How Dental Practice Owners Pay Themselves (S-Corp Salary vs. Distributions)

Few questions come up more often among practice owners than “How much should I pay myself, and how?” The answer depends on how much the practice actually earns, how it is organized for tax purposes, and what you want to do with retirement savings. This guide covers how much an owner can realistically take, the mechanics of draws, salary and distributions, the IRS rules on reasonable compensation, and a worked example comparing a sole proprietorship with an S corporation. It is general information, so work through the specifics with your CPA before changing anything.

How much can a practice owner take home?

Owner pay is not a number you pick first. It is what is left after the practice pays for itself. Start with collections, subtract operating overhead (staff, supplies, lab, rent, marketing and administration), and what remains is the owner’s earnings before tax. Consultants commonly cite total overhead for a general practice somewhere around 55–65% of collections, though specialty, location and debt load move that range. Our guide to normal dental practice overhead and the dental overhead calculator show where your practice sits.

From the owner’s earnings, cash still has to cover items that are not on the P&L as expenses:

• Loan principal on practice acquisition, build-out or equipment debt.
• Income taxes on the practice’s profit, which pass through to you in most structures.
• A cash reserve, often expressed as a number of months of operating expenses.
• Planned equipment purchases paid in cash.

An illustrative example with round numbers. A solo general practice collects $1,200,000 a year and runs overhead of 62%, which leaves $456,000 of owner earnings. If annual loan principal is $60,000 and the owner sets aside roughly $130,000 for federal and Virginia income and payroll taxes, about $266,000 is available to spend or save before any reserve top-up. Those figures are only an example; your CPA can work out your own tax reserve. The point is that the take-home figure comes from the profit, the debt and the tax bill, not from a percentage someone quoted online. The P&L guide shows where each of these lines appears.

Owner pay depends on your entity

Many established private practices are organized as professional corporations or professional LLCs electing S corporation tax treatment. Your entity choice should be made with your attorney and CPA, because it also affects liability, state filings and a future sale.

Draws in a sole proprietorship or LLC

If your practice is taxed as a sole proprietorship, you do not pay yourself a salary. You take draws whenever cash allows, and you pay income tax and self-employment tax on the practice’s net profit, whether you withdraw it or leave it in the account. Draws are not an expense, so they do not reduce taxable profit.

Self-employment tax is 15.3% (12.4% Social Security plus 2.9% Medicare), and according to IRS Topic 554 it generally applies to 92.35% of net earnings from self-employment. The Social Security part stops at the annual wage base; the Medicare part does not. You can deduct the employer-equivalent half of the tax when figuring adjusted gross income, which lowers income tax but not the self-employment tax itself. The simplicity is appealing, but because the tax reaches all net earnings, many owners look at an S corporation as income grows.

S corporation: salary plus distributions

In an S corporation, the dentist is both an owner and an employee. The corporation pays a W-2 salary, withholding income tax and paying Social Security and Medicare on it. Remaining profit can then be paid out as distributions, which are not subject to payroll taxes. That is the main source of the potential savings.

For 2026, the Social Security portion (6.2% each for employer and employee) applies to wages up to $184,500, the wage base set by the Social Security Administration. The Medicare portion (1.45% each) has no cap. An additional 0.9% Medicare tax also applies at higher incomes: employers must withhold it on an employee’s wages above $200,000, and the tax itself applies above $250,000 for married couples filing jointly and $200,000 for single filers. Because the Social Security portion stops at the wage base, the savings from shifting income from salary to distributions are smaller than many owners assume once salary is already above that level.

When an S corporation election makes sense

There is no IRS income level at which an S corporation becomes required or automatically worthwhile. The election tends to be considered once profit is well above what a reasonable salary for the owner would be, so that a meaningful amount can be paid as distributions. Below that point, payroll costs, a separate corporate return and state unemployment tax on the owner’s wages can eat most of the saving. Timing matters too: the IRS instructions for Form 2553 say the election must be filed no more than 2 months and 15 days after the start of the tax year it is to take effect (or at any time in the prior year). Late-election relief exists but has conditions, so plan this in the fall for the following January.

What “reasonable compensation” means

The IRS says an S corporation must pay reasonable compensation to a shareholder-employee before making non-wage distributions, and it can reclassify distributions as wages when salary is too low. The IRS points out that when revenue is generated by the shareholder’s own personal services, payments should be treated as wages. That matters for dentists, because much of a solo practice’s revenue comes directly from the owner’s chairside work.

Factors the IRS lists, drawn from court cases, include:

• Training and experience
• Duties and responsibilities
• Time and effort devoted to the business
• Dividend history
• Payments to non-shareholder employees
• Timing and manner of bonuses to key people
• What comparable businesses pay for similar services
• Compensation agreements and the use of a formula

A useful reference point is what you would have to pay an associate to do the clinical work you do, plus something for the management role. The going rate for associates is covered in how dental associates are paid. There is no IRS-approved percentage split, such as 60/40, and any rule of thumb you hear should be tested against your own facts.

How to document your salary

1. Write down the clinical days you work, procedures you perform and your management duties.
2. Estimate what an associate would earn producing your clinical production, using your associate agreement or local offers as support.
3. Add a reasonable amount for running the business (hiring, finances, compliance).
4. Record the result in corporate minutes or a short memo, and keep it with your tax records.
5. Update it when your hours, production or role change, for example when you add an associate and cut clinical days.

