If you own a medical or dental practice, deciding how much to pay yourself involves more than choosing a paycheck amount. Your compensation affects payroll taxes, retirement contributions, benefits, and the cash you can set aside for long-term goals.

Here are three areas to review before year-end:

1. Set a defensible salary. If your practice is an S corporation, you must pay yourself reasonable compensation for the work you perform before taking distributions. Distributions generally are not subject to employment taxes, but they do not make practice profits tax-free. The right salary depends on your role, the services you provide, and how the practice earns its revenue.

2. Coordinate pay with your retirement plan. S corporation distributions do not count as compensation for retirement plan contributions. A salary that looks attractive from a payroll tax perspective may limit how much you can contribute. Review your plan and contribution goals together before setting payroll for the year.

3. Check how owner benefits are reported. Health insurance and HSA contributions can be valuable, but owners of more than 2% of an S corporation face special reporting rules. Setting these up correctly matters just as much as choosing the benefit itself.

There is no universal salary-to-distribution ratio. A useful plan starts with your practice’s profit, your work in the business, your retirement goals, and your household’s broader tax picture.

This article provides general educational information and is not tax, legal, or investment advice.

Tax results often depend on decisions made before a transaction occurs.

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