Finance Continued

Wed, 24 Feb 2016 17:49:11 GMT

Let’s review the different methods of calculating depreciation.

The straight-line method provides for equal periodic charges to expense over the life of the asset. This method is widely used. It provides a reasonable allocation of costs to periodic revenue when usage is relatively uniform from period to period.

The declining-balance method provides a steadily declining periodic depreciation over the estimated life of the assets. This method is most appropriate when the decline in productivity is proportionately greater in the early years of an asset’s use than in the later years.

Next let’s review the various corporate structures of medical practices.

Sole Proprietor: This is the simplest business structure under which to operate. This makes it easy as you do not have to prepare or file legal documents; however, as a sole proprietor there is always the risk of liability exposure. If you are sued, all of your personal assets could be at risk.

Corporation: A business corporation is a legal, stand-alone entity. The primary benefit of establishing a corporation is that you, as the owner, are separated from the business itself. This means that if the business is sued, any claims made are generally limited to the corporation’s assets. It is important to remember that this does not apply to malpractice. If a patient is harmed by a doctor, it is not legally possible to claim that the “corporation” is at fault in order to absolve the provider of blame.

There are multiple ways in which one can structure a corporation, such as:

C Corporation (C corp): C corps are stand-alone entities which file their own tax returns and pay federal taxes directly at the income rate. As a provider of professional health services, however, the IRS will classify your corporation as a “personal service corporation” subject to a flat tax rate of 35%.

Opting to be an S corporation may give you a tax break.

S Corporation: An S corp provides all the protections of a C corp but while it must file tax returns for the entity, it does not pay taxes directly. Money passes through the shareholders and is reported and taxed at their individual, personal tax rates.

LLCs and LLPs are essentially simplified versions of an S corp.

Limited Liability Corporation (LLC) and Limited Liability Partnership (LLP):: LLCs and LLPs offer the same liability protection as S corps. The owners are typically not liable for debts of the LLC/P, though still liable for personal wrongdoing or malpractice. Tax treatment is comparable to S corps as well. Record keeping is very simple for LLCs and LLPs.

It is important to keep in mind that in all of these business structures, if the legal requirements are not met, the veil of liability may be pierced, meaning that the creditor can attack personal assets.

In summary, the 3 major components to consider when structuring your business are:
1. Liability exposure
2. Tax exposure
3. The complexity and stringency of legal reporting requirements

more finance tomorrow! Enjoy the rest of your day!