Your choice of business entity isn’t just paperwork, it can quietly drain thousands from your practice each year and leave personal assets exposed. Yet many dental practice owners never revisit the structure their attorney set up years ago, assuming it’s “good enough.”

Dr. Sarah found out otherwise. Five years into running her $1.8 million practice as a professional corporation, she discovered she was handing over $15,000 more in self-employment taxes every year than she needed to. That money could have gone toward a new Cerec machine, staff bonuses, or her retirement account. Instead, it was disappearing into the tax system.

When she restructured as an LLC with an S-Corporation election, her annual tax bill dropped, and the move gave her the flexibility to bring on a partner without the rigid corporate formalities that had been eating up her administrative time.

There’s no universal “best” entity for every dentist. The right choice depends on your income, liability exposure, growth plans, and state rules. But once you understand the fundamentals, picking a structure that protects your assets and keeps more money in your pocket becomes much more straightforward.

Key Takeaway

Your dental practice’s legal structure can mean the difference between maximizing tax savings and sending thousands more to the IRS than necessary. While an LLC with an S-Corporation election is often the most efficient and flexible choice for many dentists, your state’s professional entity rules, your income, and your growth plans all matter. The good news: entity choice isn’t set in stone—restructuring at the right time can protect your assets and keep more of your revenue where it belongs.

The Four Main Entity Options for Dental Practices

Sole Proprietorship: The Risky Default

A sole proprietorship is the simplest way to run a dental practice—but also the riskiest. In this setup, you and your business are legally the same. You personally own everything the practice owns, and you personally owe everything it owes. There’s no legal wall between your personal assets and your professional liabilities.

Upside:

• No state formation paperwork or corporate formalities.

• Startup losses can be deducted right away against other income.

Downside:

• No asset protection — malpractice claims or unpaid debts can reach your home, savings, and other personal assets.

• High self-employment taxes — 15.3% on the first $176,100 of 2025 earnings (12.4% Social Security + 2.9% Medicare), plus 2.9% Medicare on amounts above that, and an extra 0.9% Medicare surtax if income exceeds $200,000 single / $250,000 MFJ. (Based on 2025 law; thresholds adjust annually.)

Bottom line: For most healthcare professionals, the lack of liability protection alone makes a sole proprietorship a poor long-term choice. Add in the payroll tax burden, and this structure rarely makes sense once your practice is profitable.

Limited Liability Company (LLC) or Professional LLC (PLLC): The Flexible Favorite

For many dental practices, the LLC—or in some states, the Professional LLC (PLLC)—hits the sweet spot between liability protection, tax efficiency, and operational flexibility. In this structure, your business is legally separate from you, creating a barrier between your personal assets and the practice’s debts or legal obligations.

State rules matter here. Some states require licensed professionals like dentists to form a PLLC rather than a standard LLC. Others use different terms altogether, such as Professional Service Corporation (PSC) or Service Corporation (SC). A few states don’t allow PLLCs at all, requiring dentists to form professional corporations instead. Always confirm with your state dental board and Secretary of State before you file.

How it works:
You form the LLC (or PLLC) at the state level, then decide how you want it taxed at the federal level—by default as a sole proprietorship (single-member), or partnership (multi-member), or by electing S-Corporation or even C-Corporation status.

Tax advantages:
Once your net income reaches roughly $60,000–$80,000, electing S-Corporation taxation often makes sense. This allows you to split income into:

• Salary (subject to payroll taxes)

• Distributions (not subject to self-employment tax)

For example, a practice earning $200,000 could save $2,000–$4,000 per year in payroll taxes with a properly structured S-Corp election.

A note on single-member LLCs: Even if you’re the only owner, forming an LLC still creates a legal separation between your personal assets and your practice’s debts or non-professional liabilities under state law. For tax purposes, however, a single-member LLC is “disregarded” unless you elect S-Corp or C-Corp status, meaning the IRS will treat it like a sole proprietorship. And remember—no entity type shields you from personal liability for your own professional negligence, which is why malpractice coverage remains essential.

2025 OBBBA update:

• The 20% Qualified Business Income (QBI) deduction for pass-through entities is now permanent, although dentistry is classified as a “specified service trade or business” (SSTB), so the deduction phases out at higher incomes.

• Section 179 expensing limits have been permanently increased to $2.5 million with a $4 million phaseout—especially beneficial for large equipment purchases.

• 100% bonus depreciation is now permanent, offering another powerful deduction tool for capital investments.

Upside:

• Strong liability protection for business debts and most legal claims (malpractice claims still require professional liability insurance).

