The S-Corp Election Guide for 1099 Doctors & Locum Tenens Professionals

Choosing the right business structure for 1099 doctors and locum tenens professionals can significantly impact tax liability and financial stability. Electing S-Corporation (S-Corp) status can help reduce self-employment taxes while maintaining pass-through taxation benefits. This guide explains the benefits, requirements, and process of electing S-Corp status, using only IRS-verified information.

What is an S-Corp and How Does It Benefit 1099 Doctors?

An S-Corporation is a tax classification that allows business income to pass through to shareholders, avoiding corporate-level taxation. For independent medical professionals, S-Corp status can provide significant tax savings.

Key Benefits:

• Lower Self-Employment Taxes – Unlike sole proprietors and LLCs, S-Corp owners only pay self-employment tax on their salary, not on business distributions (IRS Self-Employment Tax Guidelines, 2024).
• Pass-Through Taxation – Profits and losses pass through to personal tax returns, avoiding corporate double taxation (IRS Publication 542).
• Liability Protection – If structured as an LLC electing S-Corp status, personal assets remain protected from business liabilities (IRS Small Business and Self-Employed Division).

Eligibility Requirements for S-Corp Status

To qualify as an S-Corp, your business must:

• Be a domestic corporation or an LLC electing corporate taxation.
• Have no more than 100 shareholders, all of whom must be U.S. citizens or residents.
• Maintain only one class of stock.

Source: IRS S-Corporation Requirements

How to Elect S-Corp Status

1. Form an LLC or Corporation
   • If you are a sole proprietor, establish an LLC or Corporation with your state’s business registry.
   • Obtain an Employer Identification Number (EIN) from the IRS.
2. File IRS Form 2553
   • Submit Form 2553 (Election by a Small Business Corporation) to the IRS within 75 days of forming the business or by March 15 of the tax year you want the election to take effect.
   • All shareholders must sign the form.
3. Set Up Payroll & Withholding Taxes
   • As an S-Corp owner, you must pay yourself a reasonable salary and withhold payroll taxes (Social Security, Medicare, and income tax).
   • Use Form 941 to report quarterly payroll taxes.
4. File Annual Tax Returns
   • File Form 1120S (U.S. Income Tax Return for an S Corporation) each year.
   • Provide Schedule K-1 to shareholders, detailing their share of income and deductions.

Source: IRS Instructions for Form 2553

What Is a Reasonable Salary for S-Corp Owners?

The IRS requires S-Corp owners who work in the business to take a reasonable salary before receiving distributions. The salary should be comparable to what other professionals in the field earn.

The IRS considers factors such as:

• Industry standards for compensation.
• The owner’s role, experience, and time devoted to the business.
• Business revenue and ability to pay wages.

Failing to pay a reasonable salary can result in IRS audits and penalties.

Source: IRS S-Corporation Compensation Guidelines

Tax Filing Responsibilities for S-Corps

S-Corporations have specific tax filing requirements:

• Form 1120S – Annual corporate tax return due March 15 each year.
• Schedule K-1 – Reports each shareholder’s share of income and deductions.
• Form 941 – Reports payroll taxes quarterly.
• Estimated Tax Payments – Shareholders must make quarterly estimated tax payments on their personal income.

 Source: IRS Instructions for Form 1120S

Considerations Before Electing S-Corp Status

While S-Corp election can reduce taxes, it also comes with additional responsibilities. Once an entity election is in place, ongoing small-business tax planning is essential to coordinate payroll, distributions, quarterly estimates, and compliance reporting.

• Payroll Compliance – Owners must set up payroll and file employment tax returns.
• State-Specific Rules – Some states impose franchise taxes or fees on S-Corps.
• Retirement Contributions – Salary levels impact contribution limits for retirement plans like a Solo 401(k) or SEP IRA.
• IRS Scrutiny – The IRS closely monitors S-Corps to ensure salaries are reasonable and distributions aren’t excessive.

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