S-Corp vs LLC for New Speech Therapy Practices: Which Saves More on Taxes?
Compare S-Corp vs LLC tax savings for new speech therapy practices. See real cost differences, payroll, and steps to choose the best structure.
For a new speech therapy practice, the choice between an LLC and an S-Corp comes down to one question: which saves more on taxes? The short answer: an S-Corp typically saves more once your net income exceeds $40,000 to $60,000 per year, but it costs more to run. Here is the concrete breakdown.
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. You pay income tax plus self-employment tax (15.3% in 2026) on all net earnings. That means every dollar of profit is hit with the full 15.3% Medicare and Social Security tax, up to the Social Security wage base ($176,100 in 2026).
An S-Corp is 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) only on the salary. The distributions are not subject to self-employment tax. This is the core tax advantage.
For example, if your practice nets $80,000, as an LLC you pay 15.3% on the full $80,000, which is $12,240. As an S-Corp, you might set a salary of $50,000 (a reasonable amount for a speech therapist) and take $30,000 as distributions. You pay 15.3% on $50,000, which is $7,650, plus payroll taxes (employer and employee halves) and unemployment taxes. Your savings are roughly $4,590, minus the extra costs of payroll processing and filing.
When an S-Corp Saves More: The Break-Even Point
In 2026, the break-even point is around $40,000 to $60,000 in net profit. Below that, the costs of running an S-Corp (payroll service, unemployment insurance, extra tax filing) eat up the tax savings. Above that, the savings grow.
Here is a realistic comparison for a new practice with $50,000 net profit:
| Structure | Taxable income | Self-employment/payroll tax | Approx. annual savings (before costs) |
|---|---|---|---|
| LLC (sole prop) | $50,000 | $7,650 | $0 |
| S-Corp (salary $35,000) | $35,000 salary + $15,000 distributions | $5,355 (payroll tax) | $2,295 |
But the S-Corp costs $1,200 to $2,500 per year for payroll processing and extra tax prep. So the net savings at $50,000 are only $0 to $1,000. At $80,000 net profit, the gross savings are about $4,590, and net savings are $2,000 to $3,000 after costs.
The Cost of Running an S-Corp
You cannot run an S-Corp without payroll. You must pay yourself a reasonable salary, and that requires payroll processing. Costs include:
- Payroll service: $40 to $100 per month (e.g., Gusto, ADP, or QuickBooks Payroll)
- State unemployment insurance: varies, but often $100 to $500 per year
- Additional tax filing: Form 1120-S and Schedule K-1, which cost $300 to $800 more in accounting fees
- Workers’ compensation: required in most states if you have employees, but even owner-only policies can cost $200 to $600 per year
Total added cost: $1,200 to $2,500 per year.
The “Reasonable Salary” Requirement
To use an S-Corp, you must pay yourself a reasonable salary. The IRS defines this as what a comparable employee would earn. For a speech therapist, that is typically $55,000 to $85,000 per year, depending on location and experience. If you set your salary too low, the IRS can reclassify distributions as wages and impose penalties.
A common rule of thumb: your salary should be at least 60% to 70% of your net profit. For a practice earning $80,000, a salary of $50,000 to $60,000 is defensible. For a practice earning $40,000, a salary of $30,000 might be reasonable, but the savings are minimal.
Practical Steps for a New Practice Owner
If you are starting a speech therapy practice in 2026, do this this week:
- Estimate your realistic net profit for the first year. If it is under $40,000, start as an LLC (single-member) and revisit later.
- If you expect $60,000 or more, talk to a CPA about forming an S-Corp. They can run the numbers for your specific situation.
- If you already have an LLC, you can elect S-Corp status by filing Form 2553 with the IRS. You must file within 2 months and 15 days of the tax year you want it to take effect, or by March 15 for the current year.
- Set up a payroll service before you start paying yourself a salary. Do not pay yourself distributions without a payroll system.
- Keep detailed records of your time and income to justify your salary.
Comparison Table: LLC vs S-Corp for a New Practice
| Factor | LLC (sole prop) | S-Corp |
|---|---|---|
| Setup cost | $50 to $500 (state filing) | $100 to $800 (state filing plus Form 2553) |
| Annual costs | $0 to $300 (franchise tax in some states) | $1,200 to $2,500 (payroll, tax prep) |
| Self-employment tax | 15.3% on all net profit | 15.3% on salary only |
| Tax savings at $50k profit | $0 | $0 to $1,000 net |
| Tax savings at $100k profit | $0 | $4,000 to $6,000 net |
| Complexity | Low | Moderate (payroll, quarterly filings) |
| Retirement plan options | Solo 401(k) or SEP IRA | Same, but salary basis may limit contributions |
Frequently Asked Questions
Can I switch from LLC to S-Corp later?
Yes. You can file Form 2553 to elect S-Corp status. The election must be filed by March 15 for the current tax year, or within 2 months and 15 days of the start of the tax year you want it to apply to. If you miss the deadline, you may need to wait until the next year.
What is a reasonable salary for a speech therapist in an S-Corp?
For 2026, a reasonable salary is $55,000 to $85,000 per year, depending on your location, experience, and patient load. Use salary surveys from the American Speech-Language-Hearing Association (ASHA) or state labor data to justify your number.
Do I need to pay myself a salary if I have no profit?
No. If your practice has no net profit, you do not need to pay yourself a salary. But you also cannot take distributions. If you have revenue but no profit, you must still pay yourself a reasonable salary for the work you do, even if it creates a loss.
What if I have employees?
If you have W-2 employees, you must run payroll regardless of your entity type. In that case, the added cost of an S-Corp is lower, and the break-even point drops to around $30,000 in net profit.
The Bottom Line
For a new speech therapy practice, an LLC is the cheaper and simpler choice when you are earning less than $40,000 to $60,000 in net profit. Once you cross that threshold, an S-Corp saves you $2,000 to $6,000 per year in self-employment taxes, even after paying for payroll and extra accounting. The decision is not about which is “better” in general, it is about your specific profit level and growth plans. Run the numbers with a CPA before you choose, and if you are starting small, start as an LLC and plan to convert when your income justifies it.