To enter into private practice requires us to make a decision on what kind of business we are entering: sole proprietor, non-profit organization, limited liability partnership with others, or professional services corporation.
In order to make an informed decision, we need an attorney to discuss the options, positive and negative consequences of each option, and the taxes for each type of business structure. A CPA can offer more information to help make a good decision.
When I started my private practice, I began as a sole proprietor. That structure still requires you to have a separate bank account from your personal account for professional expenses, and a system of record keeping. It was easy and simple for beginning a private practice.
I am an ordained minister and am used to working for churches. As my practice grew, I incorporated as a non-profit organization and became an employee. There were more legal and accounting fees for setting up the non-profit, but it allowed people to make tax-deductible donations to help me help people with poor or no insurance. As the practice grew, the other counselors, psychologists and staff worked for the non-profit and there was more “administrivia” necessary to deal with the details.
Several years ago a new group of Christian therapists put together a group, and I joined them in a limited liability partnership. Again, attorney and accounting fees were necessary expenses to begin. The partnership had the advantage of protecting our personal assets if something went wrong. As time went by, partners left and the partnership had to be restructured.
Last year I formed a professional services corporation and became an employee. We have grown and the corporation employs a psych nurse practitioner, another therapist, social workers and an office manager. The advantages of protecting personal assets and hiring employees instead of having the shared decision making of a partnership have been rewarding. Filing two tax returns and doing more supervision are expensive.
The structure you choose can obviously change over time, and you need more information than this introductory article, especially about location-specific statutes, in order to make a good decision.
If you were like me, this subject never was discussed in grad school. To avoid costly mistakes, then get your continuing education from people whose business is helping you to succeed in your business!