In short

Tax support for medical practices starts with the entity: many practices operate as professional corporations, S corporations or partnerships, each with its own return and compensation rules. Preparation work includes reconciling collections to the return, documenting depreciation on equipment and leasehold improvements, reviewing reasonable compensation for owner-employees of S corporations, supporting continuing-education and license expenses, and tracking estimated payments for owners whose withholding does not cover pass-through income.

Entity returns we prepare for

Practices organised as S corporations file Form 1120-S, partnerships and most multi-member LLCs file Form 1065, and C corporations file Form 1120. Each owner then reports their share on a personal return. Our preparation starts with reconciled books so the return figures trace back to the ledger.

Owner compensation in S corporations

The IRS states in its guidance on S corporation employees, shareholders and corporate officers that shareholder-employees who provide services should receive reasonable compensation before taking non-wage distributions. For physician owners this is a recurring review point. We document how compensation was set and keep payroll and distribution records consistent.

Equipment and improvements

Diagnostic equipment, computers and office build-outs are depreciated or expensed under rules described in Publication 946. We keep a schedule listing each asset, its cost and its in-service date, which your return relies on.

Estimated payments

Owners of pass-through practices often owe tax on income that has no withholding. The IRS describes estimated taxes and their quarterly schedule; we give owners year-to-date profit figures in time for each installment.

Records we request

Equipment invoices and leases, provider compensation records, retirement plan contributions and practice-management year-end reports showing collections.

Continuing education, licensing and malpractice insurance records are included as well.

Practices with several owners also provide buy-in and buy-out agreements.

Key terms

Definitions for terms used on this page:

  • Depreciation: Depreciation spreads the cost of a long-lived business asset over the years it is used, rather than deducting it all at once.

Medical Practices problems this addresses

  • Insurance payments arrive weeks after the visit and rarely equal the billed charge
  • Contractual adjustments and write-offs get mixed up with true bad debt
  • Practice-management reports and the bank deposits never seem to agree
  • Provider compensation formulas depend on collections that are hard to measure
  • Equipment purchases and leases are large and need consistent treatment