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As a small business owner, you may be overwhelmed with the number of tax forms that you need to fill out each year. From filing your income taxes to payroll taxes, there are numerous forms that you need to complete to stay compliant with the IRS.
In this blog post, I will discuss common tax forms that professional micro-corporation owners. Due to the fact that you are self-employed through your own micro-corporation, your earnings will eventually land in your household through a combination of 4 primary sources as noted below.
From a tax perspective, there is a great deal of strategy involved in figuring out how to reduce your tax burden through the flow of cash through each of these channels. It’s these channels that distinguish you from the traditional physician employee whose total earnings flow exclusively through the W-2 channel. Here the government has limited the tax savings strategies (deductions) for high-income earners like yourself.
To better understand your taxes as a high-earning physician, I suggest you look at my case study blog post that fully unpacks how to cut your taxes in half.
Now onto the various tax forms, you will encounter a brief explanation of each.
Form SS-4: Application for Employer Identification Number (EIN)
If you are a physician planning to start your own professional corporation, you will need to complete and file form SS-4 with the IRS. This form is necessary for obtaining an employer identification number (EIN) which is required for tax purposes.
Form SS-4 is a straightforward document that asks for basic information about your physician’s professional corporation such as its legal name, address, and type of business. It also requires information about the responsible party or individual who will be managing the corporation’s finances.
For physician professional corporations, having an EIN is crucial as it helps to differentiate the corporation from its owners and allows for proper taxation of income and expenses.
Filing form SS-4 is an important step in establishing your physician professional corporation and ensuring that it complies with all applicable tax laws. With this document, you can obtain an EIN which is necessary for opening bank accounts, hiring employees, and filing tax returns.
Form 1040: Individual Income Tax Return
Form 1040 is an essential document for anyone who is a physician sole proprietor or operates a single-member LLC. This form is used to report personal income and expenses, including those related to their medical practice or business. As a physician or business owner, it’s important to understand the requirements of Form 1040 and how it applies to your specific situation.
Filing Form 1040 accurately can help you avoid potential penalties and ensure that you are in compliance with tax laws. Whether you are filing as a sole proprietor or single-member LLC, understanding the nuances of this form can make all the difference in keeping your financial records organized and up-to-date. In this section, we will explore the specifics of Form 1040 for physician sole proprietors and single-member LLCs, providing useful insights into how to file correctly and maximize your tax savings.
Schedule C: Profit or Loss from Business
As a physician who operates as a sole proprietor or single-member LLC, filing taxes can be a daunting task. One important document that you need to file is the Schedule C attachment to your 1040 form. This schedule is used to report your business income and expenses, and it’s crucial for calculating your tax liability accurately.
Filing Schedule C requires you to provide detailed information about your business activities, including revenue, expenses, assets, and liabilities. As a physician running a solo practice or small business, it’s essential to keep accurate records of all financial transactions throughout the year so that you can easily complete this form come tax season.
As a self-employed individual or small business owner, understanding your tax obligations and available deductions is crucial. One important aspect to consider is Schedule C, which allows you to report your business income and expenses on your personal tax return. One of the most valuable deductions for business owners is the ability to deduct business expenses from their taxable income. By taking advantage of this deduction, you can reduce your overall tax liability and keep more money in your pocket. In this section, we will explore the ins and outs of Schedule C and how it can help you maximize your business expense tax deductions.
Form 1065: U.S. Return of Partnership Income
Form 1065, also known as the U.S. Return of Partnership Income, is an important tax document for physicians who are in a partnership with other healthcare professionals. As a physician, it is crucial to understand the requirements and guidelines for filing this form accurately.
Form 1065 is used to report the income, deductions, gains, losses, and other important financial information of a partnership. If you are a physician in a partnership with other healthcare professionals, you must file this form annually to report your share of the partnership’s income or loss.
Filing Form 1065 can be complex and time-consuming, especially if you are not familiar with tax laws and regulations. However, seeking professional assistance from a qualified accountant or tax expert can help ensure that your form is completed accurately and on time.
Schedule K-1: Partner’s Share of Income, Deductions, Credits
If you are a physician who is a partner in a partnership or a shareholder in an S corporation, you will likely receive a Schedule K-1 form from your business entity. This form reports your share of the entity’s income, deductions, and credits that you must report on your personal tax return. Understanding how to properly fill out and utilize the information on Schedule K-1 can be crucial in accurately reporting your income and avoiding any potential tax penalties. In this section, we will explore the ins and outs of Schedule K-1 for physicians and provide helpful tips to ensure that you are properly reporting your share of business income.
