Top Reasons Why You Should Form a California Psychology Corporation
If you are a licensed — or soon-to-be licensed — San Diego psychologist, it may be beneficial for you to form a California psychology corporation taxed as an S-Corp through which to operate your professional practice. Psychology corporations are specifically authorized by California statutes. See Cal. Corp. Code, § 2995.
An experienced San Diego corporate attorney can help you form your professional corporation and can assist with all annual maintenance obligations. Once formed, a professional corporation becomes its own separate legal entity. As such, your professional psychology corporation can enter into contracts, sign commercial leases for office space, obtain a separate tax ID number, initiate litigation, and more. This is true for all other corporate forms like regular corporations and California limited liability corporations.
Legal Reasons to Incorporate
Because a professional psychology corporation becomes its own legal entity, this means that the corporation is, legally, separate and distinct from you, the person owning the corporation. This legal separation provides the following business and personal advantages:
- Shielding your personal and family assets from being seized by your business creditors
- Helping to avoid seizure of personal and family assets if there is a malpractice judgment entered against your professional psychology corporation
- Allowing personal privacy since you will not need to use your personal Social Security Number for tax returns, labor law form, sales tax forms, etc.
- Facilitating the creation of business credit providing even more protection for personal and family assets
- Facilitating investment(s) by others in your practice (assuming that the investors meet the qualification for ownership and/or management)
- Easing future transferability and/or sale of your practice
The foregoing positive features of a California psychology corporation may also make it possible for you to seek financing for your practice that will not be entirely dependent on your personal assets and other sources of income. At some point after your practice is successfully established, you might be able to obtain financing and business credit entirely based on the success of your practice.
Tax Reasons to Incorporate
At a certain level of income, running your practice through a California professional psychology corporation can help you minimize self-employment income. A tax professional should be consulted, but the general idea is this: Self-employment taxes are due on all self-employment income up to a certain level (about $128,000 as of 2019). If we assume that your practice will begin yielding income of $100,000, you can save some self-employment taxes that you would pay as a sole proprietor by having your corporation pay you a salary of $50,000 and then issuing corporate profit distributions of $50,000. The profit distributions are not subject to the self-employment tax, so rather than pay $15,300 in self-employment taxes, using the numbers above only $7,650 in employment taxes would be paid. Federal and state tax rules are complicated, so, again, you will need to seek advice from a tax professional.
How to Form a Corporation
In terms of formation, here in California, a professional psychology corporation is formed in the standard manner. The first step is to file Articles of Incorporation with the California Secretary of State that create a California professional psychology corporation compliant with the California Corporations Code and California Business and Professions Code. The bylaws and other corporate formation documents drafted and for compliance with the California Corporations Code and California Business and Professions Code for a California psychology corporation. Various annual filings are required thereafter. As noted, there are limitations on who may be an owner and who may be on the board of directors of your California professional psychology corporation. Thus, if you want to have more than one owner, you will need the advice of experienced legal counsel before adding a new owner and you should seek guidance before electing members to the board. Local and county permits and other legal obligations can also be obtained by the new corporation.
Contact San Diego Corporate Law Today
For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for businesses including formation of corporate entities of all types. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard proudly serves business owners and residents in San Diego and in the surrounding communities. Like us on Facebook.