FORM A PROFESSIONAL SERVICE CORPORATION
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|OUR GOAL—YOUR Complete Satisfaction and UnderstandingOur goal is to provide each of our clients with as much information as possible about starting a Professional Service Corporation. As you will see as you review the following material, there is a lot of information to digest and consider. Many legal aspects may be complex and confusing. We want you to know we are available to speak with you about any legal aspects of the formation of your Professional Service Corporation at your convenience either over the telephone or in person at the Spiegel and Utrera, P.A., office nearest you. |
WHAT'S A PROFESSIONAL SERVICE CORPORATION
Individuals or other professional corporations or limited liability companies forming a business where individuals are rendering licensed, professional services to the public may form a professional corporation. These professions may include physicians, chiropractors, dentists, veterinarians, physical therapists, pharmacists, registered professional nurses, licensed practical nurses, licensed midwives, podiatrists, optometrists, opticians, engineering and land surveyors, architects, landscape architects, public accountants, shorthand reporters, psychologists, social workers, massage therapists, occupational therapists, dieticians and nutritionists, speech language pathologists and audiologists acupuncturists, interior designers, athletic trainers, mental health practitioners and respiratory therapists. It may be that the shareholders of the professional corporation may only be other professional licensed or otherwise legally authorized to render the same professional service as the professional corporation or limited liability company. Of course, employees of the professional corporation such as clerks, secretaries, bookkeepers, technicians, and other assistants who are not licensed are not considered to be rendering professional services. It may be that transfers of stock or membership interest may only be made to licensed professionals or professional corporations or professional limited liability companies.
The Tax Benefits of Forming a Professional Corporation
A professional corporation is an individual or group of individuals, all of whom are required by law to be licensed in their profession or to obtain other legal authorization, incorporated for the purpose of rendering the same professional service to the public.
Those individuals entitled to form professional corporations can receive numerous tax benefits over operating as a sole proprietorship or partnership while at the same time avoid filing a Schedule C with their own IRS form 1040. Expenses that most businesses incur or needlessly avoid because of cost can create huge benefits and tax deductions.
For example, with the skyrocketing cost of health care it becomes a necessity that individuals carry health insurance on themselves and their families. Sole proprietorships and partnerships are currently able to deduct only a portion of the health insurance costs from their taxes, which can be prohibitive to many or inhibit obtaining insurance coverage. A professional corporation, however, is able to fully deduct the cost of accident and health insurance plans for its employees and their families. This deduction could also extend to the cost of reimbursing employees for their uninsured medical expenses. Furthermore, a professional corporation may be able to deduct the cost of life and disability insurance.
In addition to the tax deductions for accident and health insurance that can be realized by forming a professional corporation, there are other tax benefits associated with forming a professional corporation. A professional corporation may deduct up to 80% of the dividends, which it receives from a domestic corporation that is subject to taxation. By contrast, a self-employed professional who owns dividend-producing stock must include the entire amount of dividends in their gross income. Furthermore, upon the sale of stock in a professional corporation, any gain realized would be taxed at a maximum rate of 28%, whereas a self-employed professional could be taxed at a rate as high as 39.6% on the sale of their interest in such a business.
The benefit of forming a professional corporation can be substantial, compared to the inexpensive cost of forming such an entity.
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