My background:
I opened my office in January
I am a PLLC
I have basically lived off of savings from previous years and have not paid myself very much this year
I was saving money to make sure I would have enough for this part of the year when my rent started (got first year free) and when my loan ended its interest free period.
I earned about 30 during the first part of the year as an associate
I have about 65k in my business account
My Questions:
So, with all the deductions that I will have with the purchases made for the business, should I pay all of that extra to myself as a salary? If so, is there a problem with paying it in a lump sum or should I break it up?
Dr. Dersley Replies:
If your LLC is a pass-through like mine, all the profits are automatically counted as personal income, so it won't matter if you write yourself the check or not. Whether the profits are sitting in your business account or your personal account, it doesn't matter.
Tim Lott Responds:
It sounds like it's time to start paying yourself a salary. If there are any purchases you need to make for your practice, you could make them before the end of the year to minimize your tax liability.
Is your PLLC being taxed as a sole proprietorship or a corporation?
I'm guessing you'll have plenty of deductions with your start up that you won't need to take any more deductions. Have you done any tax planning for 2009? Will you wind up with taxable income or a loss from your practice? How will the $30k of other income impact your projection? To you have itemized deductions? If you wind up with a tax loss from the business due to the start-up deductions, what will happen do your 2009 itemized deductions? Does it make sense to carry some losses to earlier years? Carry them forward for potentially higher tax brackets? Do you have traditional IRA's to convert to ROTHs ?
You need to consider all of these questions and consider 2009, 2010, as well as previous years.
I agree with Dr. Dersley that it won't matter when you take the cash. If you need it, take it. (assuming you haven't elected to be taxed as an S-Corp!)
Coming back east anytime soon?
Thanks Tim. I have no plans to return anytime soon now that my bro has graduated and is living out here on the west coast as well. I'm sure we'll do something as a class for the 10 year, but that is still 5.5 years away...so we'll see.
I am a sole prop. I do have plenty of deductions, more than I can take advantage of. We did start some planning, but were going to wait until later to decide on some things so I thought I would get some ideas from here and thus this question. Most of those questions I don't know and I'll take to the CPA.
Can I take a loss to an earlier year if it wasn't income earned from this practice?
Generally you can carry back BUSINESS losses, but you can't carry back itemized deductions. So in years of a start-up where there may be a projected loss with the new equipment without it may be better to forgo those depreciating deductions so you can use your exemptions, itemized deductions, and maybe tax credits since you can't carry them over or back.
This first appeared on Dentaltown.
Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com
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