Entity choice is one of the first big decisions a practice owner faces, and the S-corporation question comes up constantly. Here’s a plain-English look at the trade-offs.
What’s the difference?
A sole proprietor (or single-member LLC taxed as one) reports business income directly and pays self-employment tax on the profit. An S-corporation lets the owner take part of the profit as a salary and part as a distribution, which can change how much is subject to certain payroll taxes.
When does an S-corp make sense for a dentist?
| Consideration | Sole proprietor / LLC | S-corporation |
|---|---|---|
| Complexity | Lower | Higher (payroll, separate return) |
| Payroll tax | On all profit | On reasonable wages only |
| Ongoing cost | Lower | Higher (payroll, accounting) |
| Best for | Lower profit, simplicity | Higher, stable profit |
What is “reasonable compensation”?
An S-corp owner must pay themselves a reasonable wage for the work they do before taking distributions. Setting it too low invites IRS scrutiny. This is a judgment call best made with your CPA, and it interacts with your retirement plan contributions.
Frequently asked questions
Many established owners do, but not all — it depends on income, state rules, and the numbers. Lower-profit or newer practices sometimes don’t benefit enough to justify the added cost.
Entity choice interacts with retirement-plan contributions and reasonable compensation, so it’s best decided alongside your plan design rather than in isolation.
Founder & Financial Planner · Investment Adviser Representative · Series 63 & 65
Ian McGinnis is the founder of Dental Wealth Partners and a fee-only financial planner dedicated to dentists. As an investment adviser representative (Series 63 and 65), he built the firm to give dentists coordinated, fiduciary advice across their practice, taxes, investments, retirement plans, and long-term goals — the whole picture in one strategy. A graduate of Belhaven University, Ian previously worked at Davis Private Wealth, MML Investors Services, and Northwestern Mutual, and is based in the Jackson, Mississippi area. He is the author of The Wealthy Dentist and hosts the Smiles & Cents podcast.
Keep reading
- Tax planning strategies for dental practice ownersProactive, year-round tax strategies for dental practice owners — entity choice, retirement plans, income timing, and coordinating with your CPA.
- Retirement plans for dental practices, comparedA comparison of 401(k), safe harbor, profit sharing, SEP-IRA, and cash balance plans for dental practice owners — and how to choose.