S-Corp vs LLC for New Fertility Clinics: Which Saves More on Taxes?
Compare S-Corp vs LLC tax savings for new fertility clinics. Learn which structure cuts taxes most with real numbers and steps.
Starting a fertility clinic involves significant upfront costs: equipment, lab setup, and specialized staff. The business structure you choose affects your tax bill for years. For most new fertility clinics, an S-Corp saves more on taxes once profits exceed about $40,000, but an LLC offers simpler compliance. This guide compares both structures with realistic 2026 figures and gives you concrete steps to decide.
How S-Corp and LLC Tax Treatment Differs
Both S-Corps and LLCs are pass-through entities, meaning profits flow to your personal tax return. The key difference is self-employment tax.
- LLC (default): All net earnings are subject to self-employment tax (15.3% in 2026: 12.4% Social Security up to $176,100, plus 2.9% Medicare).
- S-Corp: You must pay yourself a “reasonable salary” (subject to payroll taxes), but remaining profits are distributed as dividends, which are not subject to self-employment tax.
Example: If your clinic nets $150,000, as an LLC you pay 15.3% on the full amount: $22,950. As an S-Corp, if you take a $90,000 salary, you pay payroll taxes on that ($13,770) and no self-employment tax on the remaining $60,000 distribution. That saves $9,180 in taxes.
However, S-Corps have additional costs: payroll processing, unemployment insurance, and more complex filings. These typically run $1,500 to $3,000 annually.
When an LLC Saves More (Early Years)
In your first 1 to 2 years, fertility clinics often have losses or minimal profits due to startup costs. In this phase, an LLC is usually cheaper.
- No payroll requirement: You can take draws without payroll taxes, saving on administrative costs.
- Lower compliance burden: No separate corporate tax return (Form 1120-S) and no payroll filings.
- Flexible loss treatment: Losses pass through to your personal return, potentially offsetting other income.
If your clinic earns less than $40,000 in net profit, an LLC typically wins because the payroll costs of an S-Corp eat up any tax savings.
When an S-Corp Saves More (Profitable Years)
Once your fertility clinic consistently earns over $40,000 to $60,000 in net profit, the S-Corp’s self-employment tax savings outweigh the added costs.
Realistic savings example (2026):
| Profit Level | LLC Tax (15.3% SE) | S-Corp Tax (salary + payroll) | Approx. Savings |
|---|---|---|---|
| $40,000 | $6,120 | $6,120 (if all salary) | $0 |
| $80,000 | $12,240 | $9,180 (salary $60k) | $3,060 |
| $150,000 | $22,950 | $13,770 (salary $90k) | $9,180 |
| $250,000 | $38,250 | $22,950 (salary $120k) | $15,300 |
Note: Salary must be “reasonable” for your specialty. For a fertility physician, a reasonable salary in 2026 ranges from $200,000 to $300,000 in urban areas, but for a new clinic owner, $80,000 to $120,000 is often defensible if you’re also investing in growth.
Additional Tax Considerations for Fertility Clinics
Beyond structure, consider these clinic-specific deductions:
- Equipment depreciation: IVF incubators and imaging systems can be expensed under Section 179 (up to $1,220,000 in 2026) or bonus depreciation.
- Lab supplies: Consumables like culture media and needles are fully deductible.
- Qualified Business Income (QBI) deduction: Both LLCs and S-Corps can deduct up to 20% of qualified business income, but the deduction is limited for S-Corp shareholders based on W-2 wages. This can reduce the S-Corp advantage slightly.
- State taxes: Some states (e.g., California) impose a franchise tax on S-Corps ($800 minimum) or LLCs ($800 minimum), so check your state.
Practical Steps to Decide This Week
- Project your profit: Estimate your clinic’s net profit for the next 2 years. Use conservative numbers.
- Calculate your tax savings: Use the table above or a tax calculator. If profit is under $40,000, stay LLC. If over $60,000, consider S-Corp.
- Get a professional opinion: A CPA or tax attorney who works with medical practices can run precise numbers. Expect to pay $200 to $500 for a consultation.
- Check state rules: Verify S-Corp election deadlines (generally within 2 months of filing LLC formation) and any state-specific taxes.
- If switching: You can elect S-Corp status by filing Form 2553 with the IRS. You must also set up payroll (using a service like Gusto or ADP, costing $40 to $100 per month).
FAQ
Can I switch from LLC to S-Corp later? Yes. You can file Form 2553 to elect S-Corp status. The deadline is generally 2 months and 15 days after the start of the tax year, but late elections are often granted. Switching is common as profits grow.
What is a reasonable salary for a fertility clinic owner? The IRS requires “reasonable compensation” based on your role. For a physician-owner, $200,000 to $300,000 is typical, but if you’re building the practice, $80,000 to $120,000 may be defensible. Document your duties and compare to industry data.
Does the QBI deduction change the comparison? Yes. The QBI deduction is limited for S-Corp owners based on W-2 wages, so the effective tax savings may be slightly lower. Your CPA should factor this in.
What if I have partners? Both structures work with multiple owners, but S-Corps have strict ownership rules (max 100 shareholders, all must be U.S. citizens or residents). LLCs offer more flexibility.
The Bottom Line
For a new fertility clinic, start as an LLC if you expect profits under $40,000 in the first year. Once your net profit exceeds $60,000, electing S-Corp status can save $3,000 to $15,000 annually in self-employment taxes, even after accounting for payroll costs. The decision hinges on your profit projections and willingness to handle payroll compliance. Run the numbers with a CPA, and revisit your structure every year as your clinic grows.