What is the right way to pay myself from my practice?

The right way to pay yourself depends on how your practice is structured for tax purposes. And in every case, your pay should be grounded in what the books show the practice actually earns after true costs.

If you operate as a single-member LLC or partnership that has not made an S corporation election, your profit flows through to your personal return and you pay self-employment tax on all of it. You take money out through owner’s draws, which reduce your equity in the business. These are not wages. There is no payroll to run. You simply draw against the profit the practice generates after covering expenses.

The challenge is knowing what that profit actually is. If your books are not current, you are guessing. You might pull out $8,000 thinking the month was strong, but you forgot about the quarterly estimated tax payment due next week or the malpractice insurance renewal at month end. Clean books tell you what is actually available.

With an S corporation election, the mechanics change. You split your income into two parts: a reasonable salary you pay yourself through payroll, and distributions of remaining profit. The salary is subject to payroll taxes. The distributions are not subject to self-employment tax, which is where the potential savings come from. Working with a CPA for medical businesses helps you determine whether an S election makes sense for your situation and how to set reasonable compensation.

The “reasonable salary” requirement is real. The IRS expects you to pay yourself what someone in your role would earn in the market. For a therapy practice owner who is also the primary clinician, that might be $75,000 to $120,000 depending on specialty and location. You cannot pay yourself $15,000 in salary and take $140,000 in distributions. The IRS has challenged S corp owners on exactly this pattern.

Once you are paying a reasonable salary, additional profit can come out as distributions. But this only works if you know what the practice truly earns. If you do not track your real costs, including supplies, rent, staff wages, insurance, and what you owe for taxes, you might take distributions the business cannot afford.

The healthiest approach is paying yourself regularly on a schedule. Whether that is a biweekly salary under an S corp or a monthly draw under a default LLC, a consistent amount keeps your personal finances stable and forces the practice to operate on what remains. The opposite approach, waiting until month end and sweeping whatever sits in the account, creates problems. Some months you take too much and the practice runs short. Other months you leave cash sitting idle when it could be building your personal savings or retirement.

All of this ties back to tax strategy and having books that reflect reality. Not revenue. Not what you billed. Actual profit after paying everyone, covering operating costs, and setting aside money for taxes. Without that information, you are guessing at what you can afford to pay yourself.

If you are not sure whether your current structure makes sense or how to set up regular owner pay that works for your practice, book a consultation and we can look at your specific numbers.