Mark Kohler explains professional corporations and LLCs for licensed professionals like doctors and lawyers. He covers when states require them, how they differ from regular LLCs, and tax strategies like S corporation elections that split income between salary and dividends for better asset protection.
Chapters
Hi, Mark Kohler here with another tax and legal tip. I want to talk about the professional corporation. A lot of confusion about this topic. When do I need a PC professional corp? When does it make sense and is it something I have to do and are there any tax benefits to boot? So let's hit the highlights and see if we can point you in the right direction when it comes to a professional corporation. Now let's look at the big picture and put it in perspective. And for those that have seen my videos before, read my book. You know where I'm going with this. We got to talk about where the corporation fits. Now the first point is a professional corporation is for operations. You're not going to hold real estate with it. It's not for investments, it's not for holdings. So when we look at our left side, right side, and we're on the OP side or the asset side, over here is where we're going to have our LLCs and LPs and FLPs and blah blah, blah. All this to hold assets. Not talking about that right now. Today this is about the PC professional corporation that you're going to run a professional business in. Now you don't have to have a professional corporation or PC unless you're in a certain category of services. So the PC only applies to professional services. In fact, that's what I want to clarify here. We're talking about dentistry department doctor, chiropractic engineer, cpa, lawyer, psychotherapist. And frankly, the list can vary from state to state. The safe rule is here. If you've got a professional designation after your name, some sort of initials, because you've got a license and you've had to register that license with the state, there's a good chance the state's going to require you to be a PC. They don't want you to be an LLC or an inc. They want. They want to be a PC. Now there's a variation on this in some states called the PLLC or Professional Limited Liability Company. It's kind of the sister to the PC or professional corporation. So why are we talking about all this? When does it make sense? This makes sense because it's going to save you taxes and it's going to give you asset protection from the slip and falls of clients or customers. So there's the asset protection benefit that comes with an entity and the tax planning benefit. Folks, you're going to make an S Corp election. That's right. A PC can be an S Corp, a PLLC can make an S election because in the eyes of the irs, I want you taxed as an S corporation. So when this these professional services come in, expenses go out, you get your net instead of paying self employment tax on the total amount in an LLC or a sole proprietorship, we're going to do our salary dividend split and we're going to save and I call it a salary dividend split. You could call it a salary net income split. And this is where you get a W2 and a K1. Watch some of my other videos on when an S Corp makes sense because the S Corp is what your PC is going to become or your pllc. And I've got a whole chapter in my book tax and legal playbook on the P on the S corporation. Whether again it's a PC is irrelevant. But I'll tell you, let me give a quick example. The other day I was registering a client that was a chiropractor in a particular state. We registered as an inc and the state shot it down, said nope, if you're going to be a chiropractor you have to be a PC. Then I was in another state and we registered as a professional corp under certain psychotherapy designation. And they didn't like the subject line or the purpose of the company. They wanted it specific to what the state regulatory body wanted. So what I'm trying to say here is don't get mad at our law firm or if you try to do this online, inevitably you'll probably screw it up. And that's not to be offensive. Let a law firm do this. We're 800 bucks for an entity in any state to keep it affordable and simple. And I get you an hour with an attorney to design it particular to you. And it's not 800 plus filing fee done. And you know it's going to get done, right? But don't be mad at us if there's some red tape. That's the point problem. That's why I give some of these examples. It can be just a red tape rabbit hole when we're trying to choose the right acronym or right letters after your name and make sure it complies with the state and the regulatory body. But in the at the end, which is great, you're going to be an S corporation. And just to put this in the big picture again, your S Corp might be a partner in a bigger LLC like a professional group. So this would be the group of doctors, the law firm, the accounting firm, the engineering firm, the social working firm, whatever. Then everybody is a PC and those are the individuals in the partnership very, very common. And if you're not using this S Corp strategy, frankly your accountants operating in the old school and you've got to get a review and look at some sort of change, usually around the end of the year to get the right type of entity and structure as a professional. Now that was far more than a two minute tip. I'm sorry, I get carried away. I love this topic. I want to help so many people better live their American dream, save taxes and get the right structure. Rather than some guy or gal in a cubicle in Nevada trying to sell you an entity you don't need or people just playing around on a website taking a shot in the dark, please get some professional help. If it's not our law firm, find a law firm that's affordable and understands taxes and don't just let them say oh, set up an llc. Whoa, you've got to talk about the tax issues and how powerful this S Corp is. Every dentist, doctor, engineer, lawyer, cpa, broker, real estate investor doing fix and flips, Internet marketer, social worker, psychotherapist. We're all S Corporations. That's where we want to be. Now. How you maintain it, how you operate it, how you set it up, and what letters are after your name is where the legal advice pays off. Don't try to cut corners in this and then be jacked up at the end of the process. So hopefully that's a message that will help you in your quest to be a professional and save taxes and better succeed in your livelihood. So good luck and keep living that American dream. Thanks so much for watching and if you found that helpful, please look in the description below. I've got links to my tax and legal library, my QuickBooks training videos, how to start a small business. This 50, 60, 70 videos, some as long as 30 minutes, explaining more information on tax and legal strategies that will change your life. 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