The American Student Dental Association (ASDA) provides a wealth of information on their website and blog for dental students. A recent Money Monday article by Megan Hille addresses an important decision young dentists are rarely prepared to answer when they graduate: Should an associate incorporate or remain a sole proprietor? 

If the practice owner (the employer) treats her associates as employees, this question is irrelevant. However, most dental practices identify their associates as “independent contractors”. This means, you (the associate) are considered self employed (even though you report to your employer). 

By default, the IRS will label you as a sole proprietor and in her article, Megan identifies three advantages for remaining a sole proprietor :

  1. It’s easy and requires no extra administrative efforts.
  2. You won’t have to file a separate tax return each year. 
  3. You can become an limited liability company (LLC).

The disadvantage of remaining a sole proprietor is that all of your net profits will be subject to self-employment tax. This means that you will be paying payroll taxes as an employee and as an employer (you’ll be hit twice). In addition, you’ll also have to make payments on your estimated income because you do no have an employer withholding a portion of your paycheck. 

If you choose to incorporate, you will be protected just like an LLC because the corporation is a separate entity. Unfortunately, accounting for a corporation is more complicated than an LLC. This means you’ll spend more money on accounting fees per year, but you will also lower your taxes.

Are you looking for more information?

 Here’s an article by contributing editor of Inc. Magazine, Darren Dahl, about the pros and cons of LLCs and S Corporations. And another article by Douglas Forde of Inc. Magazine: “The Trouble with S-Corporations