• Flexible taxation—you can change how your LLC is taxed as your practice grows.

• Ownership flexibility—easier to bring in partners or investors without rigid corporate rules.

Downside:

• State-specific rules can limit your options or require a different professional entity type.

• Slightly more administrative work than a sole proprietorship, especially once you elect S-Corp taxation.

Bottom line: For most profitable dental practices, an LLC or PLLC with an S-Corp election delivers an optimal mix of tax savings, legal protection, and flexibility—provided it aligns with your state’s professional entity requirements.

Partnership or Multi-Member LLC (Taxed as a Partnership)

For dental practices with two or more owners, a partnership—or more often, a multi-member LLC taxed as a partnership—can be a straightforward way to operate together. In this structure, the practice itself doesn’t pay federal income tax. Instead, profits and losses “pass through” to each owner’s personal tax return according to the ownership or profit-sharing terms in the partnership or operating agreement.

This pass-through approach offers flexibility, especially if the owners want to allocate profits and losses in a way that isn’t tied strictly to ownership percentages. However, unless the entity elects S-Corp status, all partner earnings are generally subject to self-employment tax.

Liability varies by structure. In a general partnership, all partners are personally liable for the debts and obligations of the business—which is a serious risk in a healthcare setting. By contrast, a limited liability partnership (LLP) or an LLC taxed as a partnership shields owners from business debts in much the same way as a corporation (though malpractice coverage is still a separate matter).

Upside:

• Flexible profit and loss allocations (if permitted by agreement).

• Simple pass-through taxation without the need for corporate-level filings.

• Works well for practices in their early years before electing S-Corp status.

Downside:

• Unless you elect S-Corp status, you’ll pay self-employment tax on all earnings.

• General partnerships carry full personal liability for all partners’ actions and debts.

• Multi-owner agreements require careful drafting to avoid disputes down the road.

Best for: Group dental practices that want operational and ownership flexibility without the extra corporate formalities—especially when starting out or before deciding to make an S-Corp election.

Professional Corporation (PC): The Traditional Choice

A Professional Corporation (PC) is essentially a standard corporation adapted for licensed professionals such as dentists. In this structure, you become an employee of your own corporation. The PC pays you a salary, withholds and pays employment taxes, and files its own corporate tax return. Like an LLC, a PC can elect S-Corporation status to avoid double taxation and have profits pass through to your personal return.

Terminology varies by state—what’s called a PC in one jurisdiction may be labeled a Professional Service Corporation (PSC) or Service Corporation (SC) elsewhere. Some states require all licensed dental practices to use this entity type rather than an LLC or PLLC, so state rules are a deciding factor here.

Benefits:

• Liability protection for business debts and non-professional claims (malpractice coverage still requires separate insurance).

• Access to corporate benefits, such as offering health insurance and retirement plans as business deductions.

• S-Corp flexibility—when profits exceed about $60,000–$80,000, electing S-Corp status can yield substantial payroll tax savings.

Downside:

• Higher administrative load—corporations must hold annual board meetings, maintain minutes, adopt formal resolutions, and keep separate books and records. Skipping these steps can erode liability protection.

• Less ownership flexibility than an LLC—profit sharing and ownership percentages are generally tied to share ownership and corporate bylaws.

When it makes sense: If your state does not permit PLLCs for dentists, a PC—often with an S-Corp election—is usually the most tax-efficient and protective option. It delivers many of the same tax benefits as an LLC with S-Corp status, though with more formality and compliance work.

C-Corporation: For Major Growth Plans

A C-Corporation is a completely separate taxpaying entity. It pays corporate income tax on its profits—currently 21% at the federal level—then any after-tax profits distributed to you as dividends are taxed again on your personal return. This two-layer system is why C-Corps are known for “double taxation.”

While this structure offers the strongest liability protection and the broadest flexibility for raising capital, it rarely makes financial sense for solo or small-group dental practices. The tax cost often outweighs the benefits unless you have a very specific growth plan.

Why consider it:

• You plan to keep a substantial portion of profits in the business for reinvestment rather than distributing them annually.

• You’re preparing for significant outside investment or a sale to a Dental Service Organization (DSO).

• You want to offer certain fringe benefits (like specific health and fringe plans) that are easier to implement in a C-Corp.

Downside:

• Double taxation—corporate profits are taxed at the entity level, and dividends are taxed again at the shareholder level (up to 20% plus 3.8% net investment income tax).

• More complexity—full corporate compliance and a separate corporate tax return each year.

