After you’ve gone to all the effort and expense of getting an extended education in law school, medical school or another professional degree or certification program, it can feel anticlimactic to go to work for someone else. If you’ve got a professional degree and you’ve passed licensing requirements, you might decide to just hang up your own shingle instead. Congratulations -- you’ve entered private practice.
Private or solo practitioners don’t work in a void. They may have employees, but they don’t have to report to employers, either private or governmental. They’re typically in medical or legal fields, but any professional can go into private practice. A doctor operating his own office has a private practice. If you go to work for him, you would not have a private practice -- you’d be his employee.
Private practices can be incorporated, but they don’t have to be. Many private practitioners operate as sole proprietors -- they pay taxes on their business income under their own Social Security numbers. If you have employees, however, you’ll need an employer tax ID number from the Internal Revenue Service. If you and your law school buddy go into practice together after passing the bar, this is a partnership, but you could also choose to form a limited liability company or a corporation -- you can even do this on your own, without a partner. It’s a personal choice based on your unique concerns and needs, but a financial advisor can fill you in on the pros and cons of your options.