Should You Become an S-Corp? A Guide for Therapists in Private Practice

By Oscar Guzman, CPA | Trusted Tax & Advisory Services

If you're a licensed therapist running your own private practice in California, you've probably heard about becoming an S-Corporation (S-Corp). Maybe a colleague mentioned it, or your tax pro brought it up. But is it right for you?

Let’s break it down in plain language.

What Is an S-Corp?

An S-Corp is a type of tax status that can help small business owners (like you) reduce their tax burden — especially self-employment taxes. It’s not a different kind of business entity, but rather a tax election you make with the IRS after forming a Professional Corporation (PC) — which is required for licensed therapists in California. 

Important Note: California does not allow licensed professionals (like LMFTs, LCSWs, LPCCs, and psychologists) to form LLCs. If you want to incorporate, you must form a Professional Corporation (PC) and register with the appropriate licensing board.

Why Therapists Consider S-Corp Status

Save on Self-Employment Taxes 

As a sole proprietor, all your net income is subject to self-employment taxes (Social Security + Medicare). With an S-Corp, you pay yourself a reasonable salary, and take the rest as owner distributions — which aren't subject to payroll taxes. This can save thousands each year.

More Professional Structure 

Forming a PC with S-Corp status adds legitimacy to your practice and lays a strong foundation if you're planning to grow or hire.

Better Retirement + Health Benefits Options 

S-Corps allow more flexibility with tax-deductible fringe benefits and retirement plans like a Solo 401(k).

Potential Drawbacks to Consider

Increased Admin Work 

You’ll need to run payroll, maintain formal bookkeeping, and file a separate corporate tax return (Form 1120S). That means higher accounting costs and more paperwork.

Salary Requirement 

The IRS requires you to pay yourself a reasonable salary — you can’t take all your earnings as distributions. This means setting up payroll (tools like Gusto make this easier).

Retirement Plan Transition 

If you previously contributed to a SEP-IRA as a sole proprietor, switching to a PC/S-Corp may require consideration of establishing a Solo 401(k) or similar plan.

Is It the Right Time to Switch?

Here are a few questions to help evaluate:

● Are you consistently netting at least $100k+ per year from your practice? (This is a common break-even point where tax savings can outweigh added costs.)

● Are you ready to take on (or outsource) more administrative responsibility?

● Are you thinking long-term — building wealth, hiring, or adding retirement benefits?

If the answer is yes to most of the above, it might be a good time to explore the S-Corp path.

Final Thoughts

An S-Corp can be a powerful move for therapists who are growing their practice and want to keep more of what they earn — but it’s not one-size-fits-all.

Your unique goals, income, and comfort level with business formalities all matter in the decision.

As a CPA who works closely with therapists across California, I help make this process smooth and understandable. 

Let's Talk It Through

Wondering if it's the right move for you? Reach out and let’s take a look at your numbers together.

SEP IRA vs. Solo 401(k): Which Retirement Plan Fits Your Therapy Practice? 

By Oscar Guzman, CPA | Trusted Tax & Advisory Services

SEP IRA vs. Solo 401(k): Which Retirement Plan Fits Your Therapy Practice?

If you’re a solo therapist running your private practice and filing taxes on Schedule C, choosing the right retirement plan can boost your savings and lower your tax bill. Two popular options are the SEP IRA and the Solo 401(k). Here’s a quick guide to help you decide:

What is a SEP IRA?

A SEP IRA is a simple, low-maintenance retirement plan where you contribute up to about 25% of your net self-employment income (up to roughly $70,000 in 2025). It’s easy to set up and requires minimal paperwork — perfect if you want a hassle-free way to save.

What is a Solo 401(k)?

A Solo 401(k) is designed for business owners with no employees (except possibly a spouse). It lets you contribute in two ways: as an “employee” up to $23,000 (or $30,500 if you’re 50 or older) plus an “employer” contribution of up to about 20% of your income. That means you can save more overall! It also offers options like Roth contributions and even loans, though it takes a bit more work to set up.

Important Note for Therapists with W-2 Employment

If you also work as a W-2 employee elsewhere and contribute to that employer’s 401(k) plan, the IRS limits your total employee (elective deferral) contributions across all plans combined to $23,000 (or $30,500 if age 50+ for 2025). This means your Solo 401(k) employee deferral limit is reduced by what you contribute at your W-2 job.

However, the employer profit-sharing contribution to your Solo 401(k) is separate and does not reduce this limit.

Which Should You Choose?

• Choose a SEP IRA if you want a straightforward plan with less paperwork.

• Choose a Solo 401(k) if you want to maximize your contributions and like options like Roth and loans.

If you want help setting up the right plan for your practice, just reach out — I’m here to make retirement planning easy!