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Accounting for professional practices
High income, a payroll, and a retirement plan that should be doing more work than it is.
Professional practices tend to share a profile: strong income, a small staff, significant equipment or leasehold investment, and owners who are fully occupied practising rather than running the business. The recurring opportunities are in entity structure, owner compensation and retirement plan design, and they are frequently left unexamined for years.
Entity structure
Most practices operate as an S-corporation or a professional LLC, and whether the current structure is still right depends on income level and the number of owners. Idaho has specific rules for professional entities.
Reasonable compensation
S-corporation owners must take reasonable salary before distributions. Set too low it is an audit risk; set too high it wastes the benefit. There is a defensible range and it is worth documenting how the figure was reached.
Retirement plans
This is where the largest deductions usually are. A solo 401(k), a SEP, a SIMPLE or a defined benefit plan each allow very different contribution levels, and for a high-earning practice with few employees a defined benefit plan can shelter a substantial sum. This is advice I give across every industry, not just professional practices, but practices are where the numbers tend to be largest.
Equipment and buildout
Practice equipment and leasehold improvements have depreciation treatment worth planning around, particularly in the year a practice opens or relocates.
Buying in and selling out
Partnership buy-ins, buyouts and practice sales all turn on valuation and on how the payment is structured, which determines the tax treatment for both sides.
Work with Ruth
Forty-eight years in the Magic Valley, and the same small office on your file start to finish.
Services used most
Other industries
Common questions
Do you work with medical and dental practices?
Yes, along with legal, veterinary, engineering and other professional firms. The underlying issues are similar across them.
Can you handle the practice and my personal return?
That is the usual arrangement and it works better, because the practice's decisions and the owner's personal return are the same tax picture.
Referred by someone we work with?
Call the office and speak to Bailey. She handles the calendar and will get you in front of Ruth.