LLC or S-Corp? What Therapists Need to Know Before They Choose

When you’re setting up your therapy practice, one of the biggest questions is:

👉 Should I stay a sole proprietor, form an LLC, or elect S-Corp status?

It’s a smart question to ask because your business structure impacts everything from taxes to liability protection to how you pay yourself. Let’s break it down so you can feel more confident about what’s right for your private practice.

⚖️ What’s an LLC?

An LLC (Limited Liability Company) is one of the most common ways for therapists to structure their practice.

✅ Pros for therapists:

• Protects your personal assets if something happens in your business

• Simple to set up and maintain compared to corporations

• Flexible in how you’re taxed (you can stick with default treatment or elect S-Corp later)

❌ Cons:

• You’ll likely pay self-employment tax on all your profits (about 15.3%)

• May not save you as much in taxes if your income grows significantly

📊 What’s an S-Corp?

An S-Corp isn’t a type of business—it’s a tax election you can make once you already have an LLC. 

✅ Pros for therapists:

• Potential tax savings once your practice income is high enough

• Lets you split income into:

  • Salary (subject to payroll/self-employment taxes)

  • Distributions (not subject to self-employment tax)

• Can reduce your overall tax burden when structured correctly

❌ Cons:

• More paperwork and compliance (you’ll need payroll, extra filings, and more accounting support)

• You must pay yourself a reasonable salary — the IRS watches this closely

• Costs more to maintain (bookkeeping, payroll software, tax prep)

💡 How Do Therapists Decide?

Here’s a simple way to think about it:

• If you’re just starting out or making under ~$60K net income → an LLC is usually simpler and easier.

• If your practice is growing past $60K–$80K net income → an S-Corp could save you money on taxes, but you’ll need to handle the added responsibilities.

🌿 Example: Therapist Tax Comparison

Let’s say you earn $100,000 in net income:

• As an LLC → You pay self-employment tax (15.3%) on the full $100K = $15,300 in SE tax (plus income tax).

• As an S-Corp → You pay yourself a $60K salary (subject to SE tax) + $40K distribution (no SE tax). That means only $60K is taxed at 15.3%, saving you around $6,000 in taxes.

✅ Key Things to Consider Before Choosing

• How much profit is your practice making right now?

• Are you comfortable with more paperwork and compliance?

• Do you have (or want) an accountant who can help with payroll and S-Corp filings?

🌟 Bottom Line for Therapists

Both LLCs and S-Corps offer benefits, but the right choice depends on your income level and your willingness to take on (or outsource) the extra responsibilities.

At Open Books Accounting, I help therapists figure out which structure makes the most sense — and when it’s time to shift from LLC to S-Corp.

👉 Schedule your free 20-minute discovery call  to get clarity on your next steps.

Wherever you are right now—I’ll meet you there.

🖤
Lorin
Founder, Open Books Accounting for Therapists