"LLC or S-corp" sounds like one decision. It's two. An LLC is a legal entity. An S-corp is a tax election. You can have both, and most growing DPC practices end up doing exactly that.
This applies whether you're a physician, a nurse practitioner, or a PA running a DPC. The clinical license differs. The tax mechanics do not.
Note. This is general education, not tax or legal advice. Your CPA runs your actual numbers, and a healthcare attorney confirms the entity rules in your state. Both should sign off before you file anything.
Start with the LLC
An LLC gives you liability protection and a clean line between you and the business. For a solo DPC, it's the common starting point. Many clinicians use a professional LLC or a professional corporation, because some states require a licensed-professional entity. That part is state-specific, so a healthcare attorney sets it up right.
By default, a single-member LLC is taxed as a sole proprietor. All of your net profit flows to your personal return, and all of it is subject to self-employment tax, the Social Security and Medicare piece, on top of income tax.
What the S-corp election actually changes
An S-corp is not a different company. It's an election that tells the IRS to tax your LLC differently. Once you elect it, the math splits in two:
- You pay yourself a reasonable salary through payroll. That salary is subject to payroll taxes, the same Social Security and Medicare.
- The profit left after your salary comes to you as a distribution. That part is not subject to self-employment tax.
The savings live in that second piece. The self-employment tax you would have paid on the distribution portion, you don't.
The catch is reasonable compensation
You can't pay yourself a tiny salary and route everything to distributions. The IRS requires your salary to be reasonable for the work you do. For a working clinician, a reasonable salary is not small. So the distribution portion, and the savings, only get meaningful once your profit clears a fair salary by a comfortable margin.
Set the salary too low and you've built a red flag into your return. Clean books and real market data are how you set a salary that holds up.
What the election costs you
The election is not free. Once you make it, you take on:
- Running payroll for yourself, with the service cost that comes with it.
- A separate business tax return, Form 1120-S, on top of your personal return.
- More bookkeeping and more moving parts to keep compliant.
Early on, those costs can eat most of the tax savings. That's why the timing matters.
So when does it pay off?
When your net profit is high enough that the self-employment tax you save on distributions clearly beats the added cost and work. There is no universal dollar line, no matter what a forum thread tells you. Your numbers set the answer, and your CPA runs them.
As a DPC practice grows its membership base and profit climbs, many owners reach the point where the election makes sense. The job is to know your number and act when you cross it, not before.
The bookkeeping side of the decision
This is where clean books stop being optional. To make the election work you need accurate profit, a defensible salary, payroll run correctly, and a return that ties to your books. Messy records make the election risky and the savings shaky. DPC-aware books make it solid.
The bottom line. The LLC is your foundation. The S-corp election is a tax lever you pull when the math works, not a box you check on day one. Run the numbers with your CPA, confirm the entity rules with an attorney, and keep your books clean so the election holds up.
Wondering if the election makes sense for you?
We keep DPC-aware books and work with your CPA so the decision is built on real numbers, not a guess.