"I know dentistry. I don't know how to run a business."
Every new clinician we talk to, roughly
Who this is for
You finished school. A group practice offered you work, then told you to form a corporation so they could contract with your business instead of employing you.
So you found something online, filled in a form, and now you own a California professional corporation with your own name in it. You have an EIN. You opened a business checking account.
And you have a growing suspicion that you signed up for something nobody explained.
You are not imagining the learning curve
It is real, and it is steep in a specific way. Almost none of this is hard to understand once somebody says it out loud. There is just a lot of it, and the parts nobody mentions are the parts that hurt.
This page says it out loud.
What actually happened
There are now two of you
A corporation is a separate legal person for tax purposes. Before, there was you. Now there is you, and there is a second taxpayer that shares your name and has its own federal ID number, its own bank account, its own tax return, and its own annual obligations to California.
Every other thing on this page follows from that one fact.
It counts as a business even though it will not feel like one
Your name is not on a building. You have no staff. Your entire business is one group practice paying you to treat their patients. None of that matters. As far as the tax code is concerned you now run a business, and the rules are the same rules that apply to any other business.
California does not allow licensed professionals to practice through an ordinary LLC. Under the Moscone-Knox Professional Corporation Act, a dentist, optometrist, physician, or veterinarian who wants to practice through an entity uses a professional corporation, and the shares generally have to be held by someone licensed in that profession. So when the group practice told you to form a corporation, they were not being difficult. For a California clinician, that really is the only door.
This also settles one of the usual questions for you. Most business owners get to ask "should I even have an entity?" You don't. If you want to contract through a business, this is the entity. Your remaining question is how it gets taxed, which is a different and much more interesting question.
Why they wanted you to do this
Worth being straight about, because it affects how you should feel about the cost. When a group practice contracts with your corporation instead of hiring you, they stop having an employee. No payroll for you, no employer payroll taxes, no benefits obligation, no unemployment exposure, and a much cleaner relationship if things end. A lot of the administrative burden they shed lands on you.
That is not automatically a bad trade. There are two real upsides, and you should hold onto both of them:
You get deductions now
An employee with a W-2 deducts essentially nothing. A business deducts what it spends to operate. Driving between offices, licensing, continuing education, supplies, insurance, the fees you paid to set the thing up. You are not taxed on what the group pays you, you are taxed on what is left after legitimate expenses.
You keep the infrastructure
Once this is built, it is yours. Add a second group, switch groups, take on weekend work, or eventually buy a practice, and the corporation, the books, the payroll and the tax history are already standing. You built it once. The second year is dramatically easier than the first.
And the honest downside: this costs real money and real attention every single year, whether or not the business does much. A second tax return. Bookkeeping. Payroll. An annual filing with the state. A minimum tax California charges for the privilege of having the entity exist at all. That is why nobody should set one of these up for a three-month gig. It is a structure with a multi-year outlook baked into it.
What has to happen, in order of urgency
Some of this you have probably already done. Some of it has a deadline closer than you think. This is the list whether you hire us, hire someone else, or handle it yourself.
EIN and a business bank account
The corporation needs its own federal ID number and its own account. Every dollar the group pays you goes into the business account, and business expenses come out of it. Do not run business money through your personal checking. Mixing them is the fastest way to make the bookkeeping expensive and the deductions indefensible.
Decide how the PC is taxed, and file for it
Left alone, your corporation is a C corporation and pays tax on its own profit. Almost nobody in your position wants that. Electing S corporation treatment is done on Form 2553, and the deadline is unforgiving: no later than two months and fifteen days after the start of the tax year you want it to apply to.
For a corporation formed in late July, that lands in early October of the same year. If that date has already passed, do not panic. Revenue Procedure 2013-30 provides relief for late elections going back three years and seventy-five days, provided there is reasonable cause and everyone has reported consistently. But relief is a repair, not a plan. File on time.
Statement of Information with the state
California requires a Statement of Information within ninety days of incorporating, and then on a recurring basis after that. It is a short filing and a small fee. It is also the one people forget, and the penalty for blowing it off is out of all proportion to the effort.
Payroll registration and your first paycheck
If you elect S corporation treatment, you have to pay yourself a real salary through real payroll. That means registering as an employer with the state, setting up a payroll service, and running at least one payroll before the year closes. You cannot fix this retroactively in March.
