Avoid Costly Tax Mistakes

Posted By American Med Spa Association, Monday, September 28, 2015

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.