Tax Implications for Dentists Engaging with MSOs: What You Need to Know
Oct 23 2024 0

Tax Implications for Dentists Engaging with MSOs: What You Need to Know

In corporate dentistry, a Managed Service Organization, or MSO is a corporation backed by equity. MSOs allow dental professionals who aren’t as business savvy several benefits which is why they are quite attractive versus private practice. That said there are trade-offs.

While an MSO carries benefits including:

  • A reliable set schedule of a dentist’s choosing still accounts for patient care when a dentist is not within their working hours.
  • The ability to solely focus on the clinical aspects of dentistry and patient care while business operations are managed by the dentist.
  • The freedom to have a better work/life balance and flexibility to choose where to live and what markets to offer dental services.

On the other hand, the drawbacks when choosing an MSO structure versus private practice include:

  • Corporate profits trump a dentist’s preferences on how they provide treatment and what products they endorse. Also, profit margins are scrutinized to ensure the bottom line is robust and productive.
  • Restrictions on the type of dental treatment and technology a dentist can use. An MSO will favor established standards that are streamlined and not to be deviated from.
  • Abiding by employment agreements that dictate salaries versus private practice where a dentist’s income isn’t limited.

Since there is no such thing as a perfect solution for dentists when it comes to deciding what business structure to choose, it is critical that since the goals and needs of each dentist are different, time is taken to thoroughly review the available options. In doing so, the issue of how to handle taxes is a serious matter in the decision-making process that can not be understated. If an MSO is an option you choose then understanding the tax implications that come with this business model is essential. 

Dentists who would like more information or help with MSO formation in California can call the Los Angeles MSO attorneys at Leiva Law Group.

Understanding Taxes and MSO’s 

Tax Implications for Dentists Engaging with MSOs: What You Need to KnowFiling a consolidated federal income tax return has its advantages such as offsetting the income of one entity through the losses of another. Yet, if you are an MSO, the tax legalities of doing so can be complex. For example, to file a consolidated federal income tax return, affiliated groups of corporations must have a common parent that holds a minimum of 80% of the combined voting power and the total value of the stock of these corporations. Since an MSO typically is owned by separate investors, these rules appear problematic.

The IRS, though, has issued private letter rulings that allow MSOs to file consolidated tax returns even though they do not own legal title to stocks. This is due to the IRS determination that MSOs hold beneficial ownership of stock that can be counted as meeting the 80% ownership requirement. Essentially the private letter rulings provide a framework for how an MSO can structure their agreement to meet the beneficial ownership test. Nevertheless, depending on where a dentist is operating in an MSO, state laws regarding tax filings may not prove to be beneficial for an MSO to file a consolidated income tax return under the guidance of the IRS private letter rulings.

Speak to an Attorney at Leiva Law Firm Today

Understanding the nuances of business taxes is rarely an easy thing to do for those who are not trained in tax and business law. Therefore, if you would like help with your California MSO please call Leiva Law Firm today at (818) 519-4465 to schedule a free consultation.

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