S-Corp vs LLC for New Optometry Practices: Which Saves More on Taxes?
Compare S-Corp and LLC tax structures for new optometry practices. Learn which saves more on taxes with real numbers, steps, and expert insights.
When you open an optometry practice, choosing between an LLC and an S-Corp affects your tax bill every year. For most new practices, an LLC is simpler and cheaper to start, but an S-Corp can save you thousands in self-employment taxes once your profit exceeds a certain threshold. This guide compares both structures with current 2026 figures, so you can decide which saves more on taxes for your specific situation.
How LLCs and S-Corps Differ for Tax Purposes
An LLC is a pass-through entity by default. If you are a sole owner, the IRS treats it as a sole proprietorship. You report business income on Schedule C, and you pay both income tax and self-employment tax (15.3% in 2026) on the entire net profit. The self-employment tax covers Social Security and Medicare, and it applies to all your business income, up to the Social Security wage base ($176,100 in 2026).
An S-Corp is also a pass-through entity, but it allows you to split your income into two parts: a reasonable salary and distributions. You pay payroll taxes (Social Security and Medicare) on the salary, but distributions are not subject to self-employment tax. This can reduce your total tax burden, but it comes with extra administrative costs and compliance requirements.
Tax Savings Comparison: LLC vs S-Corp for Optometry Practices
To see the real difference, let’s model a new optometry practice with $150,000 in net profit before owner compensation. This is a common range for a solo practice after expenses, but your numbers may vary.
| Structure | Owner Compensation | Self-Employment Tax | Income Tax (22% bracket) | Total Tax (approx.) |
|---|---|---|---|---|
| LLC (sole prop) | N/A (all profit) | $22,950 (15.3% of $150k) | $33,000 | $55,950 |
| S-Corp | $80,000 salary, $70,000 distribution | $12,240 (15.3% of $80k) | $33,000 (on all $150k) | $45,240 |
In this example, the S-Corp saves about $10,710 in self-employment tax. However, you must also factor in the costs of running payroll, filing additional tax forms, and paying for accounting help. Those costs typically range from $1,000 to $2,500 per year. Even after those costs, the S-Corp still saves roughly $8,000 to $9,000 annually.
But the savings are not automatic. If your profit is lower, the S-Corp may not be worth it. For instance, at $60,000 in net profit, the self-employment tax savings might be only $4,590, and after payroll costs, you could break even or lose money. A common rule of thumb is that an S-Corp becomes beneficial when your net profit exceeds $80,000 to $100,000, but you should run the numbers for your practice.
Costs of Each Structure in 2026
| Cost Item | LLC | S-Corp |
|---|---|---|
| State filing fee | $50-$200 (varies by state) | $100-$300 (varies by state) |
| Annual report fee | $0-$100 | $0-$100 |
| Payroll service | Not required | $40-$100/month |
| Tax preparation | $300-$800 (business return) | $800-$1,500 (business + payroll) |
| Registered agent | $50-$150/year | $50-$150/year |
For a new practice, the LLC is cheaper to set up and maintain. The S-Corp requires ongoing payroll processing, which adds complexity. You also need to file Form 1120-S and provide K-1s to shareholders, which increases accounting fees.
How to Decide: 5 Steps You Can Take This Week
- Estimate your net profit. Look at your business plan or first year projections. Use a conservative number, because if you overestimate, the S-Corp might not pay off.
- Run a break-even analysis. Calculate the self-employment tax savings at your projected profit, then subtract the additional costs of an S-Corp (payroll, accounting, filing fees). If the net savings are positive, an S-Corp is worth considering.
- Check your state’s rules. Some states impose additional taxes on S-Corps, such as a franchise tax in California or a flat tax in New York. These can eat into your savings. Research your state’s specific requirements.
- Talk to a CPA. A tax professional who works with optometry practices can model your specific situation. They can also help you set a reasonable salary for the S-Corp, which must be market rate for your role.
- Decide on timing. You can start as an LLC and elect S-Corp status later, but there are deadlines. The election must be filed by March 15 for the current tax year, or within 2 months and 15 days of forming the entity. If you are already operating, you may need to wait until the next tax year.
Common Pitfalls to Avoid
- Setting an unreasonably low salary. The IRS requires that S-Corp owners pay themselves a reasonable salary. If you pay yourself $20,000 when the market rate is $80,000, the IRS can reclassify distributions as wages and impose penalties. In 2026, a reasonable salary for an optometrist owner is typically $80,000 to $120,000, depending on location and hours.
- Forgetting payroll filings. As an S-Corp, you must run payroll and file quarterly Form 941. Missing these deadlines can result in penalties.
- Ignoring state taxes. Some states do not recognize S-Corp status for tax purposes, or they impose additional taxes. For example, in New York City, S-Corps pay a general corporation tax.
- Choosing an S-Corp too early. If your practice is not profitable yet, the extra costs can strain your cash flow. Most new practices do not need an S-Corp in the first year unless they have significant profit from day one.
FAQ
Can I change from LLC to S-Corp later? Yes. You can elect S-Corp status by filing Form 2553 with the IRS. You must file by March 15 of the tax year you want the election to take effect, or within 2 months and 15 days of forming the LLC. Keep in mind that you will need to start running payroll and may need to change your accounting methods.
What is a reasonable salary for an optometrist owner in an S-Corp? For 2026, a reasonable salary for a full-time optometrist owner is typically $80,000 to $120,000, based on regional averages. Your CPA can help you determine a defensible number based on your duties and hours.
Are distributions from an S-Corp subject to income tax? Yes, distributions are taxable as ordinary income, but they are not subject to self-employment tax. You still pay federal and state income tax on them, so the savings come only from the payroll tax portion.
Does an LLC save on taxes if I have a spouse as a partner? If you and your spouse are both owners, you can operate as a qualified joint venture, which allows you to split the income and potentially reduce self-employment tax. However, an S-Corp might still offer more savings if your combined profit is high. Run the numbers with a CPA.
The Bottom Line
For new optometry practices, an LLC is the simpler, cheaper choice at the start. But once your net profit exceeds roughly $80,000 to $100,000, an S-Corp can save you $5,000 to $10,000 per year in self-employment taxes, even after accounting for extra administrative costs. The exact savings depend on your profit, state taxes, and how much you pay yourself. Start with an LLC if you are unsure, then revisit the decision after your first year of operation. Consult a CPA who understands optometry practices to run the numbers for your specific situation. This is not a one-size-fits-all decision, but with the right analysis, you can keep more of your hard-earned revenue.