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How to pick the right business structure for your veterinary practice
There are pros and cons to each possible business entity you might choose for your new veterinary hospital. No matter what, talk to an accountant and remember you need medical malpractice insurance. Inc. or not, its always your license and personal liability on the line when it comes to cases.
Dz Lab/stock.adobe.comWhen you start a business like a veterinary practice, you've got choices about what kind of business entity to set up. But choose carefully, because your choice will determine what kind of taxes you pay, who's liable financially and legally, and what tax forms you need to file. I strongly recommend that you contact a knowledgeable attorney or accountant-no offense, but your well-meaning friends are usually not the best choice. Now, let's consider your options so you've got the basics down when you visit with an expert.
The power of just you: Sole proprietorship
A sole proprietorship is easy to set up and easy to dissolve. There can only be one of you, obviously, in a sole proprietorship, hence the name. The revenue is collected, allowable expenses are paid, and the profit left over is reported on your personal tax return on a Schedule C.
Sounds pretty easy, right? Not so fast. There are downsides. You, the owner, have unlimited personal liability for any debts or obligations the veterinary hospital incurs. You're also liable for injuries or issues that occur in your business. And as with any business entity you choose, it's critically important that you have a knowledgeable insurance consultant working with you. None of the entities in this article protect you from medical malpractice.
A sole proprietorship also means the business profit is reported on your personal tax return. You'll need to make estimated tax payments so your taxes are correct come April 15. You can't take a salary so you will need to pay estimated taxes. This may be tricky, so again, get a good accountant.
Just don't do it: General partnership
I'm not going to spend time explaining a general partnership except to say this: Don't get involved in one. You'll be personally liable for any debts or obligations the partnership incurs even if you didn't approve of the debt. Partnership taxation is the most complicated of entities, and my advice is, just don't do it.
The flexible choice: Limited liability company
Limited liability companies (LLCs) are becoming the entity of choice for many small businesses today. An LLC combines elements of both partnerships and corporations. However, you must complete an operating agreement and file with the state in which you do business. And you must follow the rules of operating as an LLC (using the letters in your paperwork with the general public).
Essentially, you can elect to be taxed as a partnership with the benefits of partnership reporting, or you can be taxed as a corporation and use the benefits of a corporation.
If you choose to be taxed as a corporation, you can take a salary (no estimated tax requirements). Because you're an LLC, however, you don't need to hold an annual meeting, keep minutes or adhere to other requirements for corporations. You'll elect “S” status so the profit is reported on your personal return. If more than one of you form the LLC, you'll file either a partnership return or an 1120S.
Veterinary Practice Inc.: Corporation
Corporations are always a separate legal entity from their shareholders. Hence, a corporation must file articles of incorporation and bylaws. You must always let people know you're operating as a corporation, and it's important that you always sign your name on legal documents indicating your title in the corporation (president, secretary, whatever).
Corporations protect you from liability from debts and obligations of the business-if you play by the rules. Make sure you work with a good insurance consultant, and remember-no business entity shields you from medical malpractice.
Most of you who elect to file as a corporation will elect “S” status, which means the profit of your business is reported on your personal tax return (remember the LLC above?). You'll be an employee of the corporation, so taxes will be withheld from your paycheck. If your business is profitable (and it should be), you may also have taxes due on that profit. Get a good accountant!
Which way should you go? Just ask
Hey, good news to anyone picking any business entity for their veterinary hospital: Assuming you fit the requirements, for the next 10 years at least, you may qualify for the beneficial tax treatment given to small businesses. The rules are complex, so talk to a qualified accountant.
It sounds like I'm plugging accountants, but in all reality, owning your own business is a big investment for you. You probably didn't take finance and accounting courses in college or veterinary school, so having a good advisor is important.
Elise Lacher, CPA, is co-founder of Strategic Veterinary Consulting based in the Tampa/St. Petersburg, Florida, area.