S-Corp vs. LLC for Dental Practices: What Your CPA Should Be Telling You

Ask ten dental practice owners whether they should be an LLC or an S-corp and most will tell you they are not sure, which is understandable, because the question is built on a false choice. An LLC is a legal structure created under state law. An S-corp is a federal tax election filed with the IRS. They are not two doors leading to different rooms. A dental practice can be an LLC that is taxed as a sole proprietorship, an LLC that has elected to be taxed as an S-corp, or a corporation taxed as an S-corp. Once you see that, the decision gets a lot clearer, and it is exactly the thing a good tax advisor should walk you through before you sign anything.

This is the honest version of that conversation. What each choice actually does, where the S-corp election saves real money, where it costs you more than it saves, and how the math changes once your state is in the picture. None of it requires an accounting background, just a willingness to look at one number: the gap between your practice's profit and what you would reasonably pay someone to do your job.

First, Untangle the Entity From the Tax Election

Your legal entity and your tax treatment are two separate decisions. The legal entity is what you form with the state: in most states a dental practice must be a professional entity, a PLLC (professional limited liability company) or a PC (professional corporation), because dentistry is a licensed profession. That entity is what gives you liability protection and lets you operate. It says nothing yet about how you are taxed.

The tax election is the second decision, and it is the one that actually affects your tax bill. By default, a single-owner LLC is taxed as a sole proprietorship and a multi-owner LLC is taxed as a partnership. In both cases, all of the practice's net profit flows to your personal return and is subject to self-employment tax. You can instead elect, by filing IRS Form 2553, to have that same LLC taxed as an S-corp. Same legal entity, same liability protection, different tax treatment. So when people say "we became an S-corp," they almost always mean an LLC or PC that made the S-corp election. Getting the legal structure right is a question for your attorney and is covered in our state guides on structuring a practice in Ohio and Florida, with a state-rate example in our Utah tax guide. The tax election is the part we are comparing here.

How the S-Corp Election Saves on Self-Employment Tax

Here is the mechanism, because the savings come from one specific place. When your practice is taxed as a sole proprietorship or partnership, every dollar of net profit is subject to self-employment tax, which runs 15.3%: 12.4% for Social Security and 2.9% for Medicare. The Social Security portion only applies up to the annual wage base, which is $184,500 for 2026, while the 2.9% Medicare portion has no cap and applies to everything, with an extra 0.9% on higher earners.

When you elect S-corp taxation, you become an employee of your own practice. You pay yourself a reasonable salary through payroll, and that salary carries the same payroll taxes. The rest of the profit comes to you as a distribution, and distributions are not subject to self-employment or payroll tax. That difference is the entire savings. If your practice nets $400,000 and a reasonable salary for your clinical and ownership role is $200,000, the roughly $200,000 of distribution avoids the Medicare tax it would have paid as a sole proprietorship, and below the Social Security wage base it avoids that portion too.

One honest caveat most quick explanations skip: above the Social Security wage base, the benefit narrows. Because the 12.4% Social Security tax stops at $184,500 either way, a high-earning practice is mainly saving the 2.9% Medicare tax (plus the 0.9% surtax) on the distribution portion. That is still real money on a large distribution, but it is not 15.3% of everything, and anyone who pitches it that way is overselling it.

How the Default LLC Keeps Things Simple

The default LLC taxation has one large advantage: simplicity. There is no payroll to run for the owner, no separate corporate tax return, and no reasonable-compensation question to defend. Your profit is your profit, it flows to your personal return, and you pay tax on it. For a practice that is new, still ramping, or running thin margins, that simplicity may be worth more than a tax saving that barely exists yet.

The flexibility matters too. A partnership-taxed LLC can allocate profits and losses among owners in ways an S-corp cannot, which can matter for practices with multiple dentists or an associate buying in over time. And in a startup year where the practice runs at a loss, those losses can be easier to use personally without the S-corp's payroll obligations sitting on top. The default LLC is not the "lesser" choice. It is the right choice for a specific and common situation.

When the S-Corp Election Is the Clear Winner

The S-corp election earns its keep when your profit comfortably exceeds a reasonable salary, and the wider that gap, the more it saves. A useful mental test: picture what you would have to pay an associate dentist to do your clinical work, add something for the ownership and management you provide, and call that your reasonable salary. If your practice's profit sits well above that figure, the distribution on top is where the tax savings live.

That usually describes an established, stable practice: consistent collections, predictable profit, an owner who is comfortable running payroll and filing a separate return. In that situation the annual savings typically clear the added administrative cost by a healthy margin, and the election pays for itself several times over. The key word is reasonable. The IRS pays close attention to S-corp owners who pay themselves an artificially low salary to shift everything into distributions, and it has specific guidance on reasonable compensation. A dentist paying a $40,000 salary on a $400,000 profit is asking for a reclassification and penalties. The salary has to be defensible against what the market pays for the work you do.

