S corp, C corp, or LLC for a therapy practice

This lesson is for the Oregon clinician who has formed an LLC, or is about to, and keeps hearing that an S corp would save money. It explains what a single-member LLC is for federal tax purposes by default, what changes with an S corporation election, why a C corporation rarely fits a solo practice, the Oregon items that come up in that conversation, the qualified business income deduction as it applies to health services, and self-employment tax. It ends with the 2026 quarterly estimated tax calendar, because whichever structure you pick, the prepayment schedule is waiting.

Where a single-member LLC starts

For income tax, an LLC with one owner is a disregarded entity by default: the IRS looks through it and taxes the owner directly. The IRS single-member LLC page says this holds unless the LLC files Form 8832 and elects corporate treatment. No separate federal business return, no election to make, and the profit is reported on your personal return. Most solo practices sit here, and many stay there.

Self-employment tax, the number in the background

Profit from a disregarded LLC is self-employment income. The IRS self-employment tax page puts the rate at 15.3%: 12.4% for Social Security and 2.9% for Medicare. The Social Security portion stops at the annual wage base, which the 2026 Form 1040-ES lists as $184,500 for 2026. (The IRS self-employment page still shows a 2024 example figure in September 2026; the 1040-ES number is the current one.) Nearly every entity-choice pitch is, underneath, a claim about reducing this tax.

The S corporation election

An LLC can elect to be taxed as an S corporation by filing Form 2553. The Form 2553 instructions set the deadline: no more than 2 months and 15 days after the start of the tax year the election is to take effect, or any time during the preceding tax year. Miss it and the election generally waits a year. The posted instructions carry a December 2020 revision date; the deadline rule is long-standing, but check for a newer revision before relying on any form-field detail.

The rule that trips people up is reasonable compensation. The IRS page on S corporation officers states that corporate officers are employees for FICA, FUTA, and income tax withholding, and that payments to an officer for services are wages. The IRS fact sheet on officer compensation adds that distributions must be treated as wages to the extent they are reasonable pay for the work, with no fixed formula: training, duties, time devoted, dividend history, and comparable pay all count. So an S corp therapist runs payroll for herself, files the 941 and 940 described in the hiring lesson, and only the profit beyond that wage escapes payroll tax. That is the entire mechanism, and the payroll cost eats into it.

The C corporation, briefly

A C corporation pays its own federal income tax at a flat 21%, per the Form 1120 instructions. Then, as the IRS corporation page explains, profit paid out as dividends is taxed again to the shareholder, and the corporation gets no deduction for paying them. For a service business whose owner wants to take the money home, that second layer is why a solo practice almost never picks a C corp.

Side by side

The Oregon layer

Corporate Activity Tax. The Oregon DOR CAT page applies the tax to taxable Oregon commercial activity above $1 million, at $250 plus 0.57% of the amount over that line, with registration required within 30 days of passing $750,000. A solo therapy practice does not get near it; I list it so you can dismiss it with a source.

Pass-Through Entity Elective Tax. Entities taxed as S corporations or partnerships may elect to pay Oregon tax at the entity level, 9% on the first $250,000 of distributive proceeds and 9.9% above that, per the DOR PTE-E page. That page says Senate Bill 1510 from the 2026 session extends the program through tax years beginning before January 1, 2028. The election is annual, made on Form OR-21 by the return due date including extensions, and late returns are not accepted. A default single-member LLC is not an S corp or partnership, which is one reason this comes up alongside the S election. Whether it helps you depends on the federal deduction for state taxes, which is exactly the kind of arithmetic a CPA should run.

Oregon's own corporate income and excise taxes are a separate subject I have not sourced for this lesson.

The qualified business income deduction and the health trade

Section 199A allows a deduction of up to 20% of qualified business income, but a "specified service trade or business" loses it as income rises, and the Form 8995-A instructions list health, naming psychologists and other similar healthcare professionals. Counselors are not named, but the same instructions exclude only services not directly related to medical care, and a counseling practice provides care directly to clients, so I treat it as in the field. For 2026, Rev. Proc. 2025-32 sets the thresholds where the phase-in begins and ends: $403,500 to $553,500 married filing jointly, $201,775 to $276,775 married filing separately, and $201,750 to $276,750 for everyone else. Below the lower number the deduction is available in full. The same revenue procedure notes a new floor from the 2025 legislation: a minimum $400 deduction for a taxpayer with at least $1,000 of qualified business income, for tax years after 2025. The statute limits that floor to income from a business the taxpayer materially participates in, which a therapist working in her own practice does.

Quarterly estimated taxes in 2026

Nothing is withheld from practice income, so both the IRS and Oregon expect prepayment in four installments. The 2026 Form 1040-ES gives the federal dates: April 15, June 15, and September 15, 2026, then January 15, 2027. The last one can be skipped if you file your 2026 return by February 1, 2027 and pay the balance with it. Oregon's Publication OR-ESTIMATE for 2026 uses the same four dates, with payment due the next business day when a date falls on a weekend or Oregon holiday.

Oregon requires estimated payments if you expect to owe $1,000 or more after withholding and credits, and your withholding will cover less than 90% of your 2026 tax or 100% of your 2025 tax. Its safe harbor is 100% of last year's tax after credits, and you must have filed the 2025 return before the 2026 one to use it. The federal safe harbor, per the IRS estimated tax FAQ, is the smaller of 90% of this year's tax or 100% of last year's, rising to 110% of last year's if that year's adjusted gross income was over $150,000 ($75,000 married filing separately). You pay Oregon by check with Form OR-40-V or electronically through Revenue Online. The calendar attached to this lesson lists the dates on one page.

Which of these structures fits your practice turns on numbers only a CPA can run for you: expected profit, what a defensible salary looks like for your work, the cost of payroll, and your Oregon and federal brackets together. This is not legal, tax, or accounting advice. I have set out the rules and linked where I checked them; your CPA gets the final word, and the S election in particular is worth a paid hour before you file anything.

Real example from my own filing

Two documents attached below are rebuilt from my own tax file, redacted: the Form 2553 I signed in July 2025 for an election effective January 1, 2026, and my W-9 as a sole proprietor next to the W-9 for the LLC. Notice the timing on the 2553, signed in the year before the election takes effect, which is why box I stayed blank and no late-election explanation was needed. Notice on the W-9 pair that the second one carries the EIN instead of my Social Security number, and that line 3a is the box to settle with a CPA before you sign.

Further reading

• IRS: Single member limited liability companies. The default classification and the Form 8832 route, in two paragraphs.
• IRS: Wage compensation for S corporation officers. The factors examiners use when deciding whether an officer's salary was reasonable.
• Oregon DOR: Pass-Through Entity Elective Tax. Rates, the OR-21 election, and the extension through 2027.
• Rev. Proc. 2025-32 (PDF). The 2026 inflation adjustments, including the QBI thresholds quoted above.
• Oregon Publication OR-ESTIMATE 2026 (PDF). The state's own worksheet and rules for estimated payments.
• Jones & Roth CPAs, "Oregon's Pass Through Entity Tax (OR PTE) Is Back: What You Need to Know for 2026". A Eugene firm's plain-language explainer, including a 2026 payment-schedule quirk worth asking your CPA about.
• SDO CPA, "S-Corp Reasonable Salary: IRS Guidelines for 2026". A CPA firm's restatement of the reasonable-compensation factors; commentary, not IRS text.