🦷 S Corp vs. LLC for Dentists: Which Is More Tax Efficient?

As a dentist, you’re not just a healthcare provider — you’re also a business owner. Choosing the right business structure for your dental practice can have a huge impact on your taxes, take-home pay, and long-term wealth building.

At Velin & Associates, Inc., we work with dentists and other healthcare professionals across California to identify the most tax-efficient structure for their practice. For many, the decision comes down to S Corporation vs. Limited Liability Company (LLC).

Understanding the Basics

LLC (Limited Liability Company)

• Pros: Flexible, relatively easy to set up, strong liability protection, minimal annual filings in California.
• Tax Treatment: By default, an LLC is taxed as a sole proprietorship (single member) or partnership (multi-member). All profits are subject to self-employment tax (15.3%) in addition to federal and state income tax.
• Flexibility: Can elect to be taxed as an S Corp later if it makes sense financially.

S Corporation

• Pros: Allows you to split your income into salary + shareholder distributions, potentially reducing self-employment taxes. Profits (after reasonable salary) are not subject to self-employment tax.
• Tax Treatment: Requires you to pay yourself a reasonable salary (subject to payroll taxes) and take the rest as distributions (no payroll taxes).
• Requirements: More IRS compliance, payroll processing, and additional filings — but often worth it for the tax savings at higher income levels.

Tax Efficiency: How It Works for Dentists

Let’s look at a simplified example:

You’re a dentist who earns $300,000 in net profit from your practice.

As an LLC (default taxation):

• All $300,000 is subject to self-employment tax (15.3%) plus federal and state income tax.
• Self-employment tax: approximately $45,900 (before income tax).

As an S Corporation:

• You pay yourself a “reasonable salary” of $150,000.
• Salary is subject to payroll taxes (~$22,950).
• The remaining $150,000 is taken as a distribution with no payroll taxes.
• Potential self-employment tax savings: approximately $22,950/year.

💡 Savings vary depending on income, deductions, and state tax rules. The right balance of salary and distribution is essential for IRS compliance.

Things to Consider Before Switching to an S Corp

1. California Franchise Tax:
   • Minimum $800/year for LLCs and Corporations, plus additional fees for higher income.
2. Payroll Costs & Compliance:
   • You’ll need payroll services, quarterly filings, and annual reports.
3. Reasonable Salary Rule:
   • IRS scrutiny is high in professional services like dentistry. Underpaying yourself can trigger audits.
4. Retirement Planning Opportunities:
   • Both LLCs and S Corps can set up 401(k) or defined benefit plans, but S Corps may allow more strategic income allocation.

When an LLC Makes Sense for Dentists

• New practices with lower income (under ~$100,000 net profit).
• Dentists who value simplicity and lower administrative requirements.
• Practices still in the growth stage, where immediate tax savings aren’t the priority.

When an S Corp Makes Sense for Dentists

• Established practices with consistent profits above ~$150,000/year.
• Dentists who want to reduce self-employment taxes and optimize take-home pay.
• Practice owners ready for more structured payroll and compliance.

The Bottom Line

The choice between an LLC and an S Corporation isn’t one-size-fits-all — it depends on your profit level, growth goals, and tax planning strategy.

At Velin & Associates, Inc., we specialize in helping dentists and other healthcare professionals:

• Compare tax savings between LLC and S Corp
• Maintain IRS compliance while maximizing deductions
• Plan for long-term retirement, estate, and wealth strategies

Ready to See Which Structure Works for You?

If you’re wondering whether you’re paying more taxes than necessary, let us run the numbers for your specific situation. The right structure can mean thousands in annual savings — and more money toward growing your practice.

Our team offers CPA services for dental practices, providing expert tax planning and compliance support to help dentists protect profits and grow their businesses.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org