Forms 1120 and 1120S: U.S. Corporation Income Tax Return
As a physician, it is important to understand the tax implications of your business structure. Two common forms for business taxation are Form 1120 and Form 1120S. While both forms are used for corporate tax returns, they have significant differences that can impact your tax liability.
Form 1120 is used to report the income, deductions, gains, and losses of a corporation.
Form 1120 is used for C corporations, which are separate legal entities from their owners. This form requires the corporation to pay taxes on its profits and allows for deductions on business expenses.
On the other hand, Form 1120S is used for S corporations, which pass through their income and losses to shareholders who report them on their personal tax returns. This form offers potential tax benefits by avoiding double taxation.
As a physician with a business entity, understanding these differences can help you make informed decisions about your tax strategy and potentially save money in the long run.
I believe it’s important for physicians who are organized as professional micro-corporations to work with professionals who can help you determine which is the best tax entity for your corporation—an S-Corp or C-Corp. My favorite approach to this is SimpliMD’s “As Is/As If” analysis. They do an actual comparative tax analysis looking at W-2 vs S-Corp vs C-Corp to determine which is best for you. The numbers speak for themselves and it helps you make an objective decision. Here is an example of this:
You can explore having SimpliMD do this analysis for you by scheduling a free business coaching session here.
Form 1099-MISC
This is issued by businesses to report payments made to independent contractors including non-employee compensation.
If you are a physician who is self-employed, you will be familiar with Form 1099-MISC. This form is used to report income received for services provided outside of an employer-employee relationship. As a self-employed physician, it is important to understand the purpose and requirements of this form in order to accurately report your income and avoid any potential penalties from the IRS.
The Form 1099-MISC serves as a record of income earned by non-employees, including independent contractors like self-employed physicians. It is typically issued by clients or patients who have paid you $600 or more for your services throughout the year.
Form W-9
As an independent contractor or self-employed physician, you will be required to complete a Form W-9 for each business that pays you for your services.
By providing accurate information on Form W-9, you can ensure that the businesses you work with are able to report payments made to you accurately and in compliance with tax laws. This form also helps prevent identity theft by verifying your Tax Identification Number and preventing others from using it fraudulently.
Although not a long-form, this can be confusing for physicians who are working as independent contractors through their professional micro-corporation. You can check out my blog post here on how to complete your W-9 Form.
Form 941: Employer’s Quarterly Federal Tax Return
Form 941 is a crucial document for physician micro-corporations. However, Form 941 helps simplify the process by allowing you to report your payroll taxes accurately.
For physician micro-corporations, Form 941 is particularly important as it helps ensure compliance with tax regulations and avoid penalties. It also allows you to calculate and report social security, Medicare, and income tax withholding for yourself and any employees.
Form 4562: Depreciation and Amortization
For physician micro-corporations, Form 4562 can be a crucial document when it comes to tax planning and compliance. This form is used to report depreciation and amortization expenses for assets purchased by the micro-corporation, such as medical equipment, office furniture, computer systems, and automobiles.
Section 179 Car Deduction
This is included in part 1 of Form 4562. As a physician running a micro-corporation, it’s important to take advantage of all the tax deductions available to you. One such deduction that can greatly benefit your business is the Section 179 car deduction. This deduction allows you to write off the full cost of a qualifying vehicle in the year it was purchased, rather than depreciating it over several years.
Not only can this deduction save you money on taxes, but it can also provide your business with a much-needed boost by allowing you to invest in new vehicles. Whether you need a car for transportation or for making house calls, the Section 179 car deduction can help make that purchase more affordable.
It’s important to note that not all vehicles qualify for this deduction and there are certain limitations based on how much the vehicle is used for business purposes. However, with careful planning and consideration, this deduction can be a valuable asset for physician micro-corporations looking to maximize their tax savings and invest in their businesses.
Summary
Please note that the specific forms required for your professional micro corporation may vary depending on its legal structure, industry, and other factors. It’s advisable to consult with a tax professional or accountant to ensure compliance with your tax obligations.
Due to the complexities involved, most of you won’t do this yourself and instead will hire a tax professional to do it for you. I think that is a wise choice, but understanding what your tax professional is doing through each of these forms is beneficial to your general business knowledge.
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