Regardless of whether you are just starting your own law practice or you have a well-established law firm, entity structure is something to consider. After all, your entity choice affects when you pay tax, what tax you pay, how the tax is paid, your liability in running the firm and much more. Here are a few options available to law firms. For a detailed analysis specific to your needs, you should contact your trusted advisor.
Single Member LLC (SMLLC) Taxed as a Sole Proprietorship
This entity is available if there is only one owner. Earnings will be reported on the 1040 (personal tax return) and are subject to self-employment tax (Social Security and Medicare). By creating an LLC, you are creating a separate legal entity from the owner. The owner will not be liable for debts of the business in excess of the owner's investment or for contracts of the LLC. However, the owner will be liable for malpractice claims which apply to all entity choices. Malpractice insurance should be held for this reason.
LLC Filing as a Partnership
This option is similar to the SMLLC, but allows for additional partners. A separate partnership return will have to be filed and all income and deductions will pass-through to the partners. The exact allocation of items of income and deductions will be allocated based on the agreements between the owners.
S-Corporation
An S-corporation is a type of pass-through entity with its own rules. The key differences are the rules of who can form an...
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