Running owner payroll and distributions

Once salary is set, the mechanics matter almost as much as the number. Run your own salary through payroll on a regular schedule, the same way staff are paid, so withholding and retirement deferrals happen evenly through the year. Owner wages are subject to federal unemployment tax (6.0% on the first $7,000 of wages, usually reduced to 0.6% by the state credit, per IRS Topic 759) and to state unemployment tax, which should be in the cost comparison.

• Distributions follow ownership. An S corporation can have only one class of stock, so distributions to co-owners generally must be in proportion to their shares. Uneven pay for uneven work belongs in salary, not distributions.
• Distributions need basis. Distributions above your stock basis can be taxable. Shareholders who receive a non-dividend distribution generally must file Form 7203 to track basis, so keep your CPA informed of every distribution.
• Reimbursements are not pay. Business costs you pay personally, such as CE travel, can be reimbursed under a written accountable plan instead of being run through salary or distributions.
• Leave cash for taxes. Distributions are not taxed through payroll, so quarterly estimated taxes have to come from somewhere. Build them into the cash flow forecast before setting a monthly distribution.

Health insurance and benefits for S-corp owners

Health insurance premiums paid for an owner holding more than 2% of an S corporation are treated differently from employee benefits. According to the IRS page above, the premiums are included in the owner’s W-2 wages (box 1) but are generally not subject to Social Security and Medicare tax when paid under a plan for employees, and the owner may be able to deduct them on the personal return. Your payroll provider needs to know about these premiums before the final payroll of the year.

How salary affects retirement contributions

Employer contributions to a 401(k) profit-sharing plan are usually calculated as a percentage of W-2 compensation, generally up to 25% of pay. A very low salary can limit how much you can put away. For 2026, the IRS lists the employee deferral limit at $24,500 and the overall defined contribution limit at $72,000 (catch-up contributions for those 50 and over are on top of that), with compensation above $360,000 not counted, per the IRS cost-of-living table.

A simple illustration: on a $150,000 salary, a 25% employer contribution is $37,500, plus a $24,500 deferral, for $62,000. At roughly $190,000 of salary, 25% ($47,500) plus the $24,500 deferral reaches the $72,000 cap. Below that, a lower salary means a lower ceiling. Plans that cover staff have nondiscrimination and contribution rules for employees too, so plan design should be handled by a retirement plan professional.

Salary and the QBI deduction

Dentistry is a health-care field, which the tax code treats as a specified service trade or business for the qualified business income (QBI) deduction. For 2026, IRS Rev. Proc. 2025-32 sets the threshold at $403,500 of taxable income for married couples filing jointly ($201,750 for most other filers), with the deduction for a specified service business phasing out completely by $553,500 joint ($276,750 for most others). Owner salary paid by an S corporation is not qualified business income, and above the threshold W-2 wages paid by the business also enter the calculation. Salary decisions can therefore change the QBI deduction in either direction, which is why the salary should be modeled, not guessed. See tax planning for dental practice owners.

An illustrative comparison

Consider a solo practice with $400,000 of profit before any owner pay, owned by a dentist who is married, files jointly and has no other wages. The table compares employment taxes only, with rounded figures; it ignores income tax, retirement plans and the QBI deduction, all of which can change the answer.

In this example the S corporation saves about $6,000 a year in employment taxes, mainly the Medicare tax on the $200,000 taken as distributions. Against that, the S corporation adds costs: payroll processing, a separate corporate tax return, federal and state unemployment tax on the owner’s wages and more bookkeeping. The net result can still favor an S corporation, but often by less than owners expect, and a different salary, retirement plan or QBI result can matter as much as the payroll-tax savings. That is why your CPA should run both scenarios with your real numbers.

Practical steps

1. Confirm how your practice is taxed (sole proprietorship, partnership, S or C corporation).
2. Work out owner earnings from your P&L, then subtract debt principal, tax reserves and savings goals.
3. If you are an S corporation, write down how your salary was set, with comparable associate pay as support.
4. Run payroll for yourself on a regular schedule instead of one large year-end payment.
5. Take distributions from profit that is left after reserves and estimated taxes, guided by your cash flow forecast.
6. Review salary each year with your CPA as production, associates and retirement goals change.

Common mistakes

• Paying no salary at all in an S corporation and taking only distributions.
• Taking one large salary payment in December, which complicates withholding and retirement plan calculations.
• Forgetting to add owner health insurance premiums to the W-2.
• Taking distributions that exceed profit or basis, which can create taxable gain and leave too little cash for taxes.
• Paying co-owners distributions that are not in proportion to ownership.
• Setting salary once and never revisiting it as the practice grows or adds associates.

Owner pay also matters when you sell. Buyers and appraisers adjust the P&L to a market-rate dentist salary before valuing the profit, as explained in how dental practices are valued.

Talk it through

Owner pay sits at the intersection of payroll, tax and retirement planning, and the right answer changes as the practice grows. Cisor’s dental accounting and tax team can model salary and distribution scenarios for your practice. Call (703) 345-0606.