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LLC/S Corp tax benefits for physician

I have an LLC with S corp tax provisions. I am a physician who covers a small hospital for a few days a month as my business. My wife is half owner and does book keeping and payroll and gets paid a salary.

 

Currently I keep track of receipts while I’m out here so that I can write off my meals and coffee during work days. If I buy scrubs I keep those receipts. I also utilize home office deduction.

 

Is it complicated to sign up for a medical conference as a business expense? I would hope my wife as part owner could join as well. Would I just keep these receipts and include expenses (flight, hotel, rental car, food) as part of my business expenses when doing my taxes?

 

How would getting a car for my business work? I will soon by starting another side gig as a physician which may have me working 7-10 days a month so I will be driving a lot more. 

 

Anything else I could be looking into to lower my taxable income or produce tax benefits?

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3 Replies
Lucia-B-EA
Employee Tax Expert

LLC/S Corp tax benefits for physician

Being an S-Corp is the first step in lowering your tax burden.  Making sure both you and your wife are on the Corporate payroll is the second step and VERY important.  Not only is this a requirement of the IRS, as all Officer/Owners are to be paid a reasonable salary by payroll through the Corporation, but this will also save money because you will be paying FICA taxes through payroll withholding for both of you, rather than 15.3% self-employment tax as a partnership.  Great Planning!

 

Purchasing an automobile: Make sure the vehicle is in the LLC/S-Corp. name.  In the first year, you will be allowed special depreciation, and if the S-Corp. is earning enough income, it is recommended you take this deduction.  Also, ensure you have a policy in place regarding who is able to drive the vehicle.  Utilize the MILEAGE plan for the first year.  This enables you to use either mileage or regular expenses in subsequent years.

 

Side-Gig Work -  Youcould be paid under the current LLC/S-Corp. for side work within the S-Corp.  Ask the employer to pay you as an independent contractor using your EIN number.  Give them your W-9 form with the S-Corp. information; this enables all earnings to remain under one corporation, especially if you will be doing the same medical work.

 

Business Travel - Travel can be expensed under the travel line item on the P&L.  Travel of your spouce would only be deductible if their presence is also for business (ie. her travel is to attend part of the conference geared to her area of expertise).  If not, only your travel costs would be deductible (your airline ticket).  

 

Meals are deductible at 50% and enteratianment, unless included in the cost of a conference, is not deductible.  The conference fees are deductible as continuing education, unless you are a keynote speaker, in which case they would be deductible as marketing or promotion.

 

Office Snacks & Uniforms - Coffees at the office or scrubs are only deductible as office expenses as they pertain to office uniforms or office kitchen supplies provided to all members of office team.

 

 

FranklinF
Employee Tax Expert

LLC/S Corp tax benefits for physician

Firstly, it is STRONGLY ENCOURAGED to keep track of your expenses using a professional software or app.

COMPENSATION ... as stated by the IRS:

S corporations must pay REASONABLE COMPENSATION to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

Reasonable Compensation is the value that would ordinarily be paid for like services by like enterprises under like circumstances. Reasonableness is determined based on all the facts and circumstances.

Compensation paid to employee-owners reduces the profit margin. 


BUSINESS MEALS
Business Meals are deductible if they are: Ordinary and Necessary, has a Business Connection, Is NOIT lavish or Extravagant, the taxpayer or representative is present.

As for the lunches (food in general) you may deduct the lunches while on a business trip, but regular lunches by yourself while performing work is NOT deductible.


DEDUCTION OF VEHICLES

You CANNOT deduct the use of your personal vehicle(s) unless the S-Corporation holds title to the Vehicle (the Vehicle is in the business's name).  You may deduct the per diem mileage of the vehicle if an Accountable Plan for mileage reimbursement is stated in the Operating Agreement of the Business.

OTHER DEDUCTIONS

These are some examples of other items you may deduct: 
Advertising
Bank Interest and Fees
Computer and Peripherals
Education (training such as Medical Conferences)
Insurance
Office space
Office Expenses
Professional Services
Retirement plans
Subscriptions
Supplies
Utilities

LLC/S Corp tax benefits for physician

Reasonable Compensation by Owners/Officers is a requirement of the IRS and may not be less than any distribution made to those shareholders who are substantially involved in the operations of the business.  In fact, should distributions be greater than wages, the IRS MAY red flag the 1120-S for audit consideration.

 

Reasonable compensation requires several considerations:

  1. the market rate for colleagues working in the same capacity or performing the same tasks of the Officer/Employee
  2. time performing those tasks necessary to complete the tasks
  3. education or experience required for the duties performed
  4. is the wage earned by the officer/employee comparable to that paid to another hired for the same position from outside the company
  5. can the company's profits sustain the employee's wage

Reasonable compensation is payroll paid to the officer/employee through payroll on a W2.  It is never paid through 1099-NEC nor through distributions.  

 

The reason for the IRS ruling and change is to require corporate officers and owners to pay their fair share of Social Security taxes, which were being underpaid or neglected through distributive withdrawals. This change now requires Owners to remember they are employees of their own company and must pay themselves as such.   https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

 

Business Meals -  Whether meals are business related, not lavish, and part of its ordinary and necessary course of business, meals, as of 2023, are only 50% deductible to a company.  Deductions of 100% are no longer available to the business person or company, no matter the reason for meal, whether taking a client to lunch, dinner or while on a business trip.   https://www.irs.gov/publications/p463#en_US_2023_publink100033783

 

 

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