Workers' compensation, decided on purpose
California requires workers' compensation coverage once you have employees, and electing S corporation treatment makes you an employee of your own corporation. There are exclusion options for an officer who is the sole shareholder. Whether you use one is a decision to make deliberately with your insurance broker, not a box to leave unchecked.
A projection, so you know your number
The most useful thing you can do this year. What will you actually owe, and how much of each deposit should you be setting aside instead of spending? Getting that number now is worth more than any deduction anyone finds you in March.
One thing you can cross off
You may have read that new entities must file a beneficial ownership report with FinCEN. That requirement no longer applies to you. A final rule effective in August 2026 permanently exempts entities formed in the United States from beneficial ownership reporting. If a formation service tried to sell you that filing, you do not need it.
Why bookkeeping comes first
Everything else is downstream of it
This is the piece people most want to skip and least can afford to, because every other number on this page is calculated from it. Your corporate return. Your personal return. Your projection. Your salary. How much to set aside each month. All of it comes out of one thing: an accurate record of what came in and what went out.
Get the books right and everything downstream is just arithmetic. Get them wrong and every number after them is wrong too, in ways that are expensive to unwind later.
Every $1,000 of deductions
you fail to capture
costs you about $400
Not $1,000 of inconvenience. $400 of cash, gone, because nobody wrote it down. Multiply by a year of unrecorded mileage between offices.
Yes, a return can be filed off a spreadsheet. Please don't.
Being straight with you: it is technically possible to prepare a corporate tax return from a spreadsheet of totals and a balance sheet somebody assembled by hand. It happens all the time. Nobody goes to jail.
But it is really, really sloppy, and it costs you in three specific ways.
Deductions get lost
Nobody can remember in March what a card charge from last May was for. Uncategorised becomes unclaimed, and unclaimed is cash you handed over for nothing.
The balance sheet does not tie
A corporate return reports a real balance sheet. Hand-built ones rarely balance, and the fix is usually a plug number that quietly misstates the business.
Next year starts from guesses
Several figures have to carry forward from year to year. If this year was reconstructed from memory, next year inherits the error and compounds it.
The one that quietly breaks: your basis
Basis is simpler than it sounds. It is a running tally of how much money the business can hand back to you tax-free.
Money you put in goes up. Profit you have already paid tax on goes up. Money you take out goes down. That is the whole idea.
Why it matters: if you take out more than that tally, the extra becomes taxable, even though it felt like your own money leaving your own account. And the tally is cumulative, so it has to be tracked correctly every single year from the very first one. Nobody can rebuild it accurately four years later from a folder of spreadsheets.
That is the real argument for doing the books properly from day one. It is not about this year's return. It is about the fact that some of these numbers follow you for the entire life of the business.
This is also where the deduction promise gets delivered
The group practice pays your corporation a gross number. You are taxed on that number minus what you legitimately spent to earn it. Bookkeeping is the mechanism that turns the second number into something you can defend. Without it, you are either overpaying tax or guessing, and guessing is worse.
Why payroll stops being optional
You become your own employee
The moment your corporation is treated as an S corporation, you are an employee of a company you own. You go on payroll. Tax gets withheld from your own paycheck by your own business. In January, your corporation issues you a W-2.
Getting a W-2 from a company you own feels strange the first time. It is correct.
The salary is not a number you get to pick
The requirement is reasonable compensation for the work you actually do, and it is not a dial you can turn down to zero.
This matters more for a clinician than for most business owners, and in an uncomfortable direction. When a business's profit comes entirely from one person's licensed hands, with no capital, no staff, and no equipment generating any part of it, reasonable compensation is high. Often most of the profit.
Anyone who tells a solo dentist to pay themselves twenty percent and distribute the rest is selling a position that will not hold up.
So what does each structure actually cost?
This is the part everyone wants and almost nobody gets shown honestly. Below is the same income run three ways. Move the sliders to your own numbers.
Read the bottom row. It is the only one that answers the real question, which is not "which structure has the lowest tax" but how much money ends up in your pocket after tax and after what it costs to keep the structure legal and the books accurate.
One column is greyed out on purpose. Having no entity is not a choice available to you once the PC exists, so it is there to show you what the corporation costs, not to tempt you.
Same income, three structures
Move the sliders to your own numbers. Every column pays California tax, federal tax, and the real cost of staying compliant, so the bottom line is what you would actually keep.
Your 20% deduction starts phasing out at $242,744
What the group practice pays your corporation for the year.
