S-Corp vs LLC for New Med Spas: Which Saves More on Taxes?
Compare S-Corp and LLC tax structures for new med spas. Learn which saves more on taxes, with real numbers, steps, and a comparison table.
For a new med spa, the choice between an S-Corp and an LLC can significantly impact your tax bill. In most cases, an S-Corp saves more on self-employment taxes once your net income exceeds about $40,000, but an LLC offers simpler administration and more flexibility. This guide breaks down the numbers, the trade-offs, and the practical steps to decide which is right for you.
How LLCs and S-Corps Are Taxed
LLC (default): As a single-member LLC, you’re taxed as a sole proprietor. You report business income on Schedule C, and you pay both income tax and self-employment tax (15.3% for Social Security and Medicare) on all net earnings. For multi-member LLCs, the same applies but with a partnership return (Form 1065).
S-Corp: An S-Corp is a corporation that elects pass-through taxation. You must pay yourself a “reasonable salary” (subject to payroll taxes), and any remaining profits are distributed to you as dividends, which are not subject to self-employment tax. However, you must file Form 1120-S and run payroll, which adds administrative costs.
The Tax Savings: Real Numbers
Let’s compare a single-owner med spa with $100,000 in net profit (after expenses but before owner compensation). Assume you’re single, no other income, and using 2026 standard deduction.
| Structure | Self-employment tax | Income tax | Total federal tax |
|---|---|---|---|
| LLC (sole prop) | $15,300 (15.3% of $100k) | $11,600 (approx) | $26,900 |
| S-Corp (with $50k salary) | $7,650 (15.3% of $50k) | $11,600 (on salary + dividends) | $19,250 |
In this example, the S-Corp saves about $7,650 in self-employment taxes. However, you’ll pay additional costs for payroll processing, unemployment insurance, and tax preparation, typically $1,500 to $3,000 per year. Net savings: roughly $4,650 to $6,150.
Break-even point: At $40,000 net profit, the S-Corp savings are minimal (around $1,000) and may be offset by administrative costs. Below that, an LLC is usually cheaper.
Additional Costs of an S-Corp
- Payroll service: $50 to $150 per month (e.g., Gusto, ADP).
- Unemployment insurance: Varies by state, often $100 to $500 per year.
- Tax preparation: S-Corp returns cost $800 to $1,500 more than a Schedule C.
- State fees: Some states charge higher franchise taxes for S-Corps (e.g., California $800 minimum).
When an LLC Makes More Sense
- You’re just starting: If your med spa earns less than $40,000 net in the first year, the LLC’s simplicity wins.
- You plan to reinvest profits: If you’re putting all profits back into equipment or marketing, the S-Corp’s salary requirement forces you to pay yourself, which may not be ideal.
- You want flexibility: LLCs allow you to change profit-sharing ratios easily; S-Corps must have proportional distributions based on ownership.
When an S-Corp Wins
- Net income above $60,000: The tax savings clearly outweigh the extra costs.
- You have multiple owners: S-Corps can help each owner save on self-employment taxes, but you must all take reasonable salaries.
- You’re planning for growth: An S-Corp can be more attractive to future investors or if you plan to sell the practice, as it has a cleaner corporate structure.
Steps to Decide This Week
- Project your net profit: Estimate your revenue and expenses for the next 12 months. Use conservative numbers.
- Run the numbers: Use the table above or a tax calculator to compare total taxes at your projected profit level.
- Get a quote for payroll: Call a payroll service (e.g., Gusto, ADP) and ask for a monthly price for a one-employee S-Corp.
- Talk to a CPA: A med spa accountant can run a detailed comparison and help you set up the entity correctly. Expect to pay $200 to $500 for a consultation.
- Decide and file: If you choose an S-Corp, you must file Form 2553 with the IRS within 2 months and 15 days of the tax year you want it to take effect. If you’re already operating as an LLC, you can elect S-Corp status later, but timing matters.
Comparison Table: LLC vs S-Corp for a New Med Spa
| Factor | LLC | S-Corp |
|---|---|---|
| Setup cost | $50-$500 (state filing) | $50-$500 (plus Form 2553) |
| Annual administrative cost | $0-$200 (state report) | $1,500-$3,000 (payroll, tax prep) |
| Self-employment tax | 15.3% on all net income | 15.3% on salary only |
| Tax savings at $100k profit | $0 | $4,000-$6,000 net |
| Complexity | Low | Moderate |
| Flexibility in profit distribution | High | Low (must follow ownership) |
| Best for | New, low-profit practices | Established, high-profit practices |
FAQ
Can I switch from LLC to S-Corp later? Yes, you can file Form 2553 to elect S-Corp status. You must do so within 2 months and 15 days of the tax year you want it to take effect, or you can wait for the next tax year.
What is a “reasonable salary” for a med spa owner? The IRS doesn’t set a specific number. A common guideline is to pay yourself 50% to 70% of net profit, but it should be comparable to what you’d pay an employee for similar work. Your CPA can help justify it.
Are there state tax differences? Yes. Some states (like California, New York, and Texas) have franchise taxes or additional fees for S-Corps. Check with your state’s revenue department or a local CPA.
Do I need to pay myself a salary if I’m an LLC? No, as an LLC owner you can take draws, but you’ll pay self-employment tax on all profits. In an S-Corp, you must pay yourself a salary and run payroll.
The Bottom Line
For a new med spa, the decision comes down to your projected net income. If you expect to earn less than $40,000 in profit, start as an LLC to keep costs low. If you project over $60,000, an S-Corp will likely save you $4,000 to $6,000 annually after administrative costs. The key is to run the numbers with a CPA who understands med spa finances, and to revisit your structure as your practice grows. Make a decision this week based on your realistic projections, and you’ll avoid overpaying taxes or overcomplicating your business.