Free Tool — Entity Structure
S-Corp vs. LLC Analyzer — Find the Right Entity Structure for Your Business
The wrong entity structure costs physician practice owners thousands in unnecessary self-employment taxes every year. Enter your profit level and current setup — get a side-by-side tax comparison and a clear recommendation in 90 seconds.
S-corp versus LLC, answered
What the election actually changes, what it costs to maintain, and the terminology confusion that makes the comparison harder than it should be.
Is an LLC different from an S-corp?
They are not the same kind of thing, which is why the comparison confuses people. An LLC is a legal entity formed under state law; an S-corp is a federal tax election. An LLC can be taxed as a sole proprietorship, a partnership, an S-corp, or a C-corp, so the real question is almost never LLC versus S-corp — it is whether an existing entity should elect S-corp treatment. The legal protections of the LLC are unaffected either way.
When does electing S-corp treatment make sense?
Generally once net income is consistently high enough that the employment tax saved exceeds the cost of maintaining the election. Commonly that inflection sits somewhere around $150,000 or more of net income, though the honest answer depends on the owner's reasonable salary, state-level taxes and fees, and how much administrative cost the practice will actually incur. Below that range, compliance cost frequently consumes the savings.
What does the election actually change?
How the owner's income is taxed for employment tax purposes, not the income tax rate on it. Without the election, net earnings are generally subject to self-employment tax. With it, the owner takes a reasonable W-2 salary subject to payroll taxes, and remaining profit passes through as distributions not subject to those taxes. The income tax on the total is broadly similar either way — the savings are in the employment tax layer, and only on the distribution portion.
What does an S-corp cost to maintain?
Running payroll for the owner, a separate entity tax return, and in many states an additional filing, franchise tax, or fee. There is also a real compliance obligation: the salary has to be defensible, which means it must be revisited as the business changes rather than set once. These costs are ongoing and largely fixed, which is why the election needs a level of income to clear before it pays.
Can the election be made late?
Often yes. Relief for a late election exists where the entity intended to be treated as an S-corp from the requested date, failed to file on time solely because of that oversight, and has reasonable cause — with conditions and time limits that have to be met precisely. It is common enough to be routine and specific enough that the eligibility conditions should be confirmed rather than assumed.