Mileage between offices, supplies, licensing, CE, insurance, software.
Only applies to the two corporation columns.
Leave at zero unless you also hold a regular employee job. It changes the answer more than you would expect.
What this is telling you
- •This is the decision you actually have. Your PC exists, so it is taxed either as a C corp or as an S corp. The S election leaves you $11,940 better off here, and it wins at essentially every income level, because it stops the same profit being taxed twice.
- •The greyed-out column is there to show you what the corporation itself costs. If you had no entity at all, you would keep $588 more. That is the price of contracting through an entity, not a mistake you made. What drives that gap is the salary slider rather than the size of your profit: the more of the profit that has to leave as salary, the more the entity costs you. And a professional corporation is the only way to contract through an entity in California anyway.
- •Your 20% deduction is intact today. It begins phasing out once taxable income passes $201,775, which is why the timing of extra contract days is worth a conversation before you agree to them.
What that tool is teaching you
If you take away one section of this page, make it this one. These are the three things that catch new owners out, and every one of them is invisible in the federal-only S corporation calculators you will find by searching.
California taxes your pass-through anyway
You will read everywhere that an S corporation does not pay tax itself. That is close enough federally, and it is simply false in California. The state charges your S corporation 1.5% of its net income, and from the second taxable year onward that comes with an $800 floor underneath it, due whether the business made money, lost money, or did nothing at all.
Your first taxable year works differently, though not in the way people hope. The $800 floor does not apply yet, so the corporation pays 1.5% of its net income and nothing more. That is not a free year: if 1.5% comes to more than $800 you pay the larger figure, and the floor shows up in year two regardless. From then on, treat it as a fixed annual cost of having the entity, because that is exactly what it is.
Paying yourself creates a tax that did not exist
State Disability Insurance comes out of W-2 wages at 1.3% in 2026, and since California removed the wage cap it applies to every dollar of wages. Business profit pays none of it. So moving money from profit into your own paycheck does not just shuffle it between buckets, it creates a brand new tax. Above the Social Security ceiling the effect is strong enough to invert the usual advice: a dollar of salary can genuinely cost a California clinician more than a dollar of self-employment income.
Your salary shrinks your 20% deduction
Congress created a deduction worth up to 20% of qualified business income. Salary is not business income, so every dollar you move into your own paycheck is a dollar that stops qualifying. Raising your salary to look conservative quietly hands part of the benefit back. And there is a ceiling coming: clinical practice is a "specified service" business, so once taxable income passes roughly $201,775 as a single filer in 2026, that deduction starts phasing out and is gone entirely about $75,000 later. The marker on the contract-income slider shows you where that starts.
One extra note if you also hold a regular employee job somewhere: turn the last slider up. Outside wages use up the Social Security ceiling while your corporation gets a fresh one of its own, and that single interaction moves the answer more than most people expect.
What it all adds up to
The S election is not a windfall, and anyone selling it as one is doing you a disservice. What it does is decide whether the same profit gets taxed once or twice, and on that question it wins decisively. That is the decision actually in front of you, and the tool will show you it is not close.
The larger savings people talk about arrive when profit grows faster than a defensible salary does, which happens once the contract side produces more than one clinician's going rate. The tool holds your salary share fixed as you move the income sliders, so it will not show you that on its own. That part is a conversation with real comparable data behind it, not a slider.
How taking money out actually works
This is the part with no equivalent in a W-2 life, and it is where new owners get hurt. An S corporation is a pass-through. At the end of the year it issues you a Schedule K-1 reporting your share of its profit, and that profit lands on your personal return.
Here is the trap. You owe tax on the corporation's profit whether or not you ever moved the money out. Profit is taxable because it was earned, not because it was distributed. Leave every dollar sitting in the business account and your tax bill is exactly the same.
Not a paycheck
Nothing is withheld from it. It does not appear on a W-2. It is the owner taking money that has already been counted as profit.
Not a deduction
Taking money out does not lower the corporation's profit or your tax. Salary reduces profit. Distributions do not. This confuses almost everyone at first.
Limited by your basis
That running tally from earlier. Take out more than it, and the extra turns into taxable income out of thin air.
The timing gap is what actually causes the damage
Money arrives in the business account throughout the year and feels available. The K-1 showing what was taxable does not exist until after the year has closed. The tax on it comes due on a return you file the following spring. That is a gap of many months between spending the cash and finding out what you owed on it.
