S Corp vs Professional Corporation (PC) vs PLLC: What Physicians Need to Know

In a Nutshell

Picking the right business structure as a physician isn’t just paperwork. It directly affects how much tax you pay, how protected your personal assets are, and whether your state will even let you operate the way you want.

Here’s the short version:

• A Professional Corporation (PC) is a formal corporate structure that most states require for licensed professionals like doctors.
• A PLLC (Professional Limited Liability Company) gives you similar liability protection but with less paperwork and more flexibility.
• An S Corp isn’t really a business structure at all. It’s a tax election you make with the IRS, usually on top of a PC or PLLC.
• Most physicians end up with a PC or PLLC that’s taxed as an S Corp. That combo can save serious money on self-employment taxes.
• Your state laws decide what’s even available to you. Some states force doctors into a PC. Others let you choose.

Now let’s actually break this down.

---

Why This Decision Matters More Than You Think

You went to medical school. You did residency. You probably didn’t sign up for hours of reading about entity formation and Subchapter S elections.

But here’s the thing. Physician income is heavily taxed. Without a smart structure, you could be handing the IRS tens of thousands of dollars more than you need to every year. And on top of that, the way you structure your practice affects malpractice exposure, the assets your spouse and kids depend on, and whether your side gigs (locums, telehealth, expert witness work, consulting) get treated efficiently.

I’ve seen doctors making 400K a year operating as sole proprietors. That’s a mistake. A pretty expensive one.

So before we get into the specifics, just know that this is one of those decisions where a couple hours of thinking now saves you a ton of money and headache later.

---

State Rules Come First, Always

Before you even start comparing structures, you have to look at what your state allows. This trips people up constantly, and it’s probably the number one source of physician entity setup mistakes.

Most states do not let physicians operate as a regular LLC or regular corporation. Because medicine is a licensed profession, you’re usually required to form a professional entity. That means either a PC, a PLLC, or in some cases, a Professional Association (PA) depending on the state.

A few examples of how this plays out:

• California doesn’t allow PLLCs for doctors. If you want corporate structure there, it’s a Professional Corporation, period.
• Texas lets physicians form a PLLC or a PA.
• New York allows PLLCs for physicians.
• Florida allows both PCs and PLLCs for medical practices.

So step one is figuring out what your state board and your secretary of state actually allow. You don’t get to just pick the structure that sounds best on paper. The state decides what’s on the menu.

Once you know that, then you can think about taxes.

---

The S Corp Election: What It Actually Is

Let’s clear something up because this confuses a lot of physicians.

An S Corp is not a type of company. It’s a tax classification.

You form a legal entity first, like a PC or a PLLC, and then you file Form 2553 with the IRS to be taxed as an S Corporation. The legal entity stays the same. What changes is how the IRS treats your income.

Why would you want this? Self-employment tax.

If you’re a sole proprietor or a single-member LLC taxed as a sole prop, every dollar of profit gets hit with self-employment tax (around 15.3% on the first ~168K, then 2.9% Medicare after that, plus an extra 0.9% Medicare surtax on high earners). That adds up fast on physician income.

With an S Corp election, you split your income two ways:

1. A reasonable salary that you pay yourself as a W-2 employee of your own company. This is subject to payroll taxes.
2. Distributions that you take from the company’s remaining profit. These are NOT subject to self-employment tax.

Here’s a quick example that makes this real:

Say you’re a dermatologist earning 500K through your own practice.

• As a sole proprietor, you’d pay self-employment tax on nearly all of it. After the Social Security cap, you’d still owe Medicare tax (2.9% + 0.9% surtax) on the entire amount.
• As an S Corp, you might pay yourself a 250K salary (which has to be “reasonable” for your specialty and market) and take the other 250K as distributions. That 250K of distributions skips the 2.9% Medicare tax + 0.9% surtax entirely.

We’re talking about roughly 7K to 10K a year in savings on that example, sometimes more. For higher earners, the numbers get bigger.

But, and this is a big but, the IRS pays attention to “reasonable compensation.” You can’t pay yourself 50K and take 450K in distributions. They’ll come after you. So this strategy requires actual physician tax planning, not just guessing.

