Choosing the right business structure is a crucial decision for solo podiatrists in California. The choice of business entity determines how the podiatry practice is taxed, the extent of personal liability protection and personal asset protection available to the podiatrist, and the administrative requirements the podiatrist will need to manage in operating the podiatry practice.

A future article titled “What are the Business Structure Options for Two or More Podiatrists in California?” will discuss the additional options available when two or more podiatrists start practicing podiatric medicine together, however, for podiatrists practicing podiatric medicine solo in California, the options are limited to sole proprietorships and California Professional Podiatric Medical Corporations.

This article provides an overview of the various California business structure options available to podiatrists practicing podiatric medicine solo in California, helping these podiatrists to make an informed choice that aligns with their professional goals and liability concerns in the most tax efficient format possible.

Executive Summary: Putting the Conclusion First for Busy Podiatrists

Summary of Practicing Podiatry as a Sole Proprietor

The primary benefit of a sole proprietorship for podiatrists is its simplicity. There are few legal formalities to establish a sole proprietorship and tax reporting is equally straightforward. However, a sole proprietorship is not a separate legal entity, which means that podiatrist sole proprietors are personally liable for all debts, liabilities, obligations, and legal judgments (including malpractice liability) against their podiatry practice. The lack of a separate legal entity also means there is no distinction between personal and professional business assets for podiatrist sole proprietors, so the debts, liabilities, and legal judgments for which the podiatrist sole proprietor is liable are satisfied from the personal assets of the podiatrist.

Summary of Practicing Podiatry with a California Professional Podiatric Medical Corporation

While inherently more complex than podiatrist sole proprietorships, the complexity of a California Professional Podiatric Medical Corporation may be reduced by working with the experienced corporate attorneys at San Diego Corporate Law. As a separate legal entity, California Professional Podiatric Medical Corporations significantly reduce liability risks and are more tax efficient for most podiatrists. For podiatrists in high-liability practices, this reduction in risk can be substantial. The separate legal entity status of California Professional Podiatric Medical Corporations also means there is a distinction between personal and professional business assets for the podiatrist, meaning the debts, liabilities, and legal judgments against the podiatry practice are not generally satisfied from the personal assets of the podiatrist.

Choosing Between a Sole Proprietorship and a California Professional Podiatric Medical Corporation

For most podiatrists, the California Professional Podiatric Medical Corporation is the right chose because the tax benefits coupled with limited liability protection and ability to separate personal assets from professional business assets far outweighs the increased administrative complexity compared to practicing podiatric medicine as a sole proprietorship.

Contact San Diego Corporate Law for Assistance Selecting and Forming the Best Business Structure for Your Podiatry Practice

Take the next step toward securing the ideal business structure for your podiatry practice, whether that is a California Professional Podiatric Medical Corporation or another business structure. Contact the experienced corporate attorneys at San Diego Corporate Law today to schedule a consultation and receive personalized, expert guidance tailored to your needs. Our team is here to help you make informed decisions with confidence.

Practicing Podiatry as a Sole Proprietor

Practicing podiatric medicine as a sole proprietor is the simplest and most straightforward business structure for solo podiatrists in California. It requires minimal paperwork to set up compared to other business entity options and offers flexibility in managing the podiatry practice. However, along with these advantages come distinct disadvantages that podiatrists must consider carefully before considering sole proprietorship as the business structure for their podiatry practice.

Administrative Requirements of Practicing Podiatry as a Sole Proprietor

One of the primary benefits of a sole proprietorship for practicing podiatric medicine is the simplicity of establishing a sole proprietorship and the continued simplicity of operating as a sole proprietor.

Sole proprietorships require minimal effort to establish, with few legal formalities involved. Typically, the initial steps of setting up a sole proprietorship include obtaining a local business license to operate legally in the municipal jurisdiction in which the practice will operate and, if applicable, registering a fictitious business name (often referred to as a d/b/a).

Unlike other business structures, there is no need to file complex paperwork or create a formal business entity, which saves both time and money, but as discussed below, there are tradeoffs in exchange for this simplicity.

