When to Elect S-Corp Status for Your Medical Practice

By Brian Giesecke, CPA/EA | Giesecke Advisory

When should you actually make the S-corp election?

It's a question I hear constantly. And I get why... because the answer feels like it should be simple. You hear that S-corps save money, you want to save money, so you figure you should just do it.

But timing matters. A lot.

Elect too early, and you're adding payroll, extra filings, and administrative overhead for a benefit that barely moves the needle. Wait too long, and you've spent years overpaying self-employment tax you didn't need to pay.

There's a window. Let's talk about how to find yours.

The Income Threshold: When S-Corp Election Starts Making Sense

The first thing to look at is your profit. Not revenue — profit. What's left after you've paid your staff, your rent, your supplies, and all the other expenses that come with running a practice.

If your net profit is under $60,000-$70,000... S-corp election probably doesn't make sense yet. The self-employment tax savings at that level are small — maybe $3,000-$4,000 — and once you factor in the cost of running payroll and filing additional returns, you might break even. Or worse.

The sweet spot is when you're consistently above $80,000-$100,000 in profit.

At that level, the math starts to work clearly. You're looking at $8,000, $10,000, even $15,000 or more in annual savings on self-employment tax. That's real money. That's a vacation. That's a chunk of your retirement contribution. That's a new piece of equipment.

The key word there is "consistently." One unusually strong year doesn't mean you should restructure your entire business. But if you've had two or three years above that threshold... that's a signal worth paying attention to.

How S-Corp Election Saves You Money

Quick refresher, because understanding the mechanism helps with the timing decision.

As a sole proprietor or single-member LLC, you pay self-employment tax — about 15.3% — on all of your profit. That covers Social Security and Medicare.

Make $200,000 in profit? You're paying roughly $28,000 in self-employment tax. On top of your income tax.

With an S-corp, you pay yourself a reasonable salary and take the rest as distributions. Payroll taxes apply to the salary. Distributions are not subject to self-employment tax.

Same $200,000 in profit. You pay yourself a $100,000 salary. Payroll taxes on $100,000 come to about $14,000. The other $100,000 comes as a distribution — no self-employment tax.

You just saved $14,000. Every single year.

That's why the income threshold matters. At $60,000 in profit, the spread between salary and distributions is too thin to generate meaningful savings. At $150,000... it's a different conversation entirely.

The Form 2553 Deadline: Timing Within the Year

Okay, so you've decided the numbers make sense. When do you actually file?

For existing LLCs or sole proprietorships, you elect S-corp status by filing Form 2553 with the IRS. And there's a deadline that catches people off guard.

To be treated as an S-corp for the current tax year, you need to file Form 2553 within 75 days of the start of the tax year. For calendar year taxpayers — which is most medical practices — that means the deadline is March 15th.

Miss that window, and one of two things happens. Either your election takes effect the following year... or you request late election relief from the IRS, which they sometimes grant if you have reasonable cause.

The practical takeaway? Don't wait until April to think about this.

If S-corp status makes sense for your practice, the decision should happen in Q4 or early Q1. October, November, December — that's when you're reviewing the year, looking at projections, and making strategic moves. By the time you get to February, you should already know whether you're filing Form 2553.

Waiting until tax season to think about entity structure is like waiting until the fourth quarter to start your game plan. You can still win... but you've made it harder on yourself.

New Practice Considerations: Should You Elect Right Away?

What if you're just getting started?

My general advice: don't rush it.

In year one, you're figuring things out. Revenue is unpredictable. You might not even be profitable yet. You're spending money on buildout, equipment, marketing, hiring. The last thing you need is additional administrative complexity when you're still finding your footing.

Starting as a single-member LLC is simple and clean. You file one tax return. No payroll to run for yourself. No extra forms.

And here's the thing... you can always elect S-corp status later. It's not a one-time-only decision. Once you've got a year or two under your belt, once you know your numbers are real and your profit is consistent, that's when you make the call.

The exception? If you're coming into a new practice with an established patient panel — maybe you're buying a practice or taking over from a retiring physician — and you know you're going to be profitable quickly. In that case, it might make sense to elect from day one.