---

Professional Corporations (PC): The Old-School Option

A PC is basically the original corporate structure for licensed professionals. Doctors, lawyers, accountants, architects. It works like a regular C Corp by default but has restrictions on who can own shares (usually only licensed members of the same profession).

What you get with a PC:

• Strong liability protection for personal assets against business debts and non-malpractice claims
• A formal corporate structure that some hospitals, payers, and partners prefer
• The ability to elect S Corp taxation
• A clear separation between you the doctor and you the business owner

The downsides:

• More formalities. Board meetings, corporate minutes, bylaws, annual filings. Skip these and you risk losing your liability shield through what’s called “piercing the corporate veil.”
• More paperwork generally
• In some states, double taxation if you don’t elect S Corp status (though most physicians do elect it)
• One important thing to be clear on: a PC does NOT protect you from your own malpractice. Nothing does. That’s what malpractice insurance is for. The PC protects you from things like business contract disputes or, in a group practice, the malpractice of another physician owner.

PCs tend to be the default in older, more established practices and in states like California where there’s no PLLC option.

---

PLLCs: The Flexible Younger Sibling

A PLLC is the professional version of a regular LLC. Same idea, just adapted for licensed professionals.

What you get with a PLLC:

• Same kind of liability protection as a PC for non-malpractice issues
• Way fewer formalities. No board meetings, less paperwork, simpler ongoing compliance
• Pass-through taxation by default, meaning profits flow to your personal return without entity-level tax
• Flexibility to elect S Corp taxation if it makes sense for you
• An operating agreement instead of corporate bylaws, which is generally more flexible

The downsides:

• Not available in every state for physicians (looking at you again, California)
• Some hospitals, group contracts, or older institutions might prefer dealing with a PC
• If you have multiple physician partners, the operating agreement structure can sometimes get tricky

For most physicians starting solo practices, telehealth setups, or building side income streams, a PLLC tends to be the easier, more flexible choice when it’s available.

---

Side-by-Side: PC vs PLLC vs S Corp Election

Here’s how they actually compare on the things that matter:

Formation complexity

• PC: More paperwork, articles of incorporation, bylaws
• PLLC: Simpler, articles of organization, operating agreement
• S Corp: Not a separate entity. Just an IRS election on top of either.

Ongoing maintenance

• PC: High. Annual meetings, minutes, corporate formalities
• PLLC: Low. Mostly just annual reports and basic compliance
• S Corp: Adds payroll requirements (you have to actually run payroll for your reasonable salary)

Tax flexibility

• PC: Default C Corp taxation, but can elect S Corp
• PLLC: Pass-through by default, can elect S Corp or C Corp
• S Corp: Provides the self-employment tax savings

Liability protection

• PC: Strong for business debts and partner malpractice (not your own)
• PLLC: Strong for business debts and partner malpractice (not your own)
• S Corp: No effect on liability. It’s only a tax thing.

State availability

• PC: Available in basically every state
• PLLC: Available in most states, but not all
• S Corp: Available everywhere as a federal tax election

For most solo physicians in states where it’s allowed, a PLLC taxed as an S Corp is the sweet spot. You get the simplicity of an LLC structure with the tax savings of S Corp election. Best of both worlds.

For physicians in California or those joining a multi-doctor practice, the PC with S Corp election is usually the path.

---

The QBI Wrinkle You Should Know About

There’s a tax deduction called the Qualified Business Income deduction (Section 199A) that lets some business owners deduct up to 20% of their qualified business income. It came out of the 2017 tax law and is huge when it applies.

The catch for physicians? Medical practices are considered “Specified Service Trades or Businesses” (SSTBs). That means the QBI deduction phases out at higher income levels.

For 2025, the deduction starts phasing out for physicians once taxable income passes certain thresholds (around 241,950 for single filers and 483,900 for joint filers, give or take inflation adjustments). Above the phase-out ceiling, physicians generally get zero QBI deduction from their medical practice income.

This is one of those areas where having an actual physician tax advisor in your corner pays off. There are strategies, retirement contributions, charitable timing, income shifting, that can sometimes pull you back into a usable range. Or at least make sure you’re capturing what’s available before you cross the threshold.

It’s also worth thinking about for side income. If you have non-medical side income (rental real estate, certain consulting work, etc.), that income might still qualify even when your practice income doesn’t. Structure matters here.

