Try as we would, this doctor had “separation anxiety” — he couldn’t place a degree of separation between himself, as a person, and the practice as its own entity. This is very understandable and common in any professional service, for it is the professional who provides the services — the products, if you will – of the company. The training, experience, judgment and personality of the professional are most of what attracts and retains clients.
Still, there is a business here, and we need to maintain a wall — an opaque one, perhaps, but a wall nonetheless. In the case of the doctor above, he should have been using two credit cards — one personal, one for business, with the statements going to their respective homes. Personal expenses, such as cell phones for family members, should also be separated. Let me put it this way: The
Deducting auto expenses is perfectly legal. However, it is imperative that you keep a contemporaneous log of travel. You buy a log book for a few dollars at an office supply store, and just keep it in the car. I do, and when I was hit by a random audit a few years ago, that was the first thing that was asked for. By handing over my log and date book, that line of questioning was shut down quickly, as I had documentation.
Another wall breaker is when physicians take money — cash or check — from the practice outside of the normal pay cycle. Some will raid the cash drawer, some will just draw a check as they need it. Of the two, the latter is the better practice, as there is a “cleaner” trail for the practice’s funds. Any withdrawals for personal use must be recorded in the payroll system and withholding and employment taxes accounted for and paid.
Maintaining separation also supports you case when it comes to limiting personal liability — you want liability to be confined to the practice organization to the extent possible, and not “pierce” the shield and protection that a corporation affords you. One of the principal purposes of forming a corporation for the practice is to limit your liability and to protect personal assets.
As part of your business planning for the new year should be a meeting with your tax advisor to plan the end of year distributions, review your retirement and savings plans, and prepare for the new year. Raise this issue, too: Is the current legal organization of the practice the best one for your situation? And make sure that your internal procedures maintain the needed separation between you and the business.