USA Is it worth opening a professional corporation in California if paid a K1

[MLS13]

First post I hope I did this correctly:


I need to figure out if it’s worth the cost to pay a tax attorney and a CPA to open a professional corporation as a surgeon in California. 2020 TY the combined tax was 47%. If a professional S Corp was opened would this lower the tax burden? I know the corporation would have to pay a “reasonable salary” so if 500k was paid on the K1 could the corporation pay 250k and then pass through the 250k as a dividend or something? Also would self employment tax have to paid?

 

[kirby]

At your income level you should already be working with a CPA to manage your tax situation.

"Physician, (let your own tax person) heal thyself"

 

[MLS13]

We have a CPA. They don’t form professional corporations and they ones I’ve spoken with want 3-5k for a consultation. If there won’t be a benefit to a professional S Corp I would rather not waste time or money. I know a surgeon is regulated than a normal professional or they are in California. Don’t mind paying for it all to be set up correctly if it will actually be a benefit. If it’s just going to be more paperwork and add on another expense, I don’t see the point.

 

[LLCOOLES]

Dear MLS13:
Money is paid to an S Corporation shareholder in two forms. The one is as you mentioned being in the form of a reasonable compensation. The other comes in the form of income from your business operations. The reasnoable compensation will be taxed as any other W-2 wages would be. That is, it will have Federal, State, probably local, social security and medicare taxes taken out of it. Using your 500K example, we would make the first 250K as your reasonable compensation. This would have all the taxes mentioned above taken out of it. The other 250K would be distributed to you on a schedule K-. This is where the tax advantage of being taxed as an S corporation comes into play. instead of paying payroll taxes of 15.3% on the 250K, you would only pay half of that amount, or $19,125 instead of $38,250 in self-employment taxes if you operated as a sole proprietor. You should get an extra break on paying social security taxes because they are no longer taken out on incomes over 4142,800.
I hope this answers your question.

Mr. Leslie Linear-Linkedin & (e-mail address removed)