S-Corp vs LLC for New Aba Practices: Which Saves More on Taxes?
Compare S-Corp and LLC tax structures for new ABA practices. See real numbers, steps, and which saves more in 2026.
For a new ABA practice, the choice between an S-Corp and an LLC comes down to how much you pay yourself and how much profit you expect. In most cases, an S-Corp saves more on self-employment taxes once your net income exceeds about $40,000, but it adds payroll costs and paperwork. An LLC with a single member is simpler and cheaper to run, but you pay 15.3% self-employment tax on all profit. This guide breaks down the numbers, steps, and trade-offs so you can decide based on your specific situation.
How Taxes Work for Each Structure
LLC (Single-Member or Multi-Member)
An LLC is a pass-through entity by default. The IRS does not tax the LLC itself. Instead, profits and losses flow to your personal tax return. As a sole proprietor (single-member LLC), you pay:
- Income tax at your marginal rate (10% to 37% in 2026)
- Self-employment tax of 15.3% on 92.35% of your net profit (Social Security and Medicare)
For example, if your ABA practice nets $60,000 after expenses, you pay roughly $8,477 in self-employment tax (15.3% of $55,410). That is on top of income tax.
S-Corp
An S-Corp is also a pass-through entity, but it allows you to split your income into two parts:
- A reasonable salary (subject to payroll taxes, including Social Security and Medicare)
- Distributions (not subject to self-employment tax)
The salary must be reasonable for your role. For an ABA practice owner who is also a BCBA providing therapy, a reasonable salary might range from $50,000 to $90,000 depending on your region and hours. Distributions are taxed only at your income tax rate, not at 15.3%.
When S-Corp Saves More: The Break-Even Point
To see which saves more, compare total taxes at different profit levels. The table below shows estimated annual savings for a single-member owner with no employees, assuming a reasonable salary of $60,000 and a 22% federal income tax bracket (plus state taxes vary).
| Net Profit | LLC Self-Employment Tax | S-Corp Payroll Tax (on $60k salary) | S-Corp Savings |
|---|---|---|---|
| $40,000 | $5,652 | $9,180 (but salary is $60k, so you pay more) | Negative, LLC cheaper |
| $60,000 | $8,477 | $9,180 (plus payroll admin) | Negative, LLC cheaper |
| $80,000 | $11,303 | $9,180 | $2,123 |
| $100,000 | $14,129 | $9,180 | $4,949 |
| $150,000 | $21,194 | $9,180 | $12,014 |
Note: The table assumes the salary is $60,000. If your profit is below $60,000, you cannot pay yourself a $60,000 salary without creating a loss. In practice, the break-even point is around $50,000 to $60,000 in net profit. Below that, the cost of payroll (about $1,000 to $2,000 per year for processing and compliance) often wipes out any tax savings.
Additional Costs of an S-Corp
An S-Corp is not free. You must:
- File Form 2553 to elect S-Corp status (must be done within 75 days of formation or by March 15 of the tax year)
- Run payroll through a service like Gusto or ADP, costing $40 to $100 per month
- File quarterly payroll taxes (Form 941)
- Issue W-2s to yourself
- Possibly pay for a CPA to prepare corporate tax returns (Form 1120-S), which costs $500 to $1,500 more than a personal return
These costs reduce the savings. For a new practice with less than $60,000 in profit, the LLC is almost always cheaper overall.
Practical Steps to Decide This Week
- Project your net profit for the first year. Estimate revenue minus all expenses (rent, supplies, software, insurance, marketing). Do not include your own salary.
- If profit is above $60,000, consider an S-Corp. If below, start as an LLC. You can convert later.
- If you choose an S-Corp, set a reasonable salary. Use the BLS data for BCBAs in your state. For example, the median salary for a BCBA in 2026 is around $75,000. Adjust for hours worked.
- Open a separate business bank account and credit card. This is essential for clean bookkeeping.
- Talk to a CPA who specializes in small practices. Ask: “At what profit level does an S-Corp save me money after all costs?”
State-Level Considerations
Some states, like California, impose an additional franchise tax on S-Corps (minimum $800 per year) and a separate LLC fee. In California, an LLC with income over $250,000 pays up to $11,790 in fees, while an S-Corp pays a flat $800. Other states have different rules. Check your state’s tax authority website or ask your CPA.
FAQ
Can I change from an LLC to an S-Corp later?
Yes. You can elect S-Corp status by filing Form 2553 with the IRS. The election must be made no later than two months and 15 days after the start of the tax year. Many practices start as an LLC and convert after their second year when profits grow.
What is a “reasonable salary” for an ABA practice owner?
It depends on your role. If you provide direct therapy, your salary should reflect what you would pay a BCBA with your experience. In 2026, that ranges from $60,000 to $90,000. If you only manage the business, a lower salary may be justified, but the IRS can reclassify distributions as salary if it is too low.
Do I need to pay myself a salary if I have an LLC?
No. As a single-member LLC, you take draws from your profit. You do not have to run payroll. You pay self-employment tax on the entire net profit.
What if I have employees other than myself?
If you have W-2 employees, you already need payroll. That reduces the incremental cost of an S-Corp. In that case, the break-even point drops to around $40,000 in profit, because you already have payroll setup.
The Bottom Line
For a new ABA practice, start with an LLC if your net profit is under $60,000. It is simpler, cheaper to run, and you can convert to an S-Corp later. Once your profit exceeds $60,000, an S-Corp can save you $2,000 to $12,000 per year in self-employment taxes, but only after you account for payroll and accounting costs. Run the numbers with a CPA before making the election. The decision is not permanent, but it affects your cash flow from day one.