Physician's Entity Analyzer: LLC vs S-Corp

A visual tool to analyze the tax drag and potential savings of electing S-Corporation status versus a standard LLC (Sole Proprietorship) for medical professionals.

1) Practice Financials

2) S-Corp Structure

IRS Audit Risk Assessment 40% of Profit
✅ Reasonable Compensation

Tax & Take-Home Analysis

LLC Tax Liability
$0
S-Corp Tax Liability
$0
S-Corp Savings
? Where do savings come from?
Distributions avoid SE/Payroll tax, so savings are usually 2.9% to 15.3% of distributions, depending on income thresholds.
$0
Category LLC / Sole Prop S-Corp
Net Business Profit
? Profit before taxes: revenue minus expenses.
- -
Owner Salary (W-2)
? W-2 pay to yourself. Subject to Social Security + Medicare taxes.
N/A -
Distributions (K-1)
? Remaining profit paid to you. Not subject to SE/Payroll tax.
N/A -
Total SE / Payroll Tax [+]
? Social Security + Medicare taxes. S-Corps save here by avoiding tax on distributions.
- -
Federal Income Tax
? How this is estimated:
1. Income: LLC profit or S-Corp salary + distributions.
2. Deductions: Standard deduction ($15k/$30k) and 1/2 of SE tax for LLC.
3. QBI: Up to 20% of qualified business income (phases out for SSTB).
4. Tax: Apply 2025 brackets to the result.
- -
S-Corp Admin Costs
? Payroll service + separate S-Corp tax return costs.
$0 -
Effective Take-Home
? Estimated take-home after business expenses, payroll/SE tax, income tax, and admin costs.
- -
💡 Insight: The S-Corp Advantage
The primary benefit of an S-Corp is eliminating the 15.3% Self-Employment tax on the portion of your income taken as Distributions rather than Salary. However, you must pay yourself a "Reasonable Salary" (subject to 15.3% payroll tax). Once your salary reaches the Social Security cap ($176,100 for 2025), you stop saving that 12.4% chunk on additional income.

At that point, savings are limited to the Medicare portion: 2.9% on most income, rising to 3.8% (due to the 0.9% Additional Medicare Tax) on compensation above $200k (Single) or $250k (Joint).

Common Misconception: S-Corps do not offer "better" write-offs for overhead. Deductible expenses (Rent, CME, Malpractice) are generally identical for both LLCs and S-Corps. The S-Corp only saves you money on the remaining profit. In fact, if your expenses are so high that your profit is low, the administrative costs of an S-Corp might actually make it more expensive than a simple LLC.

Deep Dive: The 15.3% Tax & Marginal Rates
"Self-Employment Tax" isn't one flat rate forever. It uses a marginal system with specific caps and triggers: Why S-Corps can win: In an LLC, 100% of your profit is "Earned Income" subject to these taxes. In an S-Corp, only your Salary is subject to them. Your Distributions are exempt from all three bullets above, which can save 2.9% to 15.3% on each dollar moved from Salary to Distribution.

Physician-specific considerations: In medicine, it is often harder to justify a very low "reasonable salary" because the work is highly paid and owner-driven. A higher required salary means fewer distributions, which reduces S-Corp savings. Many physician practices are also SSTBs, so the QBI (20% pass-through deduction) phases out completely at higher income levels ($241k Single / $483k Joint for 2025). This model includes that phase-out logic, which is why you may see tax jumps as you cross those thresholds.
Quick Glossary