Dentist Has Questions About S-Corp

I’m starting a new associate position in the near future and the owner and I were discussing being paid as an employee vs. me forming my own S-Corp having my compensation run through the corporation. The situation is:

Expected per diem income totaling about 140-150k. He owns 2 offices
He has agreed to reimburse about 5k in dues, liability, uniform, etc.
He would reimburse $400 per month towards health insurance. I would not be eligible for the office retirement plan.

My wife is a GD buying into a practice so that ends up putting our combined income into the AMT zone so we lose out on all types of deductions (her partners are very conservative, and don’t run much through the office).
If she’s buying in why can’t she do her own thing as a part owner? There are ways to protect the other partners if one of her deductions is tossed out by the IRS.

Obviously, if I formed a corporation I would then be responsible for all of the SS/Medicare taxes, but I’m trying to figure out if I can make up for that with business deductions within the corporation.  For example:
  • We will need to either purchase or lease a new car since ours is on its last legs
  • The mileage on said car, since I need to travel to/from the bank on behalf of the corporation and between the two offices
  • I will need to get my own health insurance for which the premiums will be deductible
  • CE courses and dental meetings
  • Meals and entertainment for referring offices (I’m an ortho and my wife is a referrer. I need to keep her happy to keep the referrals coming!)
  • Various unreimbursed business expenses that I would not be able to deduct as an employee due to the AMT
  • Charitable donations made via the corporation
  • Marketing and office supplies 
  • The biggest benefit I can see is the ability to put money away pre-tax in a qualified retirement plan.  I’m not sure if I could get away with the “I hired my wife as a consultant and used her salary to fund her retirement”

I’m trying to figure out if it would be worth it in the long run.  Losing out on all those deductions because of the AMT is tough.You need to “run the numbers” and do the math. All the things you mentioned are fine, however, if it totals $3,000 vs. $30,000 makes a HUGE difference in the analysis doesn’t it?

And it’s not helping that my wife’s partners are so ultra-conservative you’d think they work for the IRS!

I’m still not getting why your wife’s partner’s tax position comfort zone should impact your wife’s?

Either that, or just be an employee and save all the headaches… 
KISS, there’s something to be said for that theory! Especially if your employer is willing to work with you on YOUR professional expenses!

Some of your assumptions are wrong but the thing that stood out to me was that your wife is not buying into the partnership correctly and this could potentially cost you hundreds of thousands of dollars. Or you are not explaining her relationship with her partners correctly.

I’m still looking for the question that Jason answered…
The books for the practice are done by the CPA who leases the first floor of the building from the real estate corporation owned by my wife’s 3 partners (she’s buying into the practice only first.. then the real estate in the future).  The CPA manages payroll as well as all the day-today accounting.  The profits are divvied up based on a formula of percent ownership and days worked.  Any “perks” that are run through the office are brought to the accountant downstairs and deducted from the “bonus” paid to the doctor.So why not hand the accountant the professional expenses you want to “run through” and tell them to deduct it from the bonus and code them to the appropriate business category. Remember, they work for you. That said, if they say it can’t be deducted pre-tax ask them why and if you don’t like the reason seek a second opinion.

There are so many things we could be running through the office, but it just doesn’t happen.  For example, the landscaper who does our home landscaping is the same one who does the office, yet we pay for our home landscaping with post-tax dollars from our checking account… it’s frustrating!!
I’m not going to touch that one…

Then add to the fact that my wife, for some unknown reason, is never allowed to put the maximum amount away in a retirement plan ($44,000 or whatever it is now).  She’s allowed to put the $17,500 plus whatever the office matches (although it is higher for her as an owner, so it ends up around $30k or so).  Unfortunately I know nothing about retirement and how this works, and even when I’ve asked our personal accountant, he can never give me an answer and just seems uninterested in explaining it to me.
Well there are retirement plan rules that employers have to abide by and I suspect they’re handling the retirement plan correctly. However, that doesn’t mean that there may not be a better plan for their practice.

Uhh. . .this doesn’t make me feel any better about your wife buying into this partnership.  Has it happened already?  How is she buying in?  It smells like she is buying into a single entity partnership.  There are MAJOR issues involved in this, with the first one being that the value she is paying is based on an asset sale price, which means that she is possibly overpaying 20-35% of the purchase price!!!

Hopefully she has not acquired anything yet and you can begin to speak to people who know how to handle this type of situation (read: dental attorney and dental CPA and possible a dental management consultant).  

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