Corporations & Income Taxes

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Personal Services as a Line of Business
In addition to the restrictions governing Personal Services Businesses (PSBs), which are sometimes referred to as Incorporated Employees in some circles, there is another important tax issue to be aware of. In order to engage in the practice of its profession, a professional corporation is necessary to be formed. A professional is a person who works for or provides services to a professional corporation under the terms of a written agreement.

Professional corporations that supply employment services to another employer may be classified as professional services businesses under the Internal Revenue Service’s classification system. It is a straightforward way to determine whether or not there are PSB implications in the practice employer’s relationship with the employee. Unless the relationship between the professional and the third-party practice is one of employment, the standards of the Professional Standards Board (PSB) will govern the relationship between the professional and the third-party practice.

These regulations are tough, and they place firms in a tax-defeating position the majority of the time they are in effect. There is an additional 5 percent tax, there is no small business deduction, there is no general rate reduction, and there are just a few small business deductions available. There is also an additional 5 percent tax.