Ask five therapists whether they should be an S-corp and you will get five different answers, most of them wrong. The truth is that an S-election can save a growing practice real money in self-employment tax, but only past a certain point, and only if you handle owner compensation correctly. Here is the honest math.
By default, a single-member LLC or sole proprietor pays self-employment tax (about 15.3%) on all of the practice profit. An S-corp splits your income into two buckets: a reasonable W-2 salary you pay yourself (subject to payroll tax) and the remaining profit taken as a distribution (not subject to self-employment tax). That distribution portion is where the savings come from.
You cannot pay yourself a $1 salary and take everything as a distribution. The IRS requires a reasonable salary for the work you do as a clinician and owner. Set it too low and you invite an audit and back taxes; set it too high and you have given away the whole benefit. A defensible salary is documented, based on what you would pay someone to do your role, and reviewed as your practice grows.
We run the numbers before you elect, model the salary that holds up under scrutiny, and make sure the payroll and bookkeeping are actually in place to support it. Done right, the S-corp is a tool. Done wrong, it is an audit magnet. If you are weighing it, the fastest path to a real answer is a look at your actual numbers. See our tax strategy services or what we do for mental health practices.
Book a free, no-pressure practice assessment. We will review your books, entity structure, and tax posture and show you exactly where we would add value.
Educational information only, not tax or legal advice. Every practice is different. Talk to a CPA before acting.