S-Corp vs LLC for New Audiology Practices: Which Saves More on Taxes?
Compare S-Corp vs LLC tax savings for new audiology practices. Learn payroll, self-employment tax, and setup costs to decide which saves more.
If you’re starting an audiology practice, one of the first business decisions is choosing an LLC or S-Corp. The short answer: for most new audiology practices, an LLC is cheaper to set up and simpler to run, but an S-Corp can save you thousands in self-employment taxes once your net income exceeds around $40,000. This guide breaks down the numbers, the trade-offs, and the steps to decide.
How LLC and S-Corp Taxes Differ
Both LLCs and S-Corps are pass-through entities, meaning the business itself doesn’t pay federal income tax. Profits flow to your personal return. The key difference is how you pay self-employment taxes (Social Security and Medicare, 15.3% total).
- LLC (default): All net profits are subject to self-employment tax. You pay 15.3% on the full amount, up to the Social Security wage base ($176,100 in 2026).
- S-Corp: You must pay yourself a “reasonable salary” as an employee. That salary is subject to payroll taxes (FICA, 7.65% each for employer and employee, plus unemployment). But any remaining profits are distributed as dividends, which are not subject to self-employment tax.
Example: If your practice nets $80,000, an LLC owner pays $12,240 in self-employment tax. An S-Corp owner with a $50,000 salary pays $7,650 in FICA, plus employer share, totaling about $7,650, and the remaining $30,000 in distributions has no payroll tax. That’s a savings of roughly $4,590, before accounting for payroll processing costs.
When an LLC Makes More Sense
For new practices with modest income, the LLC is usually the better choice. Here’s why:
- Setup costs: LLC filing fees range from $50 to $500 depending on your state. S-Corp election adds a form (Form 2553) and often requires a registered agent, which costs $100 to $300 per year.
- Payroll complexity: S-Corps must run payroll, file quarterly payroll taxes, and issue W-2s. Payroll services cost $40 to $100 per month, plus the time to manage it.
- Reasonable salary requirement: You must justify your salary to the IRS. If you pay too little, you risk audits and penalties. This adds administrative burden.
- Break-even point: The tax savings from an S-Corp only exceed the extra costs when your net income is above roughly $40,000 to $50,000. Below that, the LLC wins.
When an S-Corp Saves More
Once your practice is profitable, the S-Corp can save significant money. Consider these factors:
- Income threshold: At $60,000 net income, an S-Corp can save about $2,000 to $3,000 in self-employment taxes, even after payroll costs.
- Higher income, higher savings: At $100,000 net, savings can reach $5,000 to $7,000 annually.
- Retirement plan contributions: S-Corp salaries allow for employer-sponsored retirement plans (like a 401k) with higher contribution limits, which can further reduce taxable income.
- State taxes: Some states (like California) impose an additional franchise tax on S-Corps, so check your state’s rules.
Comparison Table: LLC vs S-Corp for a New Audiology Practice
| Factor | LLC (Default) | S-Corp |
|---|---|---|
| Setup cost | $50-$500 one-time | $100-$500 plus Form 2553 |
| Annual compliance | $0-$200 (franchise tax in some states) | $100-$300 (registered agent, annual report) |
| Payroll processing | Not required | $40-$100/month |
| Self-employment tax | 15.3% on all net income | 15.3% on salary only; distributions exempt |
| Tax savings at $60k net | $0 | $2,000-$3,000 |
| Administrative burden | Low | Moderate to high |
| Best for | New practices under $40k net | Practices over $50k net |
Practical Steps to Decide This Week
- Project your net income: Estimate your first year’s profit after expenses. Use a conservative number. If it’s under $40,000, stick with an LLC.
- Check your state’s fees: Look up LLC filing fees and S-Corp annual costs in your state. Include these in your comparison.
- Talk to a CPA: A tax professional can run the numbers for your specific situation. Ask for a break-even analysis.
- If you choose an LLC now, you can elect S-Corp later: You can file Form 2553 within 75 days of the start of the tax year, or by March 15 for the current year. This gives you flexibility.
- Plan your salary: If you go S-Corp, set a reasonable salary based on industry benchmarks. For audiologists, salaries typically range from $60,000 to $90,000, but adjust for your location and hours.
FAQ
Can I switch from LLC to S-Corp later? Yes, you can file Form 2553 with the IRS. The deadline is generally within 75 days of the start of the tax year, or by March 15 if you’re already an LLC. There’s no penalty for switching, but you’ll need to start payroll.
What is a “reasonable salary” for an audiologist? The IRS doesn’t set a fixed number, but it should be comparable to what you’d pay an employee for the same work. For a full-time audiologist, that’s often $60,000 to $90,000, but check local salary data.
Do I need to pay myself a salary if I’m an LLC? No, as an LLC owner you’re not an employee. You pay self-employment tax on all profits, but you can take draws at any time without payroll formalities.
What if my practice loses money in the first year? An LLC is simpler for losses. You can deduct losses on your personal return, but with an S-Corp, you must still pay yourself a reasonable salary, which can complicate losses.
The Bottom Line
For a new audiology practice, start as an LLC if your projected net income is under $40,000. It’s cheaper, simpler, and avoids payroll headaches. Once your practice grows past $50,000 in net profit, revisit the S-Corp election. The tax savings can be $2,000 to $7,000 per year, which easily justifies the extra costs. Always consult a CPA to confirm the numbers for your state and situation, but this decision can be made in a week with the right projections.