Doctors in Partnerships: Know the Legal and Financial Basics
There are several good reasons why several physicians may choose to join forces and establish a common practice, but such a business can be successful only if the members are knowledgeable of the tax-related and other legal implications of the venture as well.
The preferred choice of many such practices is the LLP (limited liability partnership), so, in what follows, we would like to focus on how this type of entity works.
One of the benefits of LLPs is that the partners no longer have joint liability for each other’s professional actions. This means that a partner is not responsible for the actions of the other partner or partners such as the obligations arising from the error, negligence or misconduct of the other partners.
The partners are treated as separate entities in terms of taxation as well—the LLP passes taxation through to the partners, requiring each partners to report his or her income separately to the IRS. It's important to note that limited partners must report their share as passive income, which is not subject to self-employment tax. However, any passive loss can be reported only against the passive income realized.
LLP’s offers numerous advantages in terms of taxation and other aspects as well, but to be able to decide in favor of or against this form of enterprise, you need to analyze and evaluate your options very carefully and you must consider a wide variety of factors, such as the organization and location of the business.
To be able to get a clear picture of all the legal and financial issues arising from being a partner in an LLP, it is recommended that you consult an expert in your state for the simple reason that each state has its own laws. Give me a call, and I'll help you get started.