An S-corp isn’t a kind of company.
It’s a tax election that lets a physician-owner split practice income into a reasonable salary and distributions, where the distributions escape payroll tax.
For most established practices, the savings outrun the added payroll and compliance cost, though the right structure depends on your profit, your state, and how you pay yourself.
An S-Corp Is a Tax Election, Not a Business
Your practice is already something under state law; probably an LLC, a PLLC, or a professional corporation.
The S-corp is a status you elect on top of that entity, by filing with the IRS.
Nothing about your workflow changes.
You see the same patients, sign the same lease, and answer to the same medical board.
What changes is how the profit is taxed once it lands in your practice’s account.
The Whole Point: Salary Plus Distributions
As a sole proprietor or a plain LLC, essentially every dollar of profit is exposed to self-employment tax.
As an S-corp, you pay yourself a reasonable salary through payroll and take the remaining profit as distributions.
The salary carries the usual payroll taxes; the distributions do not.
That gap is the entire reason the election exists, and for a profitable practice it is not a rounding error.
When Your Practice Is Ready to Elect
The election earns its keep once your profit comfortably clears the cost of running payroll and filing a second tax return.
For most physician practices that threshold arrived years ago.
The question is rarely whether, but how well it’s done.
The wrinkle is that the savings narrow at very high incomes, once your salary sails past the Social Security wage base and only the Medicare portion is left to save.
It still works.
It simply works differently than the internet’s breathless math suggests.
The Number Everyone Gets Wrong
Reasonable compensation is where good intentions go to meet an audit.
Pay yourself too little to dodge payroll tax, and the IRS can recharacterize your distributions as wages, then add back taxes and penalties for the trouble.
The defensible salary is what you’d have to pay someone else to do your clinical and management work, assuming your practice’s net income will support it.
Nothing cheaper tends to survive scrutiny.
PLLC, PC, and Your State’s Opinion
Most states won’t let a physician form a garden-variety LLC.
They require a professional entity, a PLLC or a PC, depending on where you practice.
That choice is about licensure and liability, not taxes, and it sits underneath the S-corp election rather than competing with it.
You can hold a PLLC or a PC and still elect S-corp treatment on top; the two answer different questions.
Where It Goes Sideways
An S-corp is a commitment rather than a checkbox.
It wants real payroll, a real return, and reasonable compensation you can defend with a straight face.
Skip the payroll, lowball the salary, or run the family SUV through the practice, and you’ve built a liability instead of a strategy.
Done properly, though, it remains one of the most dependable tax moves a practicing physician has.
Your specific numbers will vary, because they always do; that part is a conversation, not a blog post.
If you’d like to see what this looks like against your actual profit and your actual state, that’s precisely the kind of thing we can work out together as your financial advisor and guide.