Taxation of Podiatrist Sole Proprietors

Tax considerations are a critical aspect to be examined when planning to practice podiatric medicine as a sole proprietor. Sole proprietors are subject to business income taxation, self-employment taxation, and additional Medicare taxes. Understanding how these taxes apply to podiatry practices is essential for podiatrists when choosing a business structure in which to operate their podiatry practice.

Business Income Taxation When Practicing Podiatry as a Sole Proprietor

For podiatrist sole proprietors, business income taxation is both simple and straightforward compared to that of other business entities. Sole proprietors report their business income and expenses on Schedule C (Profit or Loss from Business) to their personal income tax return, using Internal Revenue Service Form 1040. This allows podiatrists to consolidate both personal and business income on a single tax form.

Self-Employment Tax When Practicing Podiatry as a Sole Proprietor

While simple and straightforward, taxation of podiatrist sole proprietors is not tax efficient. One significant consideration for podiatrist sole proprietors is self-employment tax. Since a sole proprietor does not receive a salary from their business, they are responsible for paying self-employment taxes to cover Social Security and Medicare contributions. This self-employment tax is reported on Schedule SE, with the current rate at the time of this writing totaling 15.3% of net profit in addition to federal and state income taxes (however, a sole proprietor can deduct half of the self-employment tax paid as an adjustment on their tax return, which provides some financial relief).

Additional Medicare Tax When Practicing Podiatry as a Sole Proprietor

High-earning podiatrist sole proprietors may also be subject to the Additional Medicare Tax. This tax applies to individuals whose income exceeds certain thresholds, which are determined based on filing status. For podiatrist sole proprietors filing as single, the threshold is $200,000, while it is $250,000 for podiatrist sole proprietors filing a joint tax return with a spouse. The Additional Medicare Tax rate is 0.9% and applies only to the earnings above the specified threshold. Sole proprietors must calculate and report this tax on Form 8959, ensuring compliance with Internal Revenue Service requirements. It is important for high-earning podiatrists to account for this additional tax in their financial planning to avoid unexpected liabilities.

Conclusions About Taxation of Podiatrist Sole Proprietors

Understanding the tax implications of a sole proprietorship is integral when deciding which of the available business entities will be the most tax efficient, and understanding self-employment and the Additional Medicare Tax liabilities is the first step in planning and efficiently managing future tax liabilities.

Personal Liability Protection and Personal Asset Protection When Practicing Podiatry as a Sole Proprietor

Practicing podiatric medicine as a sole proprietor, while simple, also comes with challenges regarding personal liability protection and asset protection because a sole proprietorship is not a separate legal entity, and thus does not offer a legal distinction between the podiatrist and the podiatry practice.

Personal Liability for Podiatrists When Practicing Podiatry as a Sole Proprietor

One of the primary risks faced by podiatrist sole proprietors is personal liability. The lack of distinction between the podiatrist and the podiatry practice means that the podiatrist sole proprietor is personally liable for all debts, liabilities, obligations, and legal judgments incurred by the podiatry practice personally, including claims for professional negligence, better known as malpractice, for errors and omissions.

Personal Asset Protection for Podiatrists When Practicing Podiatry as Sole Proprietors

The lack of distinction between the podiatrist and the podiatry practice that makes personal liability a primary risk to podiatrist sole proprietors also means that all assets of the podiatrist, be they strictly personal assets or assets used in the podiatry practice, are subject to claims by creditors and legal claimants against the personal assets of the podiatrist (such as homes, bank accounts, investments, and other property).

Conclusions About Personal Liability and Asset Protection for Podiatrist Sole Proprietors

The exposure to personal liability for debts, liabilities, obligations, and legal judgments (including those for professional negligence) coupled with the inability to separate personal assets from professional business assets underscores the importance for podiatrists choosing a business structure for their podiatry practice to understand liability risks and take proactive measures to safeguard their personal wealth and future earnings from such claims.

