Before You Elect S-Corp: What Therapists Should Know
If you’ve ever Googled, “Should I be an S-Corp?” — you’re not alone.
Around this time of year, many therapists start wondering whether switching their tax status could lower their taxes.
Let’s simplify it.
First:
An LLC is a legal structure.
A sole proprietor or S-Corporation is a tax classification.
And yes — that choice can affect how much you pay in taxes.
But it’s not just about paying less. It’s about whether your business is ready.
LLC vs S-Corp for Therapists: What’s the Difference?
Sole Proprietor (or Single-Member LLC taxed as Sole Prop)
If you are taxed as a sole proprietor:
You pay income tax
You pay self-employment tax (15.3%)
That 15.3% applies to your entire net profit
Simple. Straightforward.
But once your profit increases, self-employment tax adds up quickly.
For example:
If your practice earns $80,000 in net profit, the full amount is subject to self-employment tax.
S-Corporation (S-Corp Election)
If you elect S-Corp tax status:
You must pay yourself a “reasonable salary”
You formally run payroll for yourself
Social Security and Medicare taxes are withheld from your paycheck
The remaining profit can be taken as distributions, which are not subject to self-employment tax.
This is where tax savings may occur.
But here’s the important part:
An S-Corp does not automatically save you money.
When Does S-Corp Make Sense for Therapists?
For many therapists, an S-Corp may start making sense around $70,000+ in consistent net profit.
But hitting a number alone isn’t enough.
You should also consider:
Is your income stable month to month?
Do you have consistent cash flow?
Can your practice comfortably run payroll?
Are you prepared for additional bookkeeping requirements?
Are you willing to handle added administrative complexity?
Because electing S-Corp also means:
Payroll setup and processing
Quarterly payroll filings
Additional tax preparation costs
Stricter compliance requirements
If your profit is inconsistent or just barely above the threshold, the extra complexity can outweigh the tax savings.
Should Therapists Elect S-Corp Early?
This is one of the most common mistakes I see.
Therapists often elect S-Corp status too early because they’ve heard it “saves on taxes.”
But switching too soon can create:
Cash flow pressure (because you are required to pay yourself via payroll)
Administrative overwhelm
Higher accounting fees
Stress that doesn’t match the savings
Your entity structure should support your practice — not complicate it.
Questions to Ask Before Electing S-Corp
Before making any changes:
What was your net profit last year?
What is your realistic projection for this year?
Is your revenue stable?
Do you have clean, accurate bookkeeping?
Have you reviewed the numbers with a qualified tax professional?
The right decision is based on data — not internet advice.
Common Misunderstandings About S-Corps
“An S-Corp will automatically lower my taxes.”
Not necessarily. The savings depend on profit levels and reasonable salary calculations.
“I need to form a new LLC to become an S-Corp.”
No. An LLC can elect S-Corp tax status without changing its legal structure.
“Everyone with a private practice should be an S-Corp.”
Absolutely not. It depends on profit, stability, and long-term goals.
In Summary
An LLC is a legal structure.
S-Corp is a tax classification.
Sole proprietors pay self-employment tax on all net profit.
S-Corps split income between salary and distributions.
S-Corp can reduce taxes — but only if profit and stability justify it.
Switching too early can create unnecessary stress.
You don’t need to guess.
You need good data.
If you’ve been wondering whether your current setup still makes sense, this is a great time to review your numbers — not just react at tax time.
FAQ: S-Corp for Therapists
At what profit level should a therapist consider S-Corp?
Many therapists begin evaluating S-Corp status around $70,000 in consistent net profit, but it depends on income stability and administrative readiness.
Does an S-Corp eliminate self-employment tax?
No. You still pay Social Security and Medicare taxes on your salary. The potential savings apply only to distributions above your reasonable salary.
Do I need payroll if I elect S-Corp?
Yes. You must run payroll for yourself and file required payroll tax reports.
Can I switch back if S-Corp isn’t right?
Possibly, but changes are subject to IRS rules and timing restrictions. Always consult a tax professional before making entity changes.
Want to See If It Actually Works for You?
If you’re wondering whether the numbers justify it…
Let’s do the math together.