---

Side Income: Where Structure Really Pays Off

A lot of physicians have side gigs these days. Locums shifts at other hospitals. Telehealth platforms. Expert witness work. Medical consulting. Online courses. The list keeps growing.

Question is, how should that income be structured?

Honestly, this is where I see the most physician entity setup mistakes. People either:

1. Run all the side income through their main practice entity, which can muddy the waters and sometimes create issues with their main employer or hospital privileges
2. Keep it as a sole proprietorship, leaving thousands in tax savings on the table
3. Form a separate entity but never elect S Corp status when they should have

For most physicians earning meaningful side income (let’s say 30K+), a separate PLLC or PC taxed as an S Corp is often the best structure for physician side income. It keeps things clean, opens up tax planning opportunities, and gives you a clear vehicle for retirement contributions like a Solo 401(k).

A Solo 401(k) through your side business, by the way, can let you contribute well above what you can put into your W-2 employer’s plan. For high earners, that’s a meaningful tax planning lever.

---

Common Mistakes to Avoid

A few patterns I’ve seen over and over:

• Picking a structure based on a friend’s advice. Your colleague might be in a different state with different rules. What works for them might not work for you.
• Forming an entity but never running payroll. If you elect S Corp, you actually have to pay yourself a W-2 salary. Skipping this is a red flag for the IRS.
• Paying yourself an unreasonably low salary. Tempting to minimize the salary and maximize distributions, but the IRS has been cracking down. Be reasonable.
• Ignoring state-specific rules. California PCs have specific naming requirements. Some states require specific officers. Get it wrong and you might have compliance issues.
• Not updating the structure as income grows. A structure that worked when you were earning 200K might not be optimal at 700K. Revisit every few years.
• Mixing personal and business expenses. Fastest way to lose your liability protection.

---

FAQ

Q: Can I just operate as a sole proprietor? In most states, no. Medical practice usually requires a professional entity. Even where it’s allowed, it’s almost always a bad tax move once you’re earning physician-level income.

Q: Does an S Corp election protect me from malpractice? No. S Corp is a tax classification. It has zero effect on liability. Only proper malpractice insurance protects you from malpractice claims. The entity (PC or PLLC) protects against certain business liabilities, but not your own clinical malpractice.

Q: How much do I have to earn for an S Corp election to make sense? There’s no magic number, but generally once your net practice income hits around 80K to 100K, the tax savings start to outweigh the added cost of payroll, bookkeeping, and tax prep. Below that, the math gets thinner.

Q: Can I have a PLLC for my main job and a separate PLLC for my side income? Yes, in most cases. This is actually a common setup. Just make sure each entity is properly maintained and that you’re not running afoul of any non-compete or employment agreements.

Q: What if my state doesn’t allow PLLCs for physicians? Then you’d form a PC instead. You can still elect S Corp taxation on the PC and get most of the same tax benefits. The main difference is more corporate formalities to maintain.

Q: Do I need a separate tax advisor for this, or can my general CPA handle it? A general CPA can technically handle it, but physician taxes have enough quirks (QBI rules, malpractice considerations, SALT cap workarounds, multi-state issues for locums) that a dedicated physician tax strategist or physician tax advisor usually finds savings that pay for their own fee several times over.

Q: Can I change my structure later? Yes, but it’s not trivial. You can convert from one entity to another or change tax elections, but there are timing rules, potential tax consequences, and administrative work involved. Better to get it close to right from the start.

---

Next Steps

Look, the right structure depends on your state, your income level, your side gigs, your retirement goals, and where you’re headed in the next five to ten years. There’s no one-size-fits-all answer.

What does work for almost every physician is having someone in your corner who actually understands physician tax solutions. Someone who can run the numbers for your specific situation, look at both your W-2 and 1099 income, and build out a plan that’s actually optimized rather than just compliant.

If you’ve been operating without that kind of physician tax planning, or if you set up your entity years ago and haven’t revisited it, that’s worth a conversation. The difference between an okay structure and a great one can be five figures a year. Compound that over a career and we’re talking real money.

Take a look at where you stand now. Pull up last year’s return. Look at how much you paid in self-employment or payroll taxes. Then ask yourself if there’s room to do better.

There usually is.