Dental PLC vs PC
Dental Practice Start Up – Dental PLC or Dental PC?
At the end of a dental practice name, you will either see a PC or a PLC. Now-a-days, the PC does little more than show your age. Most practices that were organized over the last 10 to 15 years have been organized as a Dental PLC.
You can almost guess someone’s age if they have a PC. Or better yet, you can guess that they probably will be retiring or selling soon. PC’s date back to the early 1960’s and continued to be used even once the PLC became an option starting in the late 1970’s. Dental PLC’s were enacted slowly, state by state, up through the early 1990’s. While we started to see some Dental PLC’s in use during the early 90’s, most legal and accounting professionals hesitated to organize their clients this way until there was enough legal statute to back them up. They started being used more and more as the 2000’s rolled along. Today it is hard to find any new entity that is not organized as a PLC.
A Quick Walk Through the Obsolete PC
A PC is a Professional Corporation (sometimes called a personal service corporation). They are corporations. They require corporate By-Laws, the issuance of stock certificates, election of a board of directors, ongoing board meeting and meeting minutes. This type of entity protects your personal assets from non-professional legal liability. There is not an entity available that will protect your personal assets from professional liability.
For tax purposes, PC’s have two choices. They can choose to be taxed as a C Corporation or a S Corporation (although S Corporations were not available until 1982). You will see S Corp’s file Form 1120S and C Corp’s file Form 1120.
Any profit earned by the entity as a S Corp will be taxed on the shareholders individual income tax return, using their individual income tax rate. Those taxed as C Corporations pay a corporate tax on profits. There is a 35% federal (state may vary) flat tax on those profits. This rate tends to be higher than most individual income tax rates.
While some professionals will tell Dentists to stay away from filing Form 1120 for PC’s, let me suggest that it depends. We are all different, we all had different circumstances, and sometimes circumstances change. While it is likely we would not advise filing Form 1120, we would never say never.
The PLC is Just what the Dentist Ordered
The PLC for Dentists is Easy
While Dental PLC statues vary in minor ways from state to state, generally they are quite easy to establish. File Articles of Organization with the State you wish to organize in, get a tax ID number from the IRS for your dental practice, and have an attorney draft the Operating Agreement. Done, ready to do business. It is that simple. No By-Laws, stock certificates, board of directors, board meetings or minute book. Just an Operating Agreement that spells everything out. And the PLC gives you the non-professional liability protection the same way a PC does.
The PLC for Dentists is Flexible with the IRS
The PLC allows us to choose now or to choose later. With the Dental PLC, the IRS allows us to choose how we wish to be taxed. So just like the PC, we can choose 1120 or 1120S, but we can also choose to be taxed as a Sole Proprietorship or a Partnership. One entity easy to set up with maximum flexibility.
The flexibility continues with the Dental PLC. The PLC can be set up without choosing how it will be taxed. That can be decided later. It can wait until your new practice is up and running or closed, depending on the situation. As long as we open the door to patients within a reasonable period of time, we can decide later on telling the IRS how we wish to be taxed.
The IRS also allows us to change our mind on the way we are taxed. And while some changes may result in a negative tax impact, other changes may be favorable.
So we go with the PLC for ease of formation and the flexibility of taxation with the IRS.
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