Which is exactly why the projection matters more than it sounds like it should. Not so anyone can hand you a document. So that you know what percentage of every deposit is not really yours, and can move it somewhere else before it turns into a lifestyle.
How it lands on your tax return
Your personal return is going to look unrecognisable compared to anything you have filed before. Two new things arrive from a company you own, and they stack, so each one pushes the next into higher brackets.
A W-2 from your own corporation
Form W-2Your reasonable compensation. Your corporation withheld tax from it and sent the money in on your behalf, which is one of the genuinely useful things about being on payroll.
Profit from your corporation
Schedule K-1Whatever the PC earned beyond your salary and expenses. No withholding attached to it at all, which is precisely why it needs planning ahead of time.
That is also why your corporate return and your personal return are not two separate errands. The 1120-S produces the K-1, and the K-1 is an input to the 1040. They get prepared as one connected piece of work, in that order, by someone who can see both. Splitting them across two preparers is how numbers stop tying.
What happens when
Confirm how the corporation will be taxed and get the election filed, because that deadline does not wait. Get bookkeeping started so the year is not reconstructed from memory in April. Run a projection so you know your set-aside percentage.
Payroll registered and at least one paycheck run, with reasonable compensation set to a number that can be supported. Statement of Information filed if it is still outstanding. Any year-end moves worth making, including whether a retirement plan through the corporation makes sense, decided while there is still time to act.
Your corporation issues you a W-2 and files its payroll returns. The group practice may issue a 1099 to your corporation. Books close for the year.
The corporate return, Form 1120-S, is due March 16 for a calendar-year S corporation. It has to be finished before your personal return can be, because it produces the K-1.
Your personal return. Ideally containing no surprises, because the projection back in the autumn already told you the answer.
Compliance is the floor, not the goal
Everything above this line is baseline. It is what has to happen for your corporation to be legal and your returns to be correct. Getting it right does not save you money, it stops you from losing money, and those are different things.
The part that actually moves your number is what comes after. None of it is available until the foundation is in place:
A retirement plan through the PC
The largest lever most new clinicians have, and the most commonly missed. A solo plan through your own corporation can shelter a substantial amount, and the corporation's ability to contribute on top of what you defer personally is a real part of why the structure starts earning its keep. It also interacts with your salary decision, which is why the two get decided together.
The driving you already do
Rotating between offices in different towns generates a genuinely large deduction, and it is one that needs contemporaneous records to survive scrutiny. The rules about which trips count are specific and worth learning once, properly, rather than guessing at annually.
Student loans, and one thing that does not work
If you are on an income-driven repayment plan, your payment is calculated from your adjusted gross income, generally taken from your most recent return. Worth knowing what that does and does not respond to. Splitting income between salary and distributions barely moves it, because your W-2 and your share of the profit both land in AGI either way. And the 20% business deduction does not help at all: it comes off taxable income after AGI is already settled, so it lowers your tax and not your loan payment. What does move AGI is above-the-line items, and retirement contributions through the corporation are the largest one available to you.
Revisiting the split as you grow
The right answer this year is not the right answer in three years. As contract income grows, the salary and distribution balance, the deduction phase-out, and whether the structure is still the right one all deserve a fresh look. This is a decision you revisit, not one you make once.
The feeling that this is a lot is accurate
It is not a sign you are missing something obvious. Going from a simple W-2 return to a corporation with payroll, bookkeeping, an entity return and a stacked personal return is one of the larger jumps in complexity available to an individual taxpayer, and you did it in your first year out of school without really choosing to.
The good news is that it is front-loaded. Almost all of the work on this page is setup, and setup happens once. Year two is a different experience entirely.
You should not have to
learn all of this alone
Most of our clients run their own business, and a good share of them are clinicians in exactly this position. We handle the entity return, the personal return, the books, the payroll and the projections as one connected piece of work, and we do not bill you for asking a question. If we did, you would stop asking, and the questions are the point.
The Quick Version
The deadline nobody mentions
Form 2553 is due no later than two months and fifteen days after your corporation's tax year begins. Form the entity in late July and you are looking at early October, not next April.
Late relief exists under Revenue Procedure 2013-30 if you have already passed it, but it is a repair, not a plan.
Want your actual numbers?
The tool on this page is a teaching model. A real projection uses your contract, your deductions, and a defensible salary, and tells you what to set aside starting this month.
Get Your Projection