But for most new practices... build first, optimize second.

What the S-Corp Election Actually Involves

So what changes when you make the election? Here's what you're signing up for.

Form 2553 filing. You submit the election to the IRS. It's not a complicated form, but it needs to be done correctly and on time. Getting the details wrong can delay your election or create headaches.

Running payroll. For yourself, at minimum. That means setting a reasonable salary, making quarterly payroll tax deposits to the IRS, filing quarterly payroll returns, and issuing yourself a W-2 at year-end. If you already have employees, you're adding yourself to the existing payroll. If you don't, you're setting up payroll for the first time.

Additional tax filings. Instead of just your personal return, your S-corp files its own return — Form 1120S. You'll receive a K-1 showing your share of income, which then goes on your personal return. Two returns instead of one.

Corporate formalities. A separate business bank account. Documented salary decisions. Proper records. The IRS expects S-corps to be treated like real businesses, not just tax labels.

It's not overwhelming... but it's more than filing a single tax return once a year. You're taking on real administrative responsibility. For most practice owners with consistent profits, it's absolutely worth it. But go in with your eyes open.

Red Flags: When S-Corp Might Not Be Right

A few situations where you should pause before electing.

Lumpy, unpredictable income. If your profit swings wildly from year to year — $120,000 one year, $40,000 the next — S-corp adds complexity without reliable benefit. The structure works best with steady, predictable profit.

Planning to sell the practice. S-corps can create complications with asset sales. The tax treatment is different than selling out of an LLC taxed as a sole prop, and depending on how the deal is structured, it can affect what you take home. This is absolutely worth discussing with a tax advisor before you elect.

Unfavorable state tax treatment. Not every state treats S-corps the same way. California is the common example — they charge an $800 minimum franchise tax plus 1.5% on S-corp net income. In states like that, you need to run the numbers carefully. New York has its own nuances as well. Don't assume federal savings automatically translate to state savings.

You really don't want more admin. This is an honest consideration. S-corp status adds payroll, additional filings, and compliance requirements. It's manageable — especially with a good accountant or payroll service — but it's real. If you're already stretched thin on the operational side, factor that in.

A Simple Decision Framework

Here's how to think through this clearly.

Step 1: Look at your profit from the last two years. Not revenue. Profit. If both years are solidly above $80,000, you're in the zone.

Step 2: Estimate a reasonable salary. For physician-owners who are both the primary provider and the business manager, that's typically 50-70% of what you're taking out of the practice.

Step 3: Calculate the potential savings. Take your profit, subtract the reasonable salary, and multiply by 15.3%. That's your approximate self-employment tax savings.

Step 4: Subtract the added costs — payroll service ($500-$1,500/year), additional tax prep complexity ($500-$1,500/year), and your time.

Step 5: If the net savings are meaningful — and for most practices above that $80,000-$100,000 threshold, they will be — it's time to have the conversation.

The Calendar: When to Act

If you're reading this and thinking "okay, this probably makes sense for me"... here's the timeline.

October-November: Review your year-to-date numbers. Project your full-year profit. This is when the decision should start forming.

December: Finalize the decision. Talk to your accountant. Make sure you understand the implications for your specific state and situation.

January-February: Set up payroll if you haven't already. Prepare Form 2553.

By March 15: File Form 2553 to elect S-corp status for the current tax year.

April and beyond: If you've missed the March 15 deadline, you can still elect for the following year. Or explore late election relief with reasonable cause.

The worst time to think about this? April 15th, when you're staring at a tax bill and wondering what you could've done differently.

The best time? Right now... if your numbers support it.

The Bottom Line

S-corp election is one of the most impactful tax moves a profitable medical practice can make. But the timing has to be right.

Too early, and you're adding cost and complexity for minimal benefit. Too late, and you've left money on the table — sometimes for years.

The signals are clear: consistent profit above $80,000-$100,000, stable income, and a willingness to take on a little more administrative structure.

If that sounds like your practice... it's worth a conversation.

And if you're in Q4 or Q1 right now, the timing is perfect.

Giesecke Advisory, LLC Calm systems. Clean numbers. Confident decisions.