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  • 1.  S vs C Corp - Tax Implications

    Posted 02-07-2023 13:30
    Hello,

    Our group is an LLC registered as a C Corp for tax purposes.  We are looking at changing from a C to an S Corp because of some small tax savings for the owners by taking distributions as opposed to W2 wages for bonus.  It also would decrease tax burden significantly should the group ever decide to sell the company (although this is extremely unlikely as of today).  Is there anyone that is currently an S Corp that would caution against making this change?  Any issues that have popped up for those that may have transitioned from a C to an S Corp in the past?

    Our accountant recommendation is to make this change but wanted to gather any feedback RBMA members may have.

    Thanks,
    Josh

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    Joshua Dorsey
    Chief Executive Officer
    Radiology Associates of Northern Kentucky
    Crestview Hills KY
    614-284-1597
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  • 2.  RE: S vs C Corp - Tax Implications

    Posted 02-07-2023 14:23
    We looked at this matter twice and decided against it.  We had one accounting firm suggest we look into it and another tell us to avoid the move.  C to S has become an audit focus for the IRS.  They are looking to recover employment taxes they feel are due based on issues of reasonable compensation.  

    Reasonable comp issues used to stem from the concern by the IRS that owners were being paid too much and should have some return on their investment in the form of a double taxed dividend.  Now the tables have turned and the IRS is looking at S corps that were previously C corps to see if S corp wages were improperly classified as distributions, thereby underpaying payroll taxes.  

    Whether this makes sense depends on a lot of factors.  There is no one size fits all strategy, but a big drop in physician comp could be a red flag. 

    Another factor to consider is Built in Gains tax.  This requires tricky planning so your A/R is not implicated.

    Quite honestly, I felt our accountant was trolling for billings when this idea was floated to us.  I'm not saying it's a bad idea, but it was a bad idea for our group.  
     
     
     
    Sheila S. Witous, MBA, CPA
    Chief Administrative Officer
    Radiology, Inc.
    P.O. Box 1258
    South Bend, IN 46624
    (574)258-1100 ext. 205

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    Original Message


  • 3.  RE: S vs C Corp - Tax Implications

    Posted 02-07-2023 18:45

    Hi Josh,

     

    Our group also looked at this about 3 years ago w a full analysis by our external CPA firm and decided to stay w C status.   Happy to discuss details if you like.

     

    Bill

     

    William R. Wright, MBA, RPh

    Radiology, Inc.

    Practice Administrator

    Radiology Inc

    5221 US Route 60 E

    Huntington WV 25705

    Phone: 304 522 0439

    Fax: 304 522 1073

    bwright@radiology-inc.com

     




    Original Message


  • 4.  RE: S vs C Corp - Tax Implications

    Posted 02-09-2023 11:55

    We made the transition to S Corp during 2015.

    The financial benefit comes from avoiding the Medicare Tax (employee and employer and the additional ACA Medicare taxes for the employee).  And remember too, some states (including GA) have the option for the S Corp to pay the shareholder's state taxes.  This allows S Corp shareholders to circumvent some of the $10K SALT limit.  The Medicare tax savings is running around $20K per shareholder for us.

    Excellent point made on the audit risk for where you set the W2 wages for an S Corp shareholder.  I would argue that whatever you are paying a new rad is a reasonable W2 wage limit for an established shareholder.  A new rad is being paid to perform the same work as an S Corp sharesholder.  Amounts earned above this amount could be seen as profits of the S Corp.  

    My thoughts on a great topic.....Chris



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    R. Christopher Sluder CPA
    Administrator
    Rome Radiology Group
    Rome GA
    (706) 291-2661
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    Original Message


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