Conclusions About Practicing Podiatry as a Sole Proprietor

When deciding whether to practice podiatric medicine as a sole proprietor, it is essential to weigh the benefits and drawbacks of this business structure. While podiatrist sole proprietorships offer simplicity to podiatrists, podiatrist sole proprietorships come with significant risks and limitations. The advantages and disadvantages of practicing podiatric medicine as a sole proprietor are compared below together with a recommendation for when a sole proprietorship is the best legal structure for practicing podiatric medicine.

Advantages of Sole Proprietorship for Podiatrists

The primary benefit of a sole proprietorship for practicing podiatric medicine is its simplicity. There are few legal formalities to establish a sole proprietorship and tax reporting is equally straightforward.

Disadvantages of Sole Proprietorship for Podiatrists

While sole proprietorships are simple to establish, they carry significant risks and are not tax efficient for most podiatrists.

A sole proprietorship is not a separate legal entity, which means that podiatrist sole proprietors are personally liable for all debts, liabilities, obligations, and legal judgments (including malpractice liability). For podiatrists in high-liability podiatry practices, this risk can be substantial.

The lack of a separate legal entity also means there is no distinction between personal and professional business assets for podiatrist sole proprietors, meaning the debts, liabilities, and legal judgments for which the podiatrist sole proprietor is liable are satisfied from the personal assets of the podiatrist.

When is a Sole Proprietorship the Right Business Structure for Practicing Podiatry?

A sole proprietorship can be an ideal option for podiatrists starting small-scale podiatry practices with the expectation of low net profit and low liability risks. However, before choosing to practice podiatric medicine as a sole proprietor, it is essential to weigh the benefits of simplicity against the risks of personal liability and the future growth of the podiatry practice. For podiatrists in high-risk podiatry practice areas or those who anticipate growth in their podiatry practice may want to avoid practicing podiatric medicine as a sole proprietorship in favor of a business entity that is more tax efficient and provides limited liability protection together with the separation of personal assets from professional business assets.

For a more detailed understanding of the differences between professional sole proprietorships and California Professional Podiatric Medical Corporations and when a sole proprietorship is the best choice of business structure for podiatry practices, see “When Not to Use a California Professional Podiatric Medicine Corporation” for more information.

Practicing Podiatry with a California Professional Podiatric Medical Corporation

Practicing podiatric medicine with a California Professional Podiatric Medical Corporation is not as simple or straightforward as practicing podiatric medicine as a sole proprietor, however, a California Professional Podiatric Medical Corporation provides the tax efficiency, limited liability protection, and separation of personal assets of the podiatrist from the professional business assets of the podiatry practice that podiatrist sole proprietorships lack.

Administrative Requirements of Practicing Podiatry with a California Professional Podiatric Medical Corporation

In order to enjoy the tax efficiency, limited liability protection, and separation of personal assets a California Professional Podiatric Medical Corporation provides, podiatrists are faced with the complexity of establishing a California Professional Podiatric Medical Corporation. While this formation process is complex, podiatrists may rely upon the experienced corporate attorneys at San Diego Corporate Law to draft and file all the required legal documents for the California Professional Podiatric Medical Corporation, leaving podiatrists with essentially the same tasks they would undertake to establish a sole proprietorship. It is also worth noting that legal fees and costs of forming a California Professional Podiatric Medical Corporation are usually qualified business expenses that are tax deductible.

In addition to the initial formation of a California Professional Podiatric Medical Corporation, every year after the initial formation of a California Professional Podiatric Medical Corporation a Statement of Information must be filed with the California Secretary of State and a shareholder and board of directors meeting must be held. Just as with the formation of a California Professional Podiatric Medical Corporation, San Diego Corporate Law can assist in the annual requirements of practicing podiatric medicine with a California Professional Podiatric Medical Corporation.

Despite the additional administrative requirements of practicing podiatric medicine with a California Professional Podiatric Medical Corporation compared to practicing podiatric medicine as a sole proprietorship, an experienced corporate attorney can make the difference in requirements comparable.

