How to Set Up an S Corp: Maximize Your Locums Income & Reduce Taxes

In the vast landscape of locum tenens work—where freedom and flexibility reign—there’s a quieter force that, when harnessed correctly, becomes a powerful lever for financial autonomy: the S Corporation.

While most physicians focus solely on clinical practice, the traveling doctor who understands the business behind the medicine gains a strategic edge. If you’re ready to take control of your income, protect your assets, and minimize your tax burden, it may be time to structure your career not just as a physician—but as a business.

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Here’s how to do just that.

Step 1: Form an LLC (Limited Liability Company)

Your first move is to form a legal business entity. For most locums, that means an LLC.

Why? It’s simple, flexible, and provides personal liability protection—crucial when you’re practicing across various states and health systems.

Pro Tip: Use a registered agent service to keep your home address off public record and maintain privacy as you travel.

Note: While many choose the LLC route first, it’s technically possible to elect S Corp status directly as a corporation. LegalZoom often defaults to LLC formation, but review your documents to confirm whether you’re an LLC or C Corp taxed as an S Corp.

Step 2: Elect S Corp Status with the IRS

Once your entity is established, you can file Form 2553 with the IRS to be taxed as an S Corporation.

        •        Deadline: Within 75 days of formation or by March 15 of the current tax year to retroactively apply for that year.

        •        Late election? Relief is often available, but don’t rely on it.

Step 3: Open a Business Bank Account

This is non-negotiable. Keeping your business income and expenses separate is critical for tax compliance, legal protection, and peace of mind.

Note: There are lots of options when opening a business account both online and brick and mortar. 

Pro tip: Consider opening 1-2+ credit cards for your business. Bookkeeping can be made easy if you ONