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I am a psychiatrist with a solo private practice in Palo…

Customer Question
I am a psychiatrist...

I am a psychiatrist with a solo private practice in Palo Alto Calif., with gross income of about $200,000. We own our professional building and receive $65,000 in rent. Given the new tax law, would it be better to set up a LLC or a Chapter S corp and pay rent to the corporation to lower our tax bracket?

Accountant's Assistant: Can you tell me what state the LLC is registered in?

We are in California, but have not yet set up a corporate entity. My wife and I are wondering which would be better, LLC or S Corp. Also, in addition to the office building, we own 3 additional rental properties in Calif. Could these be advantageously including in an LLC to help decrease taxes and perhaps limit liability?

Accountant's Assistant: Has anything been filed or reported?

We have been using Schedule C but have not yet filed for 2017

Accountant's Assistant: Anything else you want the lawyer to know before I connect you?

The essential question is the potential advantages and drawbacks of forming a corporate entity and which would be best, Thanks

Submitted: 1 month ago.Category: Tax
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1/18/2018
Tax Professional: Lev, Tax Advisor replied 1 month ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,235
Experience: Taxes, Immigration, Labor Relations
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Hi and welcome to our site!
Actually a new tax law provide additional 20% deduction for small businesses regardless how siuch businesses are organized.

Thus - you will have the same deduction regardless of having the LLC or S-corporation.

Deduction will ONLY be applied to your business income.

Rental income - which is considered as passive will NOT get such deduction.

That deduction will be claimed on YOUR individual tax return - not on corporate tax return.

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Tax Professional: Lev, Tax Advisor replied 1 month ago

Also the LLC will still be pass through entity - when all income still will be taxed on your individual tax return - and tax rates will be same.

In California - you will have to pay additional $800 fee for having the LLC - but that LLC will provide some level of legal protection for your personal assets.

But otherwise - you will pay the same income taxes.

In you select that LLC to be treated as S-corporation - that will allow some saving on self-employment taxes - but not on income taxes.

So if that is your intention - having S-corporation might help.

.

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