October 15, 2021Dental Business Hacks
S Corp Vs. C-Corp — Which Business Entity Is Best For Your Dental Practice?
Starting a new dental practice? When you file articles of incorporation in your state, you’ll typically incorporate your business as a C Corp by default.
But dentists are often better served by choosing an S Corp. This is very similar to a C Corp, but has some unique advantages that make it a better option for dentists. In this blog from Tooth & Coin, we’ll take a look at the basics of both S Corps and C Corps, and why most dentists should choose an S Corp.
What Is A C Corp?
C Corps are considered to be the “default” type of corporation. They have a few prominent attributes that are important to understand, and differentiate them from S Corps.
- Simpler to form – You do not have to fill out as many forms or take as many steps to form a C Corp, since they’re considered to be the standard type of corporation. This may save you a bit of time and simplify the process.
- Unlimited shareholders – There are no limits on how many shareholders your business can have. They can also be of any nationality or citizenship. This has obvious benefits for large companies that want to be acquired or go public.
- Common and preferred stock – C Corps can issue both common and preferred shares of stock, which is important for some types of businesses.
- Double taxation – C Corporations must pay tax on their business income. In addition, all owners and employees are also taxed on the income they receive. This is known as “double taxation.”
What Is An S Corp?
S Corps are slightly different from C Corps, and are usually considered to be a better option for most dental practices. There are a few things that make them different from C Corps.
- More difficult to form – You need to file Form 2553 with the IRS when you form an S Corp, and there may be other forms and documents to fill out depending on your state and your own unique situation.
- More heavily scrutinized – The IRS tends to watch tax filings more closely for S Corps compared to C Corps. And if your taxes are inaccurate, your S Corp status could be cancelled as a result.
- Limits on ownership & stock – S Corps can have a maximum of 100 shareholders, and they all must be U.S. citizens. These limits are much more restrictive than C Corps. You also can only issue one type of stock.
- Lower overall taxes – This is the biggest benefit of S Corps. They are not subject to double taxation. There are no corporate taxes. Instead, your business income and/or losses are reported on your personal tax returns. This also allows you to deduct up to 20% of your business income on your personal tax returns, which can save you a lot of money.
S-Corps Are Generally A Better Option For Dentists – Contact Us To Learn More!
S Corps have some limitations, but these generally don’t matter for dentists. For example, most practices will have only one or a few owners/shareholders, so the 100-person limit is irrelevant. In addition, dental practices rarely go public or have international investors, so the limits on stock types and overseas/non-U.S. shareholders are not important, either.
This, combined with the fact that you can save a lot of money on taxes, makes S Corps a better option for most dentists. You could save tens of thousands of dollars by incorporating as an S Corp, rather than a C Corp, though your savings will partially depend on state tax rules.
If you’d like more information about both types of corporation, the team at Tooth & Coin is here to help. We’re here to help dentists throughout the nation get on firm financial footing, and build successful practices. Schedule an appointment online, or give us a call at (877) 265-2121.