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For most Ohio dental practices, an S-Corp election is the right default. It pairs the federal payroll-tax savings of an S-Corp with Ohio's $250,000 Business Income Deduction and a flat 3 percent rate on the rest. Here is how the structure works, plus the CAT and municipal-tax details practices most often get wrong.
Choosing how your dental practice is structured and taxed is one of the few decisions that quietly affects every dollar you take home. Most owners set it up once, at the very beginning, and never revisit it, which means a practice that has doubled in production is often still wearing the entity it chose as a startup. The structure that fit a brand-new practice is rarely the one that fits a mature one. In Ohio, the right setup usually combines a specific federal tax election with a handful of state-level details that are easy to miss and expensive to ignore.
This is a tax and legal decision, so the actual choice and the filings belong with your CPA or tax attorney. What follows is the plain-English version of how Ohio dental practices are typically structured, what each piece does, and the questions to bring to that conversation so you are not hearing these terms for the first time.
Start with a distinction that trips up a lot of owners: your entity and your tax election are two different things. You might form a limited liability company or a professional corporation for legal purposes, and then separately choose how the IRS taxes it. For a profitable dental practice, that tax election is where the money is.
By default, a single-owner practice is taxed as a sole proprietorship and every dollar of net profit is hit with self-employment tax, which is 15.3 percent up to the Social Security wage base and 2.9 percent for Medicare above it. An S-Corp election changes that math. The owner takes a reasonable salary that runs through payroll and is subject to those payroll taxes, and the remaining profit comes out as a distribution that is not subject to self-employment or Medicare tax. For a practice clearing solid net income, that split saves real money every year.
The catch is in the word reasonable. The salary has to be defensible as fair pay for the dentistry you actually perform, because paying yourself an artificially low wage to dodge payroll tax is exactly what the IRS looks for. An S-Corp also adds payroll administration and a separate return, so it tends to make sense once the practice is consistently profitable rather than on day one. This is the calculation worth running with your CPA, and it is far easier to run when your books are clean, which is the entire reason a profit and loss statement you can trust matters before you make the election.
This is the piece that makes Ohio genuinely friendly to practice owners. Ohio lets you deduct the first $250,000 of business income from your state taxable income if you file single or married filing jointly, or the first $125,000 if you file married filing separately. Any business income above that threshold is then taxed at a flat 3 percent rather than at the regular individual rate, according to the Ohio Department of Taxation.
That deduction flows to the profit your practice passes through to you as the owner, whether you are taxed as a sole proprietorship, a partnership, or an S-Corp. It is worth understanding how it interacts with your S-Corp salary. The salary you pay yourself is wages, not business income, so it is taxed at Ohio's regular individual rate, which becomes a flat 2.75 percent on income above roughly $26,000 starting in 2026. The distribution side is business income, so it gets the deduction and the 3 percent rate. The two pieces are taxed on different tracks, which is one more reason the reasonable-salary figure deserves real thought rather than a round number pulled from the air.
Ohio also offers a second move worth raising with your preparer: the elective pass-through entity tax. By filing the IT 4738, your practice can pay Ohio income tax at the entity level instead of having it pass to you personally. Because the entity-level tax is a fully deductible business expense at the federal level, this is a legitimate way to work around the federal $10,000 cap on the state-and-local-tax deduction, and you receive a refundable Ohio credit for your share. The election is made annually and is irrevocable once filed for the year, so it is a yearly decision rather than a set-and-forget one.
The Commercial Activity Tax is Ohio's tax on business gross receipts, and for years it was a small but real nuisance for practices. That has changed. As of tax years beginning in 2025, the first $6 million of taxable gross receipts is excluded, and if your practice has $6 million or less in taxable gross receipts you owe no CAT and do not need to file at all, per the Ohio Department of Taxation. Only receipts above $6 million are taxed, at 0.26 percent on the excess.
For the overwhelming majority of single-location dental practices, that means the CAT simply no longer applies. The practical action item is not about paying it, it is about cleanup: if your practice registered for the CAT in earlier years when the threshold was $1 million or $3 million, you may have an open account that should be formally cancelled so you are not expected to keep filing. Confirm your status with your CPA rather than assuming an old registration quietly went away.
If there is one Ohio-specific layer that catches dental owners off guard, it is municipal income tax. Ohio has hundreds of cities and villages that levy their own income tax, commonly in the range of 2 to 2.5 percent, and most of them collect it through one of two agencies: the Regional Income Tax Agency, known as RITA, or the Central Collection Agency, known as CCA. Some larger cities administer their own. Which one applies depends entirely on where your practice is located.
For a practice, this shows up in three places. The business itself owes municipal tax on its net profit in the city where it operates. The practice must withhold municipal tax from employee wages based on where the work is performed and remit it to the right agency. And you as the owner owe municipal tax on your wages where you live and work. None of this is complicated in isolation, but it is easy to register with the wrong agency, miss a withholding obligation, or assume the state filing covered the city. This is the kind of detail that belongs in your monthly bookkeeping rhythm rather than discovered at year end, the same way Ohio practices already track state-specific quirks like insurance reimbursement.
Use this as the agenda for a conversation with your CPA, not as a do-it-yourself filing list. The point is to make sure nothing on it is sitting unaddressed.
That last point is the one we own. Reciprocity Accounting is a dental bookkeeping and tax firm, so the way we help is by keeping your books accurate and coordinating with your CPA or tax attorney so the structural decisions run on real numbers instead of estimates. If you are not sure who handles what in that relationship, our breakdown of a dental bookkeeper versus a dental CPA lays it out.
P.S. Reciprocity Accounting keeps your Ohio dental practice's books clean and coordinates with your CPA so your entity election, Business Income Deduction, and municipal filings all run on accurate numbers. See how we can help your practice.
No. The S-Corp election saves the most for practices that are consistently profitable, because the savings come from splitting income between a reasonable salary and distributions. A newer or lower-margin practice may not clear enough profit to justify the added payroll and filing costs. It is a numbers question, and the answer changes as the practice grows, which is why it is worth revisiting rather than deciding once.
Almost certainly not, if your taxable gross receipts are $6 million or less, which covers nearly every single-location practice. Under the rules for tax years beginning in 2025, practices at or below that threshold owe no CAT and do not file. The one thing to check is whether you have an old CAT registration from prior years that should be formally cancelled.
It lets you deduct the first $250,000 of business income on a joint or single return, with anything above that taxed at a flat 3 percent. For an owner pulling six-figure profit out of the practice, that is a meaningful annual reduction in Ohio income tax compared with how wage income is taxed. Your CPA can model the exact figure against your distribution and salary mix.
RITA is the Regional Income Tax Agency, one of the two main collectors of Ohio municipal income tax. If your practice operates in a RITA member city, your business filing, your employee withholding, and your own municipal return may all run through RITA. It is separate from your state return, and missing it is one of the more common Ohio compliance slip-ups for practice owners.