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Phillip B, EA
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 630
Experience:  Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
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1. As an Orthodontist, independent contractor, who gets paid

Resolved Question:

1. As an Orthodontist, independent contractor, who gets paid on per-diem basis. How to analyze if a PC, S-corp, or LLC would be most beneficial in tax reduction?

2. What's the average per-diem salary for Orthodontists in Los Angeles area?

Thank you!
Submitted: 1 year ago.
Category: Tax
Expert:  Phillip B, EA replied 1 year ago.
Thanks for choosing JustAnswer.com! I will do my best to provide you with a clear and concise answer to your tax question based on the information that you have provided.

1.) To start, I can tell you that a PC taxed as a regular corporation would not be an advantageous tax structure. Due to the fact that you are an orthodontist, your PC (if it is not an S-Corp) would pay 35% taxes on net taxable corporate income under Federal "personal service corporation" rules.

When you are self employed (whether that under a corporation, S-corp, partnership (LLC), or a sole proprietorship) you are required to pay in to Social Security and Medicare. For a s-corporation, this is done by taking a wage and receiving a W-2 from the S-corp. The law doesn't require all the money you receive from the S-Corp to be taken through your W-2, rather the wage must be reasonable to the wages you would receive in the open market working for someone else as a employee.

For example, lets say the average wage for a "per diem" wage is 100,000 dollars annually. You make 150,000 dollars during the year. For taxes, you would pay income and payroll taxes (social security and Medicare tax)on the 100,000 dollars that you take as a wage, and just income taxes on the remaining 50,000 dollars. This offers tax savings in that you would not be paying self-employment tax (partners in a partnership and sole proprietors pay social security tax on the first 113k and Medicare tax on all income)on all your income, only the first 100k. This is the main reason a S-corp is chosen by many businesses, SE taxes are 15% on all of your taxable business income.

The drawback to an S-corp is that you will have to unemployment taxes on 100k, and you will not be eligible to collect unemployment.

The LLC taxed as a partnership or a sole proprietorship can be advantageous in that the bookkeeping and tax work is much more simple, there are no unemployment taxes, and you can avoid some extra CA business tax that an S-Corp will pay.

Although the SE tax can be a drawback to the partnership structure through a LLC, I recommend consulting a attorney who is experienced with entity and tax structures. An experienced attorney, may also be able to structure a partnership that can save your some tax dollars as well. However, this will need a "one on one" approach between you and an attorney.

2.) This is not a question that can be answered without some significant research. If you need a solid number for average per diem wages, I recommend using Salary.com. They will already have a lot of this type of data compiled.

If there are additional questions or concerns, please reply to this answer so that I may assist your further. If this answers your question, please rate my performance between OK and Excellent so that I may receive credit for my work. Thanks for your business.
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 630
Experience: Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
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