• Limited tax efficiency—you generally can’t use the S-Corp payroll tax strategy that works well for most dentists.

Bottom line: Unless you’re building a multi-location operation with outside investors or retaining large profits for expansion, a pass-through entity (like an LLC or PC with an S-Corp election) will almost always leave more money in your pocket.

Real-World Tax Impact: The Numbers That Matter

The difference between entity types isn’t just about legal structure—it can directly change how much you keep after taxes. Consider a dental practice earning $250,000 in 2025:

Here’s what those numbers mean:

• As a sole proprietor, every dollar of profit is subject to self-employment tax—15.3% on the first $176,100 of earnings, then 2.9% Medicare on amounts above that, plus an extra 0.9% Medicare surtax if your total income is above $200,000 single / $250,000 married filing jointly. For $250,000 in net income, that’s $35,340 in payroll taxes alone, on top of income tax.
  
  

• With an LLC taxed as an S-Corp, you only pay payroll taxes on your salary—$120,000 in this example—while the remaining $130,000 is treated as a distribution, free of self-employment tax. That’s a payroll tax savings of about $16,980 per year.
  
  

• A PC with an S-Corp election works the same way for tax purposes, but comes with an additional $2,000–$5,000 in annual administrative costs, which slightly reduces the net savings.

For many profitable dental practices, the LLC with an S-Corp election offers the best blend of tax savings and low administrative burden. With the right planning, entity optimization alone can often save $10,000–$20,000 annually in unnecessary taxes.

(Figures are based on 2025 federal tax law and thresholds; these amounts are adjusted annually.)

The S-Corp Election Sweet Spot

Both LLCs and corporations can elect S-Corporation status, and for many dental practices, it’s the single most effective way to cut payroll taxes without sacrificing legal protection. But the timing of that election is critical.

In most cases, the numbers start to work in your favor once your practice’s net profit reaches about $60,000–$80,000. Below that threshold, the tax savings often don’t outweigh the additional payroll, bookkeeping, and compliance requirements that come with S-Corp status.

Once you make the election, the IRS requires any owner actively working in the business to take a “reasonable salary” before taking distributions. For dentists, this often falls somewhere between $100,000 and $150,000 for a solo practitioner, depending on location, patient volume, and practice profitability. This depends on factors like your location, patient volume, and the complexity of your practice, as the IRS expects the salary to be comparable to what you would pay a non-owner dentist for the same work.

Why it matters:

• Pay yourself too little, and you risk an IRS challenge, back taxes, and penalties.

• Pay yourself too much, and you erase the payroll tax savings that make the S-Corp worthwhile.

The safest approach is to base your salary on solid data—local market rates for employed dentists with comparable training and experience—and document how you arrived at the figure. Dental-focused tax advisors can not only help you set the right salary but also keep your payroll and corporate records in a form the IRS will accept if they ever come knocking.

Entity Structure for Real Estate: Keep It Separate

If you own the building where your dental practice operates, it’s almost always smart to hold that property in a separate legal entity from your practice. This separation creates both tax and legal advantages that can pay off now and in the future.

Why it matters:

• Tax benefits: Holding real estate in an LLC allows you to include mortgage debt in your tax basis, which can increase deductions when you eventually sell.

• Liability protection: If your practice is sued, the building is shielded from that claim. Likewise, if there’s an issue with the property—like a slip-and-fall claim—it won’t directly affect your practice.

• Sale flexibility: When it’s time to sell the practice, you can keep the building and lease it to the new owner, creating a steady income stream.

A common setup for dentists is to operate the practice as an LLC with an S-Corp election while placing the real estate in a separate LLC. That second LLC might be taxed as a partnership if it has multiple owners, or as a disregarded entity if owned by a single individual or married couple. This approach keeps the operations and the property financially and legally distinct, while still allowing you to manage both under your control.

State-Specific Considerations

One of the biggest traps in entity planning for dentists is assuming the same rules apply everywhere. Professional practice laws vary widely from state to state, and in many cases, they dictate your options before you even consider the tax implications.

Some states are PLLC-friendly, allowing licensed professionals to form Professional Limited Liability Companies that offer both liability protection and tax flexibility. Others require dentists to operate as Professional Corporations (PCs), which may also be called Professional Service Corporations (PSCs) or Service Corporations (SCs) depending on the jurisdiction.

A few examples:

• California does not allow PLLCs for dentists—PCs are the default.

• Texas permits PLLCs and also allows certain multi-professional structures.

• New York allows PLLCs but has additional licensing and ownership restrictions.

