Choosing the Right Entity: S-Corp vs. LLC for Your Dental Practice

You completed dental school, not business school. Yet, as you navigate the complexities of running a dental practice, it often feels like you’re wading through an endless sea of jargon: LLC, S-Corp, C-Corp. The choice of entity isn’t merely administrative fluff; it determines how much you’ll pay in taxes and, ultimately, how profitable your practice will be.

Many dentists don’t consider the implications of their business structure until tax season rolls around — when it may be too late to make a change that saves money. Imagine this scenario: It’s tax time, you’re reviewing your numbers, and a thought hits — you could have saved thousands if your setup was different. Let’s delve into how choosing between an LLC and an S-Corp affects your income, particularly regarding tax savings.

LLC: Ease and Protection, But Beware the Taxes

LLCs provide a simple gateway for many startups, offering flexibility and legal protection without too much initial hassle. They’re akin to a starter home in the business real estate world: easy to maintain and offering all the basics you need. However, LLCs come with a notable drawback — by default, your entire income is subject to self-employment tax. For high-earning dentists, this can mean a hefty tax bill, often over 15% extra in taxes on your net income.

When is an LLC beneficial? When simplicity prevails, such as when you’re just starting out or if you prefer to avoid the complexities of payroll.

S-Corp: Retain More of Your Earnings

Think of S-Corps as a step up in business property, akin to a well-insulated home. They provide an opportunity to split income between a "reasonable salary" — which incurs regular payroll taxes — and distributions, which aren’t subject to self-employment tax. This simple adjustment can lead to substantial annual savings for your practice. The trade-off? More compliance and administrative work, like running payroll and filing specific tax forms.

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Consider an S-Corp if your practice is pulling in consistent profits over $100,000. It’s a strategy to lessen the tax pinch and fatten your pockets.

A Tale of Two Practices

Let’s illustrate with a story about two dentists, Dr. Nguyen and Dr. Garcia. Dr. Nguyen runs her practice as an LLC, bringing home $150,000 annually. Self-employment tax applies to every dollar, adding a significant tax burden. In contrast, Dr. Garcia, who initially operated as an LLC, shifted to an S-Corp as his revenue grew. Now, with the same income, he draws a $90,000 salary and takes the remaining $60,000 as distributions — reducing the portion subject to payroll taxes. The switch saves him approximately $9,000 each year.

Taking the Next Step

Choosing the right entity is more than paperwork; it's a strategic decision. The quicker you align your practice’s structure with your revenue, the sooner you stop handing unnecessary dollars to the IRS. Don’t wait until tax day to recognize the savings you’re missing out on.

Curious about what structure might be best for you? Book a consultation and we’ll explore the numbers together, ensuring your entity setup is optimized for your practice and saving you the most. After all, your focus should be on caring for your patients, not worrying about taxes.

Have Questions?

Let's talk. We are here to help!

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