6 Reasons Dentists Should Run an S-Corp Analysis Before Year-End
Sam's List Editorial | 2026-06-23
6 Reasons Dentists Should Run an S-Corp Analysis Before Year-End A solo dental practice generating $500K in collections and $250K in profit, taxed as a sole proprietor or single-member LLC, is paying somewhere north of $30,000 a year in self-employment tax it doesn't have to pay. The fix is not exotic. An S-corp election — properly structured, with defensible reasonable compensation — can capture a significant slice of that. The catch is timing. Year-end is the deadline that determines whether the structure applies to next year or the year after. Here are six reasons to run the analysis before December 31. 1. The SE tax savings on practice profit run into five figures fast By default, a dentist operating as a sole proprietor or single-member LLC pays self-employment tax under IRC §1401 on every dollar of net practice income: 12.4% Social Security tax up to the wage base ($168,600 for 2024) plus 2.9% Medicare tax (with no cap), plus an additional 0.9% Medicare surcharge on income above $200,000 single / $250,000 married under §1411. An S-corp splits practice profit into a reasonable W-2 wage (subject to payroll tax) and distributions (not subject to SE tax). Rough math on $250,000 of practice profit: paying the dentist a $140,000 reasonable salary leaves $110,000 of distribution. The SE tax savings on that $110K of distribution is roughly $14,200 a year, net of the cost of running payroll (a few thousand) and the additional compliance burden. Above $400K of profit, the savings can easily clear $20,000 a year. Below $150K of profit, the case is much weaker because the cost of running an S-corp eats more of the savings. 2. Reasonable compensation has to be defensible — not aspirational The S-corp savings live in the gap between a reasonable wage and the practice's full profit. The IRS knows this and pays close attention. Reasonable compensation under the line of cases starting with Watson v. Commissioner and Sean McAlary Ltd. v. Commissioner means what you'd have to pay someone with comparable skills, in your geography, doing the same job. For dentists, the defensible number is informed by: The American Dental Association's annual income survey by region and practice type. Bureau of Labor Statistics data for general and specialty dentists by metro area. Industry comp surveys from dental practice management consultants. Set the wage too low (e.g., $60K when the regional median for a general dentist is $190K) and the IRS can recharacterize distributions as wages, with back payroll tax, penalties, and interest. The recharacterization risk is real and growing....
