By David B. Mandell J.D. M.B.A, Carole C. Foos C.P.A., OJM Group (AmSpa Partners) Are you an owner of a dermatology practice taxed as a flow-through entity, such as an S corporation? In working with over 1,000 doctors of all specialties, we estimate that 70% of medical practices operate as S corporations. As such, you may be paid both as an employee of the practice — receiving a W-2 — and as an owner of the practice — through a K-1 distribution. The key difference between income earned as employee compensation (W-2) and that earned as a K-1 profit distribution is that you pay FICA (Medicare and Social Security) tax on the income earned as an employee but not necessarily on K-1 profit distributions. While the large Social Security portion of FICA phases out after income of $118,500 in 2015 the Medicare tax has no phase-out. Also, the Medicare tax increased a few years ago to 3.8% for higher income taxpayers, under the Affordable Care Act. While this is only a 3.8% tax, we have seen poor advice here cost surgeons $10,000 or more each year, every year of their career. Over one’s career, this can amount to nearly half a million dollars of lost capital, and for no good reason. Read more at Dermatology Times.