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socrateaser
socrateaser, Lawyer
Category: California Employment Law
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Experience:  Retired (mostly)
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I am an Orthodontist. What are the tax benefits of being an

Resolved Question:

In California, I  am an Orthodontist. I would like to know how I decide whether to be an Employee or Independent Contractor.


 


Also, I would like to find out the tax benefits of an Employee vs Independent contractor?


 


Many thanks!

Submitted: 8 months ago.
Category: California Employment Law
Expert:  socrateaser replied 8 months ago.
I would like to know how I decide whether to be an Employee or Independent Contractor.

A: As a general rule, the question of whether or not to operate as an employee or independent contractor is not a choice, but rather depends on the facts and circumstances surrounding the individual's services rendered.

EDD Form DE-38 can be used to determine whether or not you are an employee or independent contractor. An objective review of the form and your situation will identify your status -- assuming that you are working in a clinic or hospital environment, where you are not the principal business owner.

Concerning tax benefits, the singular benefit that an independent contract has is the ability to create a retirement plan that exceeds what any employer would be willing to provide. A "self-employed 401(k) plan" can permit you to defer tens of thousands in taxable income each year. This is practically impossible to accomplish in any ordinary employment environment.

Other than that, there are no tax benefits (in my personal opinion) -- mainly because independent contractors lose other benefits, such as wokers compensation, unemployment insurance, vacation pay, etc.

When, you work for yourself, you never get the day off, because your boss is unyielding. I'm pretty sure you know what I mean here.

Hope this helps.
socrateaser, Lawyer
Satisfied Customers: 32907
Experience: Retired (mostly)
socrateaser and 2 other California Employment Law Specialists are ready to help you
Customer: replied 8 months ago.

What corporations can I , as an Orthodontist, establish as an independent contractor to reduce taxes?


 


LLC? S-corp, C-corp and what are the advantages disadvantages?


 


Thank you for your humor!

Expert:  socrateaser replied 8 months ago.

What corporations can I , as an Orthodontist, establish as an independent contractor to reduce taxes?

A: For a small business practitioner, an LLC is probably the most cost efficient business form -- if the goal is to distribute all profits in the business to yourself on an annual basis (or less). An LLC permits you to avoid a lot of legal formalities that accompanies a coporation form (stock issuance, director meetings, officer appointments, etc.). And, an LLC provides the same tax opportunities as does an S-Corporation -- which is the corporate equivalent.

 

LLC? S-corp, C-corp and what are the advantages disadvantages?

 

A: Discussed above. There is one potential benefit to an S-Corporation that does not appear in any other type of business entity: If you pay yourself a reasonable salary, you can avoid self-employment tax (Social Security and Medicare) on the remaining profits, which pass through to you without such obligations. However, the tradeoff is that you must pay yourself as an employee, so you will have unemployment insurance contributions for yourself, as well as FICA, FUTA, and the accompanying administrative headaches, which most professionals will inevitably outsource to a payroll company -- especially if you have any other employees. The result frequently is that you end up paying administrative overhead that you may as well have paid to the Social Security Administration (for which, hopefully you will get some benefits).

 

BotXXXXX XXXXXne, I think that the LLC is the best option. However, it is not entirely clear to me as to whether or not a dentist can operate as an LLC. As an attorney, I am restricted to solo proprietorship, professional corporation or limited liability partnership business forms. I do not see anything in the law that expressly prohibits LLC practice for dentists -- however, I encourage you to contact the Dental Board and make certain that LLC practice is permitted.

 

Hope this helps.

socrateaser, Lawyer
Satisfied Customers: 32907
Experience: Retired (mostly)
socrateaser and 2 other California Employment Law Specialists are ready to help you

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