Should your DPC be an
S-Corp?
Short answer: probably yes, above a clear threshold of net income. Probably not if you’re still building membership. Here’s the longer answer, with real numbers.
Run the numbers.
If your DPC nets more than roughly $120K a year above a reasonable clinician salary, an S-Corp election will save real money on self-employment tax — usually $5K to $14K a year in our book. Below that, compliance cost eats the savings. Don’t elect until the math is on your side.
Of every tax question DPC clinicians ask us, this is the most common one — and it’s usually asked the wrong way. The question isn’t whether S-Corps are good. They are, often. The question is whether your DPC is at the point where the election does more for you than it costs. That’s a math question with a clean answer.
Here’s how to get to it without jargon.
What the election actually does
An S-Corp isn’t a different kind of business. It’s a tax election that sits on top of your existing LLC or PLLC. It changes one thing: how the IRS treats the money that leaves your practice and lands in your checking account.
Without the election, every dollar of practice profit is subject to self-employment tax — 15.3% on top of your regular income tax, up to the Social Security wage base, then 2.9% after that. For a DPC clinician netting $250K, that’s a meaningful slice.
With the election, the IRS says: pay yourself a reasonable W-2 salary, pay payroll tax on that, and the leftover profit passes through as a distribution, free of self-employment tax. That’s the whole trick.
Simplest way to think about it: you’re splitting your pay in two, and only one half pays the 15.3%. — How we explain it on intake calls
The actual math, for a real DPC
A composite client. Solo-clinician DPC, 340 active members at $85/mo, year three. Gross revenue around $347K. After panel-related costs, rent, staff, software, and retirement contributions, net income before the clinician’s own pay lands at roughly $245K.
| Line | Sole Prop / LLC | S‑Corp |
|---|---|---|
| Net practice income | $245,000 | $245,000 |
| less: reasonable W‑2 salary | — | ($140,000) |
| less: employer payroll tax | — | ($10,710) |
| Distribution (S‑Corp only) | — | $94,290 |
| Self‑employment tax | $22,510 | $10,710 |
| Additional compliance cost | — | $2,400 |
| Net savings vs. sole prop | — | $9,400 |
That $9,400 repeats every year. Over a decade, one election — once, on paper — compounds into real money. A college tuition. A sabbatical. The down payment on the building you’ve been renting.
Where this breaks down
Three situations where the election is wrong, or just early:
1. You’re under the threshold.
If your net practice income is under roughly $120K above a defensible reasonable salary, the arithmetic flips. Payroll processing, a separate tax return, and the extra bookkeeping overhead run $1,800–$3,000 a year. For a $90K net, you’re probably saving $2,500 in SE tax and spending $2,400 to capture it. Not worth it.
2. Your salary math is indefensible.
The IRS doesn’t care what salary you choose. They care whether it’s reasonable for what you do. A family-medicine clinician in Austin paying themselves $40K and taking $200K as distribution will lose that audit and pay back the payroll tax with penalties. We benchmark every client’s W-2 against MGMA data, rounded down conservatively. If the math only works with a $50K salary, the math doesn’t work.
3. You’re still in the first 18 months.
During launch, income is lumpy. Membership is building. You might net $40K one year and $180K the next. Electing early means payroll compliance in a year you can’t afford it. Wait until year two’s numbers are in, then elect retroactively if the threshold was crossed. The election has backdate flexibility most clinicians don’t know about.
Three traps we see every year
Common mistakes from DPCs who elected on their own, or with a CPA who didn’t know the model:
- Paying themselves inconsistently. The W-2 salary has to run like a real paycheck — every two weeks, withholding calculated, 941s filed quarterly. Irregular draws invite an IRS reclassification.
- Forgetting health insurance treatment. For an S-Corp owner, health insurance premiums run through the W-2 as an imputed fringe, then deduct above the line on your 1040. Miss this and you leave a deduction on the table every year.
- Undervaluing the reasonable salary. We’ve seen DPCs set their W-2 at $60K because their CPA wanted to “maximize distribution.” That’s not tax planning. That’s an audit liability.
The decision, in one paragraph
Look at your trailing twelve-month net practice income. Subtract a defensible reasonable clinician salary for your market. If what’s left is north of $100K–$120K and you expect it to stay there, elect S-Corp status for next tax year. If what’s left is under that, or volatile, wait. Re-evaluate each January. That’s the entire framework.
The election isn’t a status symbol. It’s a lever. Pull it when the lever’s long enough.
If you want us to run these numbers on your practice, we do it free on an intake call. Book one here. We’ll tell you the threshold date for your practice, the exact W-2 we’d defend, and the annual savings — in 20 minutes.