What Is an S-Corp and Should a New Dental Practice Use One?
Learn what an S-corp is, how it works for dental practices, and whether it's the right choice for your new practice in 2026.
If you’re opening a dental practice, one of the first decisions you’ll make is choosing a legal structure. An S-corp is a popular option because it can save you money on self-employment taxes, but it comes with extra paperwork and rules. This guide explains what an S-corp is, how it compares to other structures, and whether it makes sense for a new dental practice in 2026.
What Is an S-Corp?
An S-corp is not a separate business entity type like an LLC or corporation. It’s a tax election you make with the IRS. You first form a corporation or an LLC, then file Form 2553 to elect S-corp status. The key feature is that profits and losses pass through to your personal tax return, avoiding double taxation. But unlike a sole proprietorship or a standard LLC, an S-corp allows you to pay yourself a reasonable salary and take the rest as distributions. Distributions are not subject to self-employment tax (Social Security and Medicare), which is 15.3% in 2026. That’s the main financial benefit.
How Does an S-Corp Work for a Dental Practice?
For a dental practice, the S-corp structure works like this:
- You form a corporation or LLC and elect S-corp status.
- You become an employee of your practice and must pay yourself a “reasonable salary” (what a dentist with your experience would earn in your area).
- The salary is subject to payroll taxes, and you must withhold and pay them.
- Any remaining profit is distributed to you as a shareholder, and you pay only income tax on it, not self-employment tax.
For example, if your practice nets $200,000, you might pay yourself a $120,000 salary and take $80,000 as distributions. You’d save 15.3% on the $80,000, which is $12,240 in tax savings. But you’ll have extra costs for payroll processing and tax filing.
S-Corp vs. Other Structures: A Comparison
Here’s a side-by-side look at common structures for a new dental practice in 2026:
| Structure | Setup Cost | Ongoing Costs | Tax Treatment | Liability Protection | Best For |
|---|---|---|---|---|---|
| Sole Proprietorship | $0-$100 | $0 | Pass-through, self-employment tax on all profits | None | Low-risk, solo practice |
| Partnership | $200-$500 | $0-$500/year | Pass-through, self-employment tax | None for general partners | Multiple owners |
| LLC (default) | $500-$1,500 | $100-$500/year | Pass-through, self-employment tax on all profits | Yes | Most new practices |
| LLC taxed as S-Corp | $1,000-$2,500 | $1,000-$2,000/year (payroll, filing) | Pass-through, salary + distributions | Yes | Practices with net income above $80,000 |
| S-Corp (formed as corporation) | $1,500-$3,000 | $1,500-$3,000/year | Same as LLC S-Corp | Yes | Practices with high profits |
| C-Corp | $1,000-$2,500 | $1,500-$3,000/year | Double taxation | Yes | Large practices, future investors |
Note: Setup costs include legal fees and state filing fees. Ongoing costs include annual report fees, franchise taxes, and payroll processing.
When an S-Corp Makes Sense for a New Dental Practice
An S-corp is usually beneficial if your practice’s net income (after expenses) is consistently above $80,000. At that level, the tax savings outweigh the extra costs. Here’s a breakdown:
- Net income below $80,000: The cost of payroll and tax filing might eat up the savings. A simple LLC or sole proprietorship is often better.
- Net income $80,000-$150,000: An S-corp can save you $3,000-$8,000 per year, but you need to handle payroll correctly.
- Net income above $150,000: An S-corp is almost always worth it, with savings of $8,000 or more.
Also, if you plan to hire employees, an S-corp gives you a clear structure for payroll, but you’ll need to run payroll anyway for any employees, so the marginal cost is lower.
Steps to Elect S-Corp Status for Your Dental Practice
If you decide an S-corp is right for you, here are the practical steps:
- Form your entity: Choose a state (usually where your practice is located) and file Articles of Incorporation or Articles of Organization. You can do this online or with a lawyer. Costs range from $100 to $500 in filing fees.
- File Form 2553 with the IRS: This must be done within 75 days of forming the entity or by March 15 of the tax year you want the election to take effect. The form is simple, but you need all shareholders to sign.
- Set up payroll: You must pay yourself a reasonable salary. Use a payroll service like Gusto or ADP, which costs $40-$100 per month. You’ll need to run payroll at least quarterly, but monthly is easier.
- Get an EIN: If you don’t have one, apply for an Employer Identification Number from the IRS. It’s free.
- Open a business bank account: Keep your personal and business finances separate.
- Work with a CPA: A tax professional can help you determine a reasonable salary and ensure you meet all deadlines. Expect to pay $500-$1,500 for tax preparation and advice.
Common Mistakes to Avoid
- Setting your salary too low: The IRS requires a reasonable salary. If you pay yourself $30,000 when you’re earning $200,000, you’ll face penalties. A good rule is to pay yourself at least 60%-70% of your net income.
- Missing filing deadlines: Form 2553 has strict deadlines. If you miss it, you may have to wait a year.
- Ignoring state taxes: Some states don’t recognize S-corp status or have different rules. Check with your state’s revenue department.
- Not running payroll: Even if you’re the only employee, you must run payroll and file payroll tax returns.
FAQ
Can I convert my existing LLC to an S-corp later? Yes, you can file Form 2553 at any time, but you must meet the eligibility requirements. It’s often easier to start as an LLC and elect S-corp status when your income grows.
What is a reasonable salary for a dentist in 2026? A reasonable salary depends on your specialty, location, and experience. General dentists typically earn $150,000-$250,000, but your salary should reflect what you’d pay an associate for your role. Your CPA can help you determine a defensible number.
Are S-corp distributions subject to any taxes? Distributions are not subject to self-employment tax, but they are subject to federal and state income tax. You’ll report them on your personal return.
What if I have a partner? S-corps can have up to 100 shareholders, and all must be U.S. citizens or residents. Each shareholder must also be an employee if they work in the practice, and they must receive a reasonable salary.
The Bottom Line
An S-corp can save you thousands in taxes once your dental practice is profitable, but it adds complexity and costs. For a new practice with uncertain income, starting as a simple LLC is often the best move. Once your net income consistently exceeds $80,000, talk to a CPA about electing S-corp status. If you’re already profitable in your first year, consider starting as an LLC and filing Form 2553 within the deadline. Do the math, and don’t guess. A $200 consultation with a tax professional can save you $10,000 or more in the long run.