If you operate in multiple states, the complexity increases—you may need to form your entity in your primary state, then register it as a foreign entity in others where you practice.

The bottom line: Before you file any formation paperwork, check with both your state dental board and Secretary of State’s office to confirm what types of entities are allowed for licensed dentists in your jurisdiction. This step can save you from an expensive and time-consuming re-formation later.

What If You’re Already in a Bad Structure?

Many dentists inherit their current entity structure from the early days of practice—or from a previous owner—and never revisit it. That “set it and forget it” approach can be costly. If you’re paying more in taxes than necessary or find your entity is holding back your growth, a restructuring may be in order.

The good news is that changing your entity type is possible and often easier than most practice owners expect.

How the process works:

1. Evaluate your current setup – Review your income, expenses, growth plans, and liability exposure with a tax advisor who understands dental practices.

2. Choose the new entity type – This might mean moving from a sole proprietorship to an LLC, converting a PC to an LLC, or electing S-Corp status for an existing entity.

3. File the necessary paperwork – This includes state formation or conversion documents and, if applicable, the IRS S-Corp election (Form 2553). For S-Corp elections, you generally have 75 days from your desired effective date to file.

4. Update operations – Change banking arrangements, payroll systems, insurance policies, and contracts to reflect the new entity.

Timeline:
Most state and IRS filings can be completed within 4–8 weeks, though the process can take longer if ownership changes, financing, or lease transfers are involved.

Restructuring isn’t just about chasing a lower tax bill—it’s about aligning your legal, tax, and operational framework with where your practice is now and where you want it to be.

Common Mistakes to Avoid

Choosing and maintaining the right entity structure isn’t a one-time decision—it’s an ongoing responsibility. These are the pitfalls that trip up many dental practice owners:

1. Ignoring reasonable salary rules

For S-Corp owners, the IRS requires that you pay yourself a “reasonable salary” before taking distributions. Underpaying can trigger audits, back taxes, and penalties. Overpaying wipes out the very tax savings the S-Corp was meant to deliver.

2. Mixing up state requirements

Dentists in one state may be allowed to operate as a PLLC, while in another, the law may require a PC or PSC. Using the wrong structure can lead to compliance issues and expensive re-filings.

3. Choosing complexity too early

Start with a structure that fits your current needs. It’s easier—and cheaper—to layer in complexity later than to untangle an overly complicated setup that was never necessary in the first place.

4. Overlooking operational alignment

Even the best tax structure can fail if you don’t update bank accounts, insurance policies, payroll systems, and contracts to match. Gaps here can weaken liability protection and cause accounting headaches.

By avoiding these mistakes, you preserve both the financial and legal benefits of your chosen structure—and save yourself the cost and hassle of an avoidable fix later.

When to Restructure

Your first choice of entity doesn’t have to be your last. As your practice grows and your goals shift, the structure that once made sense can start costing you money or creating unnecessary administrative headaches.

You may want to revisit your setup if:

• Your net profit consistently exceeds $60,000–$80,000 and you haven’t elected S-Corp status.

• You’re adding partners, bringing in an associate as an owner, or selling a share of the practice.

• You’re expanding to multiple locations or planning a major investment in equipment or facilities.

• Your state’s professional entity rules have changed.

• You’re ready to simplify your operations and reduce compliance burden.

The key is not to wait until tax season to make the switch. Entity changes often work best—and avoid IRS timing traps—when they’re planned in advance with a tax professional who understands both your practice’s numbers and your long-term plans.

The Bottom Line for Dental Practice Owners

Your entity choice is more than a legal formality—it’s the framework that shapes your tax bill, protects your assets, and determines how easily your practice can grow. For many dentists, an LLC or PLLC with an S-Corp election strikes the right balance between tax savings, liability protection, and operational flexibility. But the “right” answer depends on your income, state rules, and long-term plans—and it’s not a decision you should set in stone.

If you’re paying more than $5,000 a year in self-employment taxes, struggling with rigid corporate formalities, or unsure whether your current structure still fits your practice, it’s time for a review. The savings from an optimized structure often cover the cost of making the switch in the first year alone.

Ready to put the right structure in place? Town’s expert CPAs specialize in dental practice taxation. We’ll analyze your current setup, identify opportunities you may be missing, and design a structure that protects what you’ve built while keeping more of your revenue in your pocket.

Disclaimer: This article is for educational purposes only and is not individualized tax, legal, or financial advice. Tax laws change frequently, and their application can vary based on specific facts and circumstances. Consult with a qualified tax advisor or attorney who understands dental practice operations before making decisions about your entity structure.