When the Default LLC Makes More Sense

Flip the test around. If your profit only just exceeds a reasonable salary, there is little or no distribution left to save tax on, so the S-corp election adds payroll costs, a separate 1120-S return, and reasonable-compensation exposure in exchange for savings that do not yet exist. New practices, practices in a heavy debt-service phase, and part-time or winding-down practices often fall here.

There is also a real cost side to the election that belongs in the decision. Running owner payroll, filing the corporate return, and keeping the reasonable-compensation position documented all cost money and attention every year. Those costs are roughly fixed, so they eat a larger share of a small saving. The rule of thumb: the election should save you clearly more than it costs, every year, with margin to spare. If the numbers are close, the simpler structure usually wins. This is also where clean books matter, because you cannot judge the gap between profit and a reasonable salary if you do not trust your profit number, which is why the decision starts with accurate financials, not a tax form.

The QBI Deduction Complication Dentists Should Know

There is one more moving part that specifically affects dentists, and it is the piece most owners have never had explained to them. The qualified business income deduction, often called the 199A or QBI deduction, lets many pass-through owners deduct up to 20% of their business income, and the 2025 tax law made that deduction permanent rather than letting it expire. Good news, but with a dental-specific asterisk.

Dentistry is treated as a specified service trade or business, which means that above certain taxable-income thresholds, which the IRS adjusts each year, the QBI deduction phases out and then disappears for practice owners. That matters for the entity decision because paying yourself a salary as an S-corp reduces your qualified business income, which can shrink the deduction for owners who still qualify. For higher-earning dentists who are already phased out, the interaction is moot. The point is not to memorize the thresholds, it is to know that the S-corp salary decision and the QBI deduction pull on each other, so the right split is worth modeling with your tax advisor for your specific income, not guessing.

State-by-State: How Ohio and Florida Change the Math

The self-employment tax savings above are federal, so they apply in every state. What changes state to state is the layer sitting on top.

In Ohio, your practice profit also runs into the state's Business Income Deduction and its treatment of pass-through income, so how you split salary and distributions interacts with the state calculation, not just the federal one. Ohio practices also owe municipal net profit tax in the city where they operate, and that obligation follows the business regardless of the entity or election you choose. In Florida, there is no personal income tax, so the analysis is almost purely federal. Florida taxes C corporations at 5.5%, but an S-corp is not a C-corp, so the election generally does not create a Florida entity-level tax. That actually makes the Florida decision cleaner: it comes down to the federal self-employment tax math and little else.

The through-line is that the S-corp election is a federal tax decision made on top of a state-law entity, and your state determines how much extra analysis sits on top. That is the full picture your CPA or tax advisor should be laying out, and it is the difference between choosing a structure and defaulting into one.

P.S. Reciprocity Accounting keeps your books clean and your profit number trustworthy, which is the starting point for any S-corp decision, and our tax service handles the election and the return once the numbers say it is time. See how we can help your practice.

Frequently Asked Questions

Can my dental practice be an LLC and an S-corp at the same time?

Yes, and most practices that say they are an S-corp actually are exactly this. The LLC (or PLLC) is your legal entity with the state. The S-corp is a federal tax election you make on top of it by filing IRS Form 2553. You keep the LLC's liability protection and simply change how the profit is taxed. The two are not alternatives, they are two separate decisions.

At what profit level does electing S-corp taxation usually make sense?

There is no single dollar cutoff, because it depends on a reasonable salary for your role and your state, but the logic is consistent: the election is worth it when your profit sits comfortably above a reasonable salary, leaving a meaningful distribution to save tax on, and when that annual saving clearly exceeds the cost of payroll and a separate return. If your profit barely covers a reasonable salary, the election usually costs more than it saves.

What is reasonable compensation and why does the IRS care?

Reasonable compensation is the salary you would have to pay someone else to do your job, both the clinical dentistry and the ownership and management. The IRS cares because paying an artificially low salary shifts income into distributions that avoid payroll tax, so an unreasonably low number invites a reclassification, back taxes, and penalties. The salary has to be defensible against what the market pays for the work, which is why it should be set with your tax advisor and documented.

Does the S-corp election change my liability protection?

No. Liability protection comes from your legal entity, the LLC, PLLC, or PC you formed with the state, not from your tax election. Electing S-corp taxation changes how profit is taxed and nothing about your legal shield. Professional liability for clinical care is separate again and is not affected by either choice.