I have a possible client who is an attorney and is going to open up his own law firm. He is deciding which type of entity to form, a PA (Professional Association) or LLC. Can anybody suggest what would be the best type of entity to form in this situation? He is going to practice family law. When he starts out he will be the only owner in the firm but he may bring in a partner or two in the future so he wants to make sure the entity structure is flexible enough to allow other partners.
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Llc
My vote is for an LLC so taxation is of a pass-through nature. Not sure what a PA is, but if i'ts a C Corp, then he can be subject to the 35% tax rate for professional corporations. -
He could form an S Corp and avoid the PSC problem. As an LLC he could also elect tax treatment as an S Corp and possibly avoid some SE tax, as long as his salary is reasonable.Originally posted by John of PAComment
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Good Point
Good Point, but with an LLC (single member), he would not have to have a payroll at all (unless there are employees), and the S Corp would envolve much more in Year-End tax filings. Also there would be more issues in drawing personal money out of the company with the S Corp, not as free a transfer of money back and forth into the business. I have seen a decline over the past decade of S Corps. What I have been seeing as the most popular entity is the LLC taxed either on Sch C or on a 1065. But good point, with the S Corp, you do not have to call all of the profit wages and earnings.Comment
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he can't be taxed on a 1065,
unless he brings in another member. SMLLC only has 2 options, Sch. C or 1120. I would point him in the direction of the 1120S, unless he is anticipating very low income for several years. He could form LLC, tax as Sch. C and then elect S status at the point where it begins to be of benefit.Comment
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