For a more detailed understanding of the administrative requirements for forming and maintaining a California Corporation, see “The 7 Steps for Forming a California Professional Podiatry Corporation” for more information.

Taxation of California Professional Podiatric Medical Corporations

As with podiatrist sole proprietorships, tax considerations are a critical aspect to be examined when planning to practice podiatric medicine with a California Professional Podiatric Medical Corporation. While podiatrists practicing podiatric medicine with a California Professional Podiatric Medical Corporation are subject to business income taxation, payroll taxes for wages, and franchise taxes paid to the California Franchise Tax Board, podiatrists practicing podiatric medicine with a California Professional Podiatric Medical Corporation are not subject to self-employment taxation or additional Medicare taxes. Understanding how these taxes apply to podiatry practices is essential for podiatrists choosing a business structure in which to operate their podiatry practices.

Business Income Taxation When Practicing Podiatry with a California Professional Podiatric Medical Corporation

A California Professional Podiatric Medical Corporation is by default taxed as a personal service corporation (sometimes referred to as a professional service corporation), which is essentially a C Corporation (commonly referred to as a C-Corp) wherein corporate taxes applied to corporate profits are taxed directly at the federal and state levels at the corporate income tax rate, and any distributed dividends are subject to taxation again against the individuals receiving the dividends (referred to as “double taxation”). However, a California Professional Podiatric Medical Corporation may (and almost always should) elect to be treated as an S Corporation (commonly referred to as an S-Corp), which fundamentally changes how income is taxed. This article will focus on S Corporation taxation of California Professional Podiatric Medical Corporations.

Electing S Corporation status alters the tax treatment by enabling pass-through taxation. This means the profits and losses of the California Professional Podiatric Medical Corporation after payment of a reasonable salary to the podiatrist are passed directly to the podiatrist as the shareholder who in turn reports those profits on their personal income tax returns to pay federal income tax and state income tax on the net profit of the California Professional Podiatric Medical Corporation to pay personal income tax of the net profits of the podiatry practice.

For more information about the election of S Corporation status for a California Professional Podiatric Medical Corporation, see “Can a California Professional Podiatry Corporation Be an S-Corp?” for more information.

Self-Employment Tax When Practicing Podiatry with a California Professional Podiatric Medical Corporation

Unlike podiatrist sole proprietorships, which require the podiatrist sole proprietor to pay self-employment tax on the entire net profit of the professional practice, the podiatrist-shareholder of a California Professional Podiatric Medical Corporation is not subject to self-employment taxes.

Instead of self-employment taxes on the entire net profit of the podiatry practice, with a California Professional Podiatric Medical Corporation employee and employer contributions to payroll tax are only paid on the reasonable salary of the podiatrist. While the sum of the employee and employer contributions total 15.3% (the same percentage as self-employment tax), the calculation of the tax is based upon the reasonable salary of the podiatrist only and not the net profit of the California Professional Podiatric Medical Corporation, which may result in significant annual tax savings compared to a sole proprietorship.

Additional Medicare Tax When Practicing Podiatry with a California Professional Podiatric Medical Corporation

As discussed above for podiatrist sole proprietorships, the Additional Medicare Tax is an extra 0.9% tax applied to earned income exceeding certain thresholds. However, because the Additional Medicare Tax is only applied to earned income and the net profit of a California Professional Podiatric Medical Corporation is not deemed to be “earned” income, the Additional Medicare Tax would only be applicable to podiatrists practicing podiatric medicine with a California Professional Podiatric Medical Corporation if the reasonable salary of the podiatrist exceeded the thresholds, meaning for all intents and purposes, practicing podiatric medicine with a California Professional Podiatric Medical Corporation does not subject podiatrists to the Additional Medicare Tax.

