I was recently asked the following question relating to professional corporations in response to my recent video blog: Which Corporate Form is Right for Your Business?Q: Hi Kevin! I ran across your video blog about corporate forms on Facebook - looks like things are going well for you guys! You mentioned emailing with any further questions...I have one. I have a full-time job, but I am now taking on private clients (home-based speech therapy services). I have liability insurance already. Do I HAVE to incorporate or can I just consider it a side job and claim it appropriately on my taxes?
A: Thanks for contacting me. I'm glad you enjoyed the video blog.
In answer to your question, incorporation would probably only be beneficial for you for tax purposes at this point. Speech pathologists and certain other professionals are required to form "professional corporations" or "PCs." PCs, unlike other corporate forms, will not protect you from malpractice liability. As your business grows, you may want to consider forming a PC to protect you from liability for your business' contracts. However, at this time, since you probably do not have a lease or other such contracts to worry about, a PC would probably not be helpful for liability purposes.
Although incorporation will not protect you from the type of liability you are likely to incur with a home-based speech pathology business, forming a PC and filing an S-Corp election with the IRS may be beneficial for tax purposes. Sole proprietors must pay self-employment tax on their profits (including salary), while S-Corp shareholders only pay self-employment tax on their salaries, not their profits. You can learn more about this by reading my article: LLCs vs. S-Corps: Selecting a Corporate Form for Your Small Business.
Whether you are taking in enough profit with your business to make an S-Corp beneficial is something you should discuss with your accountant. If you do not have an accountant that you are happy with, I recommend D Zorea (info@ddzgroup.com) or Joe Leo (jleo@scanlanleo.com).
We offer free "tune-up" consultations to small business owners to discuss both legal and non-legal issues that you may be facing (e.g. website, insurance, accounting issues, regulations, contracts, etc.). If you think this might be helpful, I would be happy to schedule a time to meet with you.
O'Flaherty Law is based in Downers Grove and Chicago, Illinois. Our attorneys have expertise in Corporate Representation, Commercial Litigation, Divorce, Bankruptcy, Estate Planning, and DUI defense. Please visit our website at www.oflaherty-law.com for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.
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