S-Corp vs LLC for New Podiatry Practices: Which Saves More on Taxes?
Compare S-Corp and LLC tax implications for new podiatry practices. Learn which structure saves more, with real numbers and steps to decide.
For a new podiatry practice, the choice between an S-Corp and an LLC comes down to one question: which saves more on taxes? The short answer: an S-Corp saves more once your net income exceeds roughly $40,000 to $60,000 per year, but it adds administrative costs and payroll requirements. Below is a concrete breakdown of tax differences, costs, and steps to decide.
How LLCs and S-Corps Are Taxed Differently
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 self-employment tax (Social Security and Medicare) on 100% of your net profit. The self-employment tax rate is 15.3% (12.4% for Social Security up to the wage base, plus 2.9% for Medicare). For 2026, the Social Security wage base is projected to be $176,100, so most podiatrists will hit that cap.
An S-Corp is also a pass-through entity, but it allows you to split your income into two parts: a reasonable salary (subject to payroll taxes) and distributions (not subject to self-employment tax). You pay payroll taxes on the salary, but distributions are free of FICA taxes. This is the primary tax advantage of an S-Corp.
The Tax Savings: Real Numbers
Let’s use a new podiatrist with a net profit of $100,000 (after expenses, before owner compensation).
LLC (sole proprietor):
- Self-employment tax on $100,000: $15,300 (15.3%)
- Income tax (assuming 22% federal bracket, plus state, but ignore for comparison): $22,000
- Total federal tax: $37,300
S-Corp (with a reasonable salary of $60,000):
- Payroll taxes on $60,000: $9,180 (15.3%)
- Income tax on $60,000 salary + $40,000 distribution: $22,000 (same total income, but note: distributions are not subject to SE tax, so total income tax is still $22,000)
- Total federal tax: $31,180
Savings: $6,120 per year (the difference in SE tax on the $40,000 distribution).
However, the S-Corp must pay for payroll processing, unemployment insurance, and filing an additional corporate tax return (Form 1120-S). These costs typically run $1,500 to $3,000 per year. So the net savings in this example is $3,120 to $4,620 annually.
If your net income is below $40,000, the S-Corp tax savings may not cover the added costs. Above $60,000, the S-Corp almost always wins.
When an LLC Is the Better Choice
An LLC is simpler and cheaper to run. There are no payroll requirements, no separate corporate tax return, and you can use your Social Security number for tax filings. For a new practice with modest income (under $40,000 net), the LLC is the better choice because the S-Corp’s administrative burden eats into any savings.
Also, if you plan to take on partners later, an LLC can be taxed as a partnership, which offers flexibility in profit sharing. An S-Corp has strict rules on who can be a shareholder (U.S. citizens/residents, max 100 shareholders), which may limit future investors.
When an S-Corp Is the Better Choice
Once your practice is established and net income exceeds $60,000, the S-Corp saves money. The key is to set a reasonable salary. The IRS requires that you pay yourself a salary that is comparable to what a podiatrist in your area would earn for similar work. For a new practice, that might be $60,000 to $90,000, depending on hours and location. If you set the salary too low, the IRS can reclassify distributions as wages and impose penalties.
Cost Comparison Table
| Item | LLC (Sole Prop) | S-Corp |
|---|---|---|
| Setup cost | $50-$500 (state filing) | $100-$800 (state filing + corporate formation) |
| Annual filing fee | $0-$200 (state) | $0-$200 (state) + $100-$500 for Form 1120-S |
| Payroll processing | $0 (none required) | $600-$1,800/year (payroll service) |
| Payroll taxes (unemployment, etc.) | $0 | $500-$1,000/year |
| Accounting/tax prep | $300-$800/year | $800-$2,000/year |
| Total annual admin cost | $300-$1,000 | $1,500-$4,300 |
Steps to Decide This Week
- Estimate your net income for the first year. Use a conservative number based on your patient volume and overhead.
- Run the numbers using the example above. If your net income is under $40,000, stick with an LLC. If over $60,000, consider an S-Corp.
- Talk to a CPA who works with medical practices. They can help you set a reasonable salary and calculate the exact savings.
- If you choose an S-Corp, you must file Form 2553 with the IRS within 75 days of formation (or by March 15 of the tax year). Plan ahead.
- If you already formed an LLC, you can elect S-Corp status later by filing Form 2553. This is a common path: start as an LLC, then convert when income justifies it.
FAQ
Can I switch from an LLC to an S-Corp later? Yes. You can file Form 2553 to elect S-Corp status, but you must do so within 75 days of the tax year you want the election to take effect. Many practices start as an LLC and convert after a year or two.
What is a reasonable salary for a podiatrist? The IRS doesn’t set a fixed number. Look at salary surveys for podiatrists in your region. For a new practice, $60,000 to $90,000 is typical. Document how you determined the salary in case of an audit.
Do I need to pay myself a salary if I’m an LLC? No. As a sole proprietor, you take draws, which are not subject to payroll withholding. You pay self-employment tax on all net income when you file your personal tax return.
What if I have a partner? An LLC can be taxed as a partnership, which allows flexible profit allocation. An S-Corp requires that profits and losses be allocated based on ownership percentage, which is less flexible.
The Bottom Line
For a new podiatry practice, the LLC is the default choice because it’s simple and low-cost. Once your net income exceeds $60,000, an S-Corp will save you $3,000 to $6,000 per year in taxes, even after accounting for administrative costs. The key is to run the numbers with your actual projections and consult a CPA. Start as an LLC if you’re unsure; you can always elect S-Corp status later. The decision is not permanent, but it affects your cash flow from day one, so make it based on real numbers, not guesswork.