This is exactly the type of complex transaction where getting multiple professional opinions is crucial. I went through a similar sale of my orthopedic practice to a private equity group last year, and the interplay between tax optimization, regulatory compliance, and deal structure was mind-boggling. One aspect that really caught me off guard was how the valuation methodology impacts the tax treatment. The buyers wanted to use an income approach that allocated most value to the management contract (ordinary income for me), while I pushed for an asset approach that recognized more goodwill value (capital gains treatment). The difference was substantial - nearly $200K in my case. Also, don't underestimate the importance of the transition period length. We structured a 24-month earnout that allowed me to maintain some S-Corp ownership while gradually transferring to a physician employee. This provided tax deferral benefits and gave the MSO time to prove their operational capabilities before I fully exited. The regulatory landscape varies significantly by state and specialty. Orthopedics has different compliance requirements than primary care, and some states are much more restrictive about MSO fee arrangements than others. Make sure your attorney has specific experience with medical practice transactions in your state and specialty.

As someone who recently completed a similar transaction selling my family medicine practice to a non-physician management group, I want to emphasize the importance of getting your legal structure right from day one. The MSO arrangement mentioned by others is absolutely the way to go, but there are some nuances that can make or break the deal. One critical point that hasn't been fully addressed is the employment agreement structure for the physician who will eventually take over your S-Corp ownership. We initially planned for me to transfer ownership to a new physician employee after 18 months, but discovered that the employment terms needed to be carefully structured to avoid creating tax issues under IRC Section 409A (deferred compensation rules). The key insight from my experience is that the management fee percentage needs to be genuinely arm's length and documented with a formal valuation study. We used 20% of collections, but had to provide extensive documentation showing this was market rate for the services provided. The IRS scrutinizes these arrangements heavily, especially when the percentage seems high relative to the actual management services. Also, don't overlook the impact on your retirement plan assets. If your S-Corp has a 401(k) or profit-sharing plan, the sale structure affects whether you can maintain those benefits or need to distribute/roll over the assets. In our case, we had to terminate the existing plan and establish new arrangements, which created some unexpected timing issues for both me and my employees. The good news is that when structured properly, these deals can work extremely well for both parties. The buyers get operational control and cash flow, while you get capital gains treatment on the sale proceeds and a clean exit strategy.

One detail nobody's mentioned: if you don't report your cash tips to your employer and just report them on your tax return later, you'll end up paying the full 15.3% FICA tax yourself (that's Social Security and Medicare). When you report to your employer, they pay half of that. So it's actually cheaper for you to report properly!

Just wanted to add something important that might help - make sure you understand the $20 monthly threshold rule. If you receive less than $20 in tips in any given month, you don't have to report those to your employer (but you still need to report them on your tax return). However, if you're making $50-100 per night like you mentioned, you're definitely way over that threshold and need to report to your employer. Also, keep in mind that "tips" includes more than just cash - if customers tip you through credit cards, apps, or even give you non-cash items of value, all of that counts as taxable tip income. Your employer should already be handling the electronic tips properly, but make sure you're tracking everything else. The IRS actually has a free publication (Publication 531) that explains all the tip reporting rules in detail. Worth reading through if you want to make sure you're doing everything by the book!

Does anyone know what code CP11 means? Just got a letter with this code and I'm freaking out a bit.

I've been dealing with IRS codes for years as a small business owner, and I wanted to add a few more important ones that haven't been mentioned yet: **Adjustment Codes:** - TC 290: Credit adjustment (usually good news - means you're getting money back) - TC 300: Debit adjustment (additional tax owed) - TC 420: Examination changes (audit adjustments) **Payment Codes:** - TC 610: Estimated tax payment - TC 670: Penalty assessed - TC 672: Failure to file penalty - TC 270: Account adjustment (can be positive or negative) **Pro tip:** If you see multiple transaction codes with the same date, they're usually related to the same action. For example, you might see a TC 290 (credit adjustment) followed by a TC 971 (notice sent) on the same date - this means they made an adjustment in your favor and sent you a notice about it. The key is not to panic when you see codes you don't recognize. Most of the time, if the IRS made an error in your favor, you'll see credits (TC 766, TC 768, TC 290). If they found issues, you'll typically see debits (TC 300) along with penalty codes. Always read the actual notice that accompanies the codes - the codes just tell you what type of action was taken, but the notice explains why.

Does anyone know how this works if your spouse is also on your marketplace plan? I'm self-employed but my wife works part-time and doesn't get insurance through her job. We get a premium tax credit but I pay for the family plan out-of-pocket portion.

This is such a relief to read everyone's responses! I've been in the exact same boat as the original poster - 1099 contractor paying out-of-pocket premiums after marketplace tax credits and totally confused about what I could deduct. What really helped me was keeping detailed records of my actual premium payments vs. what the tax credit covered. I use a simple spreadsheet to track my monthly out-of-pocket costs ($185/month in my case) so I have clear documentation for tax time. One thing I'd add for anyone else dealing with this - if you're using tax software, make sure it's asking the right questions about marketplace insurance and premium tax credits. I almost made the mistake of entering my full premium amount instead of just the portion I actually paid. The software should automatically coordinate between the self-employed health insurance deduction and Form 8962, but it's worth double-checking that the numbers make sense. Thanks everyone for sharing your experiences - it's so much clearer now!

This is a great breakdown of the pro-rata calculations! I want to emphasize one important timing consideration that could affect your situation: make sure you complete this reverse rollover before making any new IRA contributions or conversions in 2025. The pro-rata rule looks at your IRA balances at the end of the tax year, so if you're planning to do another backdoor Roth conversion in 2025, you'll want to get that pre-tax money out of your IRAs first. Otherwise, you'll be back to dealing with the same pro-rata complications. Also, since you mentioned your rollover IRA has grown to $85,000, double-check that your 401(k) plan doesn't have any limits on incoming rollover amounts. Some plans cap rollovers at certain dollar amounts or have waiting periods between rollovers. One last thing - keep detailed records of this entire transaction. The IRS sometimes gets confused about partial rollovers from mixed IRAs, and having clear documentation of your basis calculation and the specific amounts transferred can save you headaches if they ever question it during an audit.

Just wanted to add another perspective on the calculation method since I see some great advice here already. You're absolutely correct to go with Option 2 - the basis remains at the fixed dollar amount of $6,825. Here's a simple way to think about it: when you paid taxes on that $6,825 during your backdoor Roth conversion, you essentially "bought" that amount as your after-tax basis in traditional IRAs. Market gains and losses don't change what you already paid taxes on - they just affect the overall account value. One thing I'd recommend is calling your 401(k) plan administrator before initiating the rollover to confirm: 1. They accept partial rollovers from IRAs (as others mentioned, some don't) 2. Their process for handling the pre-tax designation 3. Any paperwork they need from you to properly code the incoming funds Also, when you request the rollover from your IRA custodian, be very specific that you're rolling over "$78,175 of pre-tax funds, leaving $6,825 of after-tax basis in the IRA." Some custodians will try to do a proportional distribution if you're not crystal clear about your intent. This reverse rollover strategy will definitely clean up your future backdoor Roth conversions - you'll essentially have a "clean slate" IRA situation going forward!