Annual Franchise Tax for California Professional Podiatric Medical Corporations

California Professional Podiatric Medical Corporations must pay an annual franchise tax that podiatrist sole proprietorships do not pay. The franchise tax paid by a California Professional Corporation taxed as an S Corporation is 1.5% of net profit with a minimum of $800 annually. While this is a tax not paid by podiatrist sole proprietorships, the annual franchise tax is very small in comparison to self-employment taxes and the Additional Medicare Taxes paid by podiatrist sole proprietors.

Conclusions About Taxation of California Professional Podiatric Medical Corporations

Understanding the tax benefits of a California Professional Podiatric Medical Corporation is integral when deciding which of the available business entities will be the most tax efficient, and understanding self-employment and the Additional Medicare Tax liabilities is the first step in planning and efficiently managing future tax liabilities.

For a more detailed understanding of the taxation of California Professional Podiatric Medical Corporations, see “What Tax Benefits Does a California Professional Podiatry Corporation Provide?” for more information.

Personal Liability Protection and Personal Asset Protection When Practicing Podiatry with a California Professional Podiatric Medical Corporation

Practicing podiatric medicine with a California Professional Podiatric Medical Corporation, while more complex than practicing podiatric medicine as a sole proprietorship, overcomes many of the personal liability protection and asset protection shortcomings of podiatrist sole proprietorships. A California Professional Podiatric Medical Corporation is a separate legal entity distinct from the podiatrist, thus offering a legal distinction between the podiatrist and the podiatry practice as well as personal and business assets of the podiatrist.

Personal Liability Protection for Podiatrists When Practicing Podiatry with a California Professional Podiatric Medical Corporation

Practicing podiatric medicine with a California Professional Podiatric Medical Corporation resolves most of the risks faced by podiatrist sole proprietors for personal liability. California Professional Podiatric Medical Corporations provide a separate legal entity distinct from the podiatrist, meaning the podiatrist is generally not personally liable for the debts, liabilities, obligations, and legal judgments incurred by the podiatry practice.

Under California law, claims for professional negligence, better known as malpractice, for errors and omissions of podiatrists are personal to the podiatrists and not shielded for their own professional negligence by the existence of the California Professional Podiatric Medical Corporation, however, malpractice is an insurable risk and appropriately apportioned professional liability insurance may be used to indemnify the podiatrist from this risk.

Personal Asset Protection for Podiatrists When Practicing Podiatry with a California Professional Podiatric Medical Corporation

The separate legal entity and distinction between the podiatrist and the podiatry practice provided by a California Professional Podiatric Medical Corporation means that, unlike a sole proprietorship, the California Professional Podiatric Medical Corporation separates the personal assets of the podiatrist from professional business assets of the podiatry practice. Therefore, claims by creditors and legal claimants against the California Professional Podiatric Medical Corporation are generally limited to the professional business assets of the California Professional Podiatric Medical Corporation and are not satisfied against the personal assets (such as homes, bank accounts, investments, and other property) of the podiatrist.

Conclusions About Personal Liability and Asset Protection When Practicing Podiatry with a California Professional Podiatric Medical Corporation

The limitation of personal liability for debts, liabilities, obligations, and legal judgments against the California Professional Podiatric Medical Corporation coupled with the ability to separate personal assets from professional business assets makes the use of a California Professional Podiatric Medical Corporation the choice for podiatrists who wish to limit their personal liability and protect their personal wealth and future earnings from most claims arising out of their podiatry practice.

For a more detailed understanding of the liability protection and asset protection of California Professional Podiatric Medical Corporations, see “What Liability Protection Does a California Professional Podiatry Corporation Provide?” for more information.

Conclusions About Practicing Podiatry with a California Professional Podiatric Medical Corporation

When deciding if practicing podiatric medicine as a California Professional Podiatric Medical Corporation is worth the additional cost and administrative requirements, it is essential to weigh the benefits and drawbacks of this business structure. While California Professional Podiatric Medical Corporations are more complex, California Professional Podiatric Medical Corporations resolve many of the significant risks and limitations inherent to practicing podiatric medicine as a sole proprietorship. The advantages and disadvantages of operating with a California Professional Podiatric Medical Corporation are compared below together with a recommendation for when a California Professional Podiatric Medical Corporation is the best legal structure for practicing podiatric medicine.

