If you’re a medical, legal, accounting, engineering, architectural, marketing or other type of consulting professional, chances are you took a “set-it-and-forget-it” approach to choosing the type of business entity you originally established. If so, maybe it’s time to reconsider—in particular, if you haven’t looked into a partnership structure.
If your firm is owned by an individual or married couple with no other professional employees or independent contractors, the S Corporation is quite efficient. Otherwise, a partnership (which can be an LLC, PLLC or general partnership depending on state law) is the safest, proven structure to achieve tax efficiencies. It benefits owners and can benefit professional staff as well. It eliminates any question as to who is an independent contractor versus a W-2 employee. Other professionals can become partners in the firm with limited ownership, equity and compensation. The partnership agreement you establish can also allow for various classes of partner, such as Senior Partners, Managing Partners, Junior Partners, Defined Equity Partners, or Non-Equity Partners.
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Creating the right kind of business entity for your firm is the first step towards tax savings and business growth. Take partnerships, for instance: They pay only for direct expenses that are rightfully shared among all partners. Employee benefits such as insurance, retirement and auto allowances can be negotiated on a firmwide basis, with the costs borne by the firm or allocated to the individual partners. Partners can choose to hold their partnership interest as individuals or as an S Corporation they own. This structure allows each partner to make their own decisions about what to expense through their individual businesses without affecting the others, or the partnership as a whole.
Let us help you to discover whether the flexibility and freedom of a partnership is the best option for you. If it is, we can work to convert your existing firm’s tax and legal structure to an entity that can be taxed as a partnership. Conversion is a process that allows the entity to keep the same tax numbers as well as existing contracts and agreements in force. It merely changes the tax structure. The sooner the restructuring is complete, the sooner you can save in taxes.
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American Dream CPA’s Concierge Program is tailored to reduce tax pain and give you greater financial freedom. It provides all the services you need to keep more of your hard-earned money and enjoy the quality of life you deserve. [Learn more]
Professional service firms face challenges that are only increasing. For too many, the tax system is one of them. In fact, the tax system creates the second-greatest obstacle to attaining the American Dream—behind only the limitations we place on ourselves. Why settle for a tax structure that is counterproductive and a disincentive to increased productivity? We say you can do better!
— Adrian Keith Skane, Senior Partner, CPA
Is the Power of Partnership for You?
If the owners of your firm file separate personal income tax returns, or if you have other professionals working for the firm, a partnership is probably the most tax efficient entity for you. Partnerships offer important benefits over similar firms operating as S-corporations. As a partnership, you enjoy:
• Greater flexibility versus distributed profits allocated based on stock ownership.
• No need for individual production bonuses to be taken as additional W-2 wages.
• No effect on other owners when one owner takes discretionary tax deductions.