S-Corp vs LLC for New Dental Practices: Which Saves More on Taxes?
Compare S-Corp and LLC tax structures for new dental practices. Learn which saves more on taxes, with real numbers and practical steps for 2026.
When you open a dental practice, one of the first business decisions is choosing your legal structure. The two most common options for small practices are the limited liability company (LLC) and the S corporation (S-Corp). Both offer liability protection, but they differ significantly in how they are taxed. For a new dental practice, the S-Corp often saves more on self-employment taxes, but only if your net income exceeds a certain threshold. This guide breaks down the numbers, the trade-offs, and the steps you can take this week to make the right choice.
How LLCs and S-Corps Are Taxed
A single-member LLC is taxed as a sole proprietorship by default. You report business income on Schedule C of your personal tax return, and you pay both income tax and self-employment tax (Social Security and Medicare) on the entire net profit. For 2026, the self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. On the first $176,100 of net earnings, you pay the full 15.3%. Above that, the Social Security portion drops to 0%, but the Medicare portion remains at 2.9%, plus an additional 0.9% for high earners (over $200,000 single, $250,000 married filing jointly).
An S-Corp is a corporation that elects to pass income through to shareholders. As an owner-employee, you must pay yourself a “reasonable salary” for the work you do. That salary is subject to payroll taxes (Social Security and Medicare, plus federal and state unemployment). The remaining profit is distributed to you as a shareholder distribution, which is not subject to self-employment tax. You still pay income tax on the full amount, but you save the 15.3% tax on the distribution portion.
The Tax Savings: Real Numbers
Let’s compare a new dental practice with $150,000 in net profit after expenses (before owner compensation).
LLC (sole proprietorship):
- Self-employment tax on $150,000: 15.3% of $150,000 = $22,950
- Total tax (income tax not included here, but SE tax is the key difference)
S-Corp:
- Reasonable salary: $100,000 (a common figure for a dentist in 2026, but varies by region)
- Payroll tax on salary: 15.3% of $100,000 = $15,300
- Distribution: $50,000, no self-employment tax
- Total payroll/SE tax: $15,300
Savings: $22,950 - $15,300 = $7,650 per year. That’s a significant amount.
But the S-Corp has additional costs: payroll processing, unemployment insurance, and more complex accounting. These can run $1,500 to $3,000 per year. Even after those costs, you save $4,650 to $6,150.
However, if your net profit is lower, the savings shrink. At $60,000 net profit, a reasonable salary might be $50,000. The LLC would pay $9,180 in SE tax; the S-Corp would pay $7,650, a savings of $1,530, but the extra costs might eat most of that. Many CPAs recommend the S-Corp only if your net profit exceeds $80,000 to $100,000.
Comparison Table: LLC vs S-Corp for a New Dental Practice
| Factor | LLC (Single-Member) | S-Corp |
|---|---|---|
| Formation cost | $100-$500 (state filing) | $100-$500 (state filing) plus $100-$300 for corporate filing |
| Annual fees | $0-$800 (state franchise tax) | $0-$800 (state franchise tax) plus $100-$300 for corporate annual report |
| Payroll setup | Not required | Required; costs $500-$1,500 for setup, $50-$200 per month for processing |
| Self-employment tax | 15.3% on all net profit | 15.3% on salary only, 0% on distributions |
| Reasonable salary | N/A | Must pay market rate; $100,000-$180,000 for dentists in 2026 |
| Accounting complexity | Simple; Schedule C | More complex; corporate return (1120S) and payroll filings |
| Tax savings at $150k profit | $0 (baseline) | $4,650-$6,150 after costs |
| Best for | Net profit under $80k | Net profit over $100k |
When an LLC Makes More Sense
If your practice is just starting and you expect to lose money or break even in the first year, an LLC is simpler and cheaper. You can always convert to an S-Corp later. Also, if you have partners, an LLC offers more flexibility in profit sharing, while an S-Corp requires distributions proportional to ownership. For a solo practice with steady income, the S-Corp is usually the better tax move.
Steps to Decide and Implement This Week
- Project your net profit. Use your business plan or recent financials to estimate your net profit for the next 12 months. If it’s over $80,000, seriously consider an S-Corp.
- Consult a CPA who works with dental practices. Ask: “At what profit level does an S-Corp save me money after all costs?” Get a specific number for your situation.
- If you choose S-Corp, file Form 2553 with the IRS. This must be done within 2 months and 15 days of the start of your tax year, or you can file late with a reasonable cause.
- Set up payroll. Use a service like Gusto or ADP. Expect to pay $50-$100 per month for a single employee.
- Determine a reasonable salary. Look at dental industry salary surveys. For 2026, a reasonable salary for a new practice owner is $100,000-$150,000, depending on location and hours.
FAQ
Can I change from LLC to S-Corp later? Yes. You can elect S-Corp status by filing Form 2553. There may be tax implications, so consult your CPA.
What is a “reasonable salary”? It’s the amount you would pay an employee to do your job. The IRS requires it to be reasonable to prevent you from avoiding payroll taxes. For dentists, $100,000-$180,000 is common.
Are there state taxes I need to consider? Yes. Some states have franchise taxes or income taxes that differ for LLCs and S-Corps. Your CPA can advise on your state.
What if I have a partner? An S-Corp requires distributions to be proportional to ownership, which can be restrictive. An LLC allows flexible profit sharing. Consider your long-term plans.
The Bottom Line
For a new dental practice with net profits above $80,000 to $100,000, an S-Corp typically saves $4,000 to $8,000 per year in self-employment taxes, even after accounting for additional costs. If your profit is lower, an LLC is simpler and more cost-effective. Start by projecting your profit, then talk to a dental CPA. Make the decision early, because changing structures later can trigger tax consequences. The right choice depends on your numbers, not on general advice.