draft business, employment and other contracts in your corporation's name;

(4) Dental or medical corporations, protect the owners from general liabilities, if the medical or dental corporation is:

     (a) Properly incorporated. Often, doctors use services of non-lawyers or non-business lawyers to keep their costs down.  Unbeknownst to them, their corporations never get incorporated properly. From time to time, they find out about the deficiencies in their corporations after being sued by someone, or audited by the IRS. To inquire about proper incorporation, visit Corporate Attorney.

     (b) All formalities are complied with. In addition to incorporation, each corporation must comply with the state law continuously, not just at the time of incorporation.

     (c) Consult your state medical, dental or any other board to ensure the corporation is compliant with their regulations.

(5) General liabilities may arise from:

     Employees termination, payroll issues such as overtime, sick leave, vacations, holidays, etc. or suppliers, land-lords, and other business parties.

(6) Doctors should think of their medical or dental corporations as separate legal entities, and transactions between them and their corporations must be handled under applicable corporate law;

(7) To prevent piercing the corporate veil, do not commingle. This means that if you do not separate your corporation from your personal accounts, the court may set aside the corporate shield and hold you personally responsible for the corporate debts. Therefore;

     (a) Do not pay your personal expenses from your corporation;

     (b) Your loan to and loan from the corporation should be handled with legal formalities to comply with the state law and the IRS requirements; and,

     (c) Have a business lawyer prepare necessary corporate minutes for all major business decisions.

(8) In purchasing a dental, medical practice or any other businesses:

     (a) Buy the assets rather than the corporation, to avoid consequences of any pending lawsuits associated with the selling business, unless there is a valuable goodwill in the target practice. This method requires special IRS reporting at the year-end;

     (b) Have a thorough due diligence study done by a lawyer or CPA experienced in the industry before the purchase;

     (c) Seek legal advice from a business lawyer and tax lawyer on drafting the purchase contract; and,

     (d) Consult a tax lawyer for a tax-advantageous allocation of the purchase price among various assets on the escrow papers. It is important to note that this has far-reaching tax effect on your practice.

(9) For income tax purposes, consider an S corporation, which does not pay income tax to the IRS, and its California income tax is the greater of $800 or 1.5% of the annual net income.

(10) If you are working in your S corporation, be sure to take reasonable payroll from your corporation;

(11) Make sure your corporate payroll taxes are paid timely to avoid potential personal liability by your state and the IRS.

(12) For tax planning purposes in an S corporation, the net income is divided into the owner’s salary and K-1 distribution. Paying unreasonably low salary to S corporation shareholders has been a major IRS audit trigger in the recent years. Although, there is no rule of thumb formula for determining “reasonable salary” for a doctor or a skilled owner, such determination is made by your tax advisor using case laws, your specialty and experience, the net corporate income and other pertinent facts and circumstances.

(13) The IRS has claimed that some doctors have not paid themselves reasonable salaries in an S corporation. Conversely, they have argued that the owners of C corporations have paid themselves excessive compensation. Each argument may have its own merits and important tax consequences;

(14) Considering the new flat 21% C corporation taxes, seek advice of CPAs or tax lawyers whether it may be more tax advantageous to have a C corporation instead of an S corporation;

(15) Have your payroll done by your tax preparer CPA firm so that they monitor the reasonableness of your compensation throughout the year and provide you with year-round tax planning advice;

(16) Do not classify dentists, physicians or other staff working for you as independent contractors without discussing it with your tax attorney or CPA. This misclassification has subjected many doctors, dentists and other business owners to the IRS and EDD audits, and resulted in substantial taxes, penalties and legal fees. I know this, because I defend such businesses;

(17) During employment tax audits, auditors may extend their audits up to three or even ten (EDD does this) previous years. There are numerous statutory determinant factors by which the courts determine proper classification of someone working for you as an independent contractor or an employee. There are twenty requirements by the IRS and twenty two requirements by California to make such determination. There are 4-5 major factors used by auditors in conducting their tax audit;

(18) Use services of experienced CPAs in medical, dental of your particular industry in preparing your accounting and tax work. Based on our experience in representing physicians, dentists and other businesses before the IRS, FTB  and EDD, lack of this factor has been a major audit trigger. For tax preparation visit Tax CPAA professionally trained CPA ensures proper preparation of the underlying financial statements may detect, mitigate or eliminate many tax audit triggers and prevent audit;

(19) Many audited doctors, dentists or other business owners use services of low quality advisors because of their low fee or free service. Ironically, most the time, it is the very low quality work of those advisors that have caused the tax audit;

(20) For the audit represenation, do not retain the individual who prepared your tax returns. Because there is an apparent conflict of interest here and the preparer may be more concerned about defending himself or herself than you;

(21) In hiring professional services, always remember the famous British saying; “I am not rich enough to afford cheap service”. Most the time, these cheap services end up being costly; and,

(22) For competent representation in a tax audit, consider hiring a tax attorney, because:

     (a) Attorney-Client Privilege prevents the IRS from subpoenaing an attorney;

     (b) Attorneys are well trained to defend clients before the IRS or in tax court; and,

     (c) If the audit turns into criminal, non-lawyer tax advisors may be ordered to testify against you; 

    (d) For IRS Defense Attorney visit Tax Defense Attorney

(23) Visit our Website for New Tax Law ; 

(24) Visit our Website for New 20% Deduction for Pass-Throughs ; and,

(25) It would be cost effective to seek legal advice on all business and tax matters. Visit our Website for Outside General Counsel

General Counsel Services 

Zaher Fallahi, Certified Public Accountant (CPA) licensed in California and Washington D.C., has specialized in assisting MDs, DDSs, chiropractors, pharmacists, nurses, psychologists, and other healthcare and medical professionals since 1992, with their accounting, taxes, tax planning and payroll planning. Telephone appointments are available for long-distance clients. Please call:

(310) 719-1040 (Los Angeles)

(714) 546-4272 (Orange County)

E-mail taxattorney@zfcpa.com

For nationwide tax audit representation through  Zaher Fallahi Tax Attorney Call Toll Free 1-877-687-7558.

 

We can help with your Tax Audit

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About 1.8% of the US lawyers are also Certified Public Accountants (CPAs), and we are proudly one of them.

 

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