Choosing between an S-Corp vs LLC for a dental practice is one of the most consequential tax decisions a practice owner will make — and most dentists get it wrong. The default LLC structure means every dollar of profit flows through as self-employment income, subject to a 15.3% FICA tax on top of income tax. An S-Corp election changes that math dramatically.
The difference isn't theoretical. For a dentist netting $500,000 per year, the wrong entity structure can cost $25,000–$40,000 annually in unnecessary self-employment taxes. Here's how to evaluate the right choice for your practice.
How LLCs Are Taxed by Default
A single-member LLC is a disregarded entity for federal tax purposes. All profit flows to your personal return on Schedule C, and you pay self-employment tax (Social Security at 12.4% and Medicare at 2.9%) on every dollar of net income. A multi-member LLC is taxed as a partnership by default — same self-employment exposure for each partner's share.
For a dental practice generating $300,000 in net profit, that means roughly $42,000 in self-employment taxes alone — before income tax even enters the picture. This is the single largest tax inefficiency for high-earning practice owners who haven't elected S-Corp status.
How the S-Corp Election Changes the Math
When you elect S-Corp status (by filing Form 2553 with the IRS), the entity structure doesn't change — you're still an LLC in the eyes of your state. But for federal tax purposes, you're now taxed as an S-Corporation. The critical difference: you split income into two buckets.
Bucket 1: Reasonable salary. You pay yourself a W-2 wage that reflects what a similarly qualified dentist would earn as an employee. Both the employer and employee portions of FICA apply — just like any W-2 job.
Bucket 2: Distributions. Everything above that salary flows through as a distribution. Distributions are subject to income tax but not self-employment tax. This is where the savings live.
Self-Employment Tax Savings by Income Level
The savings scale with income, but they depend on setting an appropriate reasonable salary. For dentists, reasonable salaries typically range from $130,000 to $225,000 depending on specialty, location, and experience.
| Net Practice Income | Reasonable Salary | Distribution | Est. SE Tax Savings |
|---|---|---|---|
| $300,000 | $150,000 | $150,000 | ~$15,300 |
| $500,000 | $180,000 | $320,000 | ~$27,500 |
| $750,000 | $210,000 | $540,000 | ~$38,700 |
These figures reflect the 2.9% Medicare tax (uncapped) plus the 0.9% Additional Medicare Tax that applies above $200,000. The Social Security portion (12.4%) caps at $168,600 in 2026, so the marginal savings above that threshold come from the Medicare side.
Important: The IRS scrutinizes dental S-Corps closely. Setting your salary at $80,000 when comparable employed dentists earn $180,000 is a red flag. If the IRS reclassifies your distributions as wages, you'll owe back taxes, penalties, and interest on the full amount. Use compensation data from the BLS and dental salary surveys to justify your number.
Reasonable Salary Requirements for Dentists
The IRS doesn't publish a specific formula for reasonable compensation. Instead, they look at several factors: the services you personally perform, what similar practices pay employed dentists, your experience and specialty, hours worked, and the practice's revenue and profitability.
General dentists typically land between $140,000 and $180,000. Specialists — oral surgeons, periodontists, endodontists — often need to set salaries at $180,000 to $250,000 to stay defensible. The key is documentation: keep records of how you arrived at the number, including comparable salary data and a written analysis.
State-Specific Considerations
Federal tax savings are only part of the equation. Some states impose additional taxes or fees on S-Corps that can eat into the benefit:
- California charges a 1.5% franchise tax on net income (minimum $800), which reduces the net savings
- New York City imposes an unincorporated business tax on LLCs but not S-Corps — making the election more attractive
- Texas has a franchise (margin) tax that applies regardless of entity type
- States with no income tax (Florida, Texas, Tennessee, etc.) amplify the federal SE tax savings since there's no state-level offset
Your state may also have specific professional corporation requirements for dentists. Some states require dental practices to operate as a Professional Corporation (PC) or Professional LLC (PLLC), which can still elect S-Corp status but may have additional regulatory steps.
When to Make the Election (Form 2553 Deadline)
To elect S-Corp status for the current tax year, you must file Form 2553 by March 15 of that year (or within 75 days of forming the entity). Miss that deadline and you're waiting until the next tax year — costing you a full year of savings.
Late election relief exists under Revenue Procedure 2013-30, but it requires demonstrating reasonable cause. The simplest path: make the decision proactively, ideally during Q4 planning for the following year.
Not sure whether the S-Corp election makes sense for your practice? We'll model both structures using your actual numbers — free, no obligation.
Get a Free Entity Review →When to Stay an LLC
The S-Corp election isn't always the right move. You may be better off staying a standard LLC if:
- Net profit is below $80,000–$100,000. The payroll compliance costs (quarterly payroll filings, W-2s, payroll software) and additional accounting fees can offset the tax savings at lower income levels.
- You're in a startup phase. If the practice is new and not yet consistently profitable, the administrative burden of running payroll isn't worth it.
- You plan to sell soon. An asset sale from an S-Corp can trigger double taxation in certain scenarios. If a practice sale is 1–2 years away, the entity structure should be evaluated in that context.
- You have significant losses. S-Corp losses are limited by your basis in stock and loans to the corporation. LLC members have more flexibility in deducting losses.
Combining S-Corp with Other Strategies
The S-Corp election works best as part of a broader tax strategy. High-earning dentists often pair it with:
- Defined benefit plans — shelter $200,000–$300,000+ in tax-deductible retirement contributions
- Section 179 deductions — write off equipment purchases like CBCT scanners and CAD/CAM systems in year one
- Cost segregation — if you own your building, reclassify 25–40% of property value for accelerated depreciation
- Entity structuring — hold real estate in a separate LLC to protect assets and optimize entity structure
The compounding effect of these strategies, layered on top of S-Corp savings, can reduce a practice owner's effective tax rate by 10–15 percentage points compared to a standard LLC with no proactive planning.