Maximize Dental S Corporation Income with Smart W2 Salary Strategies

Are You Paying Yourself the Right Salary as a Dental S Corp Owner?

If you run your own dental practice under an S Corporation, you’ve probably heard that how you pay yourself can have a big impact on your taxes. But how exactly does that work?

It all comes down to your W2 salary.

As a dental S Corp owner, you wear two hats. You’re both the business owner and an employee. That means you can pay yourself a salary—and also take distributions from the profits. The key is finding the right balance between these two income streams.

Why Your W2 Salary Matters

The IRS requires S Corp owners who work in their businesses to pay themselves a “reasonable” salary. This is especially important in dentistry, where you provide hands-on dental services. You can’t skip the salary part and only take distributions.

But what does “reasonable” mean, exactly?

It depends. The IRS looks at things like:

• Your role and responsibilities
• The going rate for similar positions in your area
• Your experience and credentials
• The number of hours you work

Think of it this way—if you had to hire another dentist to replace you, what would you pay them? That’s a good starting point.

Too High or Too Low? Find the Sweet Spot

Here’s where smart W2 salary strategies come in.

If your salary is too high, you’ll end up paying more in payroll taxes—you know, things like Social Security and Medicare. But if it’s too low, the IRS could step in and reclassify your distributions as salary, which can lead to back taxes and penalties.

The goal? Find the sweet spot.

Let’s say your dental practice earns $300,000 in profit a year. Instead of paying yourself the full $300K as salary—which comes with full payroll taxes—you might pay yourself $120K in W2 wages and take the other $180K as distributions. This way, the W2 salary keeps the IRS happy, and the distributions save you on payroll taxes.

Tips to Maximize Income and Minimize Taxes

Want to get the most out of your dental S Corp setup? Try these strategies:

• Do your research: Benchmark your salary against other dentists in your location.
• Talk to a CPA: An accountant who understands dental practices and S Corps can help you fine-tune your numbers.
• Review each year: As your practice grows, your salary should too. Revisit your compensation yearly.
• Keep good records: Be ready to justify your salary if the IRS ever asks.

A Real-World Example

Dr. Smith, a dentist in Texas, owns her practice under an S Corporation. She initially paid herself $200,000 in W2 salary, thinking higher salary equals higher success. But after working with her CPA, she adjusted her salary to $110,000 and took $90,000 in distributions.

The result? She saved over $12,000 a year in payroll taxes—money she reinvested into new equipment and marketing for her clinic.

Final Thoughts

Getting your W2 salary right as a dental S Corp owner isn’t just about following rules—it’s about maximizing your income and minimizing taxes legally.

So, if you’re wondering whether your current setup is truly working, it might be time for a second look. A few smart moves today can lead to big savings down the road.

Have you reviewed your salary recently? If not, maybe now’s the perfect time.