Advantages of California Professional Podiatric Medical Corporations

While practicing podiatric medicine as a sole proprietorship is simple to establish, doing so carries significant risks and is not tax efficient for most podiatric medicine. California Professional Podiatric Medical Corporations significantly reduce liability risks and are more tax efficient for most podiatric medicine.

A California Professional Podiatric Medical Corporation is a separate legal entity, which means the podiatrist is generally shielded from personally liable for debts, liabilities, obligations, and legal judgments (other than the insurable risk of malpractice liability). For podiatrists in high-liability podiatry practices, this reduction in risk can be substantial.

The separate legal entity status also means there is a distinction between personal and professional business assets for podiatrists, meaning the debts, liabilities, and legal judgments against their podiatry practice are not generally satisfied from the personal assets of the podiatrist.

Disadvantages of California Professional Podiatric Medical Corporations

The primary benefit of a sole proprietorship is its simplicity, and in turn the primary disadvantage of a California Professional Podiatric Medical Corporation is the relative complexity of formation and operation. However, podiatrists may rely upon the experienced corporate attorneys at San Diego Corporate Law to draft and file all the required legal documents for establishing and maintaining the California Professional Podiatric Medical Corporation, leaving these podiatrists with essentially the same tasks they would undertake to establish and maintain a sole proprietorship.

When is a California Professional Podiatric Medical Corporation the Right Business Structure for Practicing Podiatry?

A California Professional Podiatric Medical Corporation can be an ideal option for podiatrists starting podiatry practices based upon the tax efficiency, limited liability protection, and separation of personal assets from professional business assets that California Professional Podiatric Medical Corporations provide. Small-scale podiatry practices with the expectation of revenue growth can benefit from starting as a California Professional Podiatric Medical Corporation to avoid the future need to reestablish the podiatry practice as revenue grows. Similarly, small-scale podiatry practices in high-risk practice areas may benefit from the limited liability protection and separation of personal assets from professional business assets provided by a California Professional Podiatry Corporation regardless of revenue or profitability.

For a more detailed understanding of the differences between podiatrist sole proprietorships and California Professional Podiatric Medical Corporations, and when a California Professional Corporation is the best choice of business structure for a professional practice, see “When to Use a California Professional Podiatry Corporation” and “Sole Proprietorship vs Professional Podiatry Corporation in California” for more information.

Podiatrists in California May Not Practice Podiatry as a Limited Liability Company (LLC) or Professional Limited Liability Company (PLLC)

A The experienced corporate attorneys at San Diego Corporate Law are frequently asked about limited liability companies and professional limited liability companies, so this topic will be briefly discussed here.

California law explicitly prohibits podiatrists and other licensed professionals from operating their practices as Limited Liability Companies (LLCs) or Professional Limited Liability Companies (PLLCs). This prohibition may be found in California Corporations Code Section 17701.04(e), which reads:

“Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render professional services, as defined in subdivision (a) of Section 13401 and in Section 13401.3, in this state.”

Instead of a California Limited Liability Company, California requires podiatrists who wish to operate in corporate form to utilize other types of business entities, such as California Professional Podiatric Medical Corporations.

For a more detailed understanding of the prohibition on the use of LLCs for podiatry practices in California, see “Can a Podiatrist Practice Podiatric Medicine Using a California LLC?” and “Can I Use a PLLC to Practice Podiatric Medicine in California?” and for more information.

If an LLC or PLLC is currently being used for a podiatry practice in California, see “10 Steps to Convert LLC to Professional Podiatry Corporation in California” and “Four Reasons Not to Convert LLC to Professional Podiatric Medicine Corporation in California” or “12 Steps to Convert a PLLC to a California Professional Podiatry Corporation” and “Four Reasons Not to Convert Foreign LLC or PLLC to a California Professional Podiatry Corporation” for more information about bringing the professional practice into compliance with California law.