So, you’re starting out in private practice as a 1099. What should you do? You’ve heard all sorts of advice from a bunch of different CRNAs. Some say you should incorporate. Others say you don’t have to. So, which is it? Whose right?
Well, like in anesthesia when confronted with a complicated case with a sick patient, what’s your anesthetic plan? The answer is…it depends.
The decision to decide between becoming a sole proprietor versus an LLC versus incorporating one’s self depends on what your priorities are. We’ll cover that in a different post, but for now, the simplest corporate structure is the sole proprietorship.
If you’re primarily working as a W2 employee and only working private practice sparingly (~$10,000/year), this may be a potential route to consider. It’s extremely easy to set up a sole proprietorship. The requirements of setting up a sole proprietorship varies between states, so it’s important for you to make sure that you review the right material. Please discuss this matter with an accountant and/or lawyer as this post merely glosses over this information.
Typically, setting up a sole proprietorship involves:
- Registering a business name with the state’s Secretary of State or the county recorder’s office where you plan to do business.
- Filing a Fictitious Business Name Statement with county recorder’s office
- Obtain Licenses, Permits, and Zoning Clearance depending on the state you’re from
- Obtain an Employer Identification Number for tax reporting purposes. This allows you to open a business checking account and to keep your expenses and deposits separate from your personal accounts.
The major disadvantage to a sole proprietorship is that the business liabilities are no different from your personal liabilities. So, if you are named as a defendant in a case or are being litigated against, the plaintiff can pursue your personal assets as part of their damages.
According to several CPAs and lawyers I have talked to, and I want to emphasize that YOU NEED TO DO YOUR HOMEWORK ON THIS AS WELL, your malpractice should cover you so as long as you adhere to the community standards of care (meaning how the community practices anesthesia and how a provider within the community would reasonably respond to whatever adverse event you come across in a private practice setting).
Malpractice insurance will be discussed in a later forum, but in the state I currently work in, I carry a $1 million/$3 million limits of liability policy, which means I carry a max policy of $1 million per occurrence with a $3 million aggregate cap. Again, this will be discussed in greater detail in a later post. The purpose of bringing up malpractice insurance and being a sole proprietor is that you’re covered to up to $1 million in damages. According to several lawyers I’ve talked to, it is their opinion that if you sparingly work in a private practice setting, then your malpractice insurance should be enough to cover you. It is their opinion that the costs involved in incorporating oneself is not worth the hassle to protecting yourself from legal liability, which is why I will revert to my initial point at the beginning of this post…THINK ABOUT WHAT YOUR PRIORITIES ARE.
If you’re doing some private practice work in a fertility clinic giving versed and fentanyl to healthy ladies and are only working there 1 every 2 weeks, then choosing to become a sole proprietor while being covered with malpractice insurance may be an appropriate decision. However, if you’re doing private practice work doing spines and are doing it 2-3 times a week, you may want to consider increased legal protection through the help of your lawyer and CPA.
Tax Implications of a Sole Proprietor – Schedule C Form
Now that you’re a sole proprietor, you will need to fill out a Schedule C Form to accompany your 1040 return. A Schedule C form is ostensibly a form that allows you list out your business’ profits and losses. This is the form that is used to report your tax-deductible expenses. One of the primary benefits of being a sole proprietor is that you can now begin to deduct certain expenses as business expenses. So, be sure to keep close tabs on your expenses and make a note of which of your expenses are business related and make sure you note a reason for why it’s a business expense in the event you ever get audited. Essential bookkeeping skills are a must to protect yourself from tax liability. Whatever expenses you list as business-related, make sure that the expense is “ordinary and necessary to be listed.” Talk to an accountant for clarification on what this means.