Should You Become an S Corp? A Clear Guide for Therapists in Private Practice
If you’ve spent any time in therapist Facebook groups or around tax season, you’ve probably heard someone say:
“You should become an S Corp—it’ll save you so much on taxes!”
But what does that actually mean?
Is it true for you?
And when is the right time to even consider it?
Let’s walk through what S Corps are, how they work, and when it might be worth exploring for your practice—without hype or pressure.
What Is an S Corp?
An S Corporation isn’t a type of business structure—it’s a tax status you can elect with the IRS after forming an LLC or a corporation.
If you choose S Corp status, your income is split into:
A salary (you pay yourself as a W-2 employee)
A profit distribution (which isn't subject to self-employment tax)
That split is where the potential tax savings come in. But it also comes with extra complexity.
Why Do Some Therapists Choose S Corp Status?
The main reason is to reduce self-employment tax.
Sole proprietors pay self-employment tax (about 15.3%) on all business profits. With an S Corp, you still pay that tax—but only on the salary portion of your income. The rest is considered a distribution, which avoids that tax.
It’s legal, common, and often beneficial—but only when you’re earning enough to justify the extra work and expense.
What Changes If You Elect S Corp Status?
Here’s what to expect:
You’ll need to run payroll (using a service like Gusto or QuickBooks Payroll)
You’ll need to file a separate business tax return (Form 1120S), which will usually increase the cost to get your tax returns prepared
You’ll need a bookkeeper + CPA to help with compliance and strategy
You’ll need to keep very clean books and records
This setup is best for therapists who already have stable income, systems, and professional support in place.
Signs You Might Be Ready for S Corp Status
Your net income (after expenses) is around $80,000 or more per year - This may vary depending on your particular situation
You’re already paying quarterly taxes
You’re working full-time in your practice
You’re open to structure and support
An S Corp could save you thousands per year in taxes at this stage.
Signs You’re Not Ready Yet
Your net income is under $70–80K per year
You’re still part-time or growing slowly
Your books are messy or inconsistent
That’s completely okay. Staying a sole proprietor or single-member LLC is a smart, sustainable choice while you're still building.
From a Bookkeeping Perspective
As your bookkeeper, I can:
Help you understand your real net income
Clean up and organize your books so you’re ready for this decision
Coordinate with your CPA to make the transition smoother, if/when it makes sense
But I don’t make tax decisions or file S Corp elections. That’s a job for your CPA or tax attorney.
Final Thought
Becoming an S Corp is not a badge of success.
It’s a strategic tool—and it only works well when the timing is right.
You’re not behind if you haven’t done it.
You’re not wrong for asking questions.
You don’t have to complicate your practice to make it legitimate or profitable.
You’re allowed to grow intentionally, and keep things simple until it’s time to scale.
Curious If You're Ready for S Corp Status?
I help therapists get clarity around their numbers, organize their books, and prepare for conversations with their CPA—without overwhelm.
📬 Want Therapist-Friendly Money Tips in Your Inbox?
Get private practice bookkeeping insights, tax reminders, and encouragement—delivered monthly.
Sign up for the newsletter here
Disclosure
Some of the links in this post are referral links, which means I may receive a small commission if you choose to sign up—at no extra cost to you. I only share tools I’ve used, trust, and genuinely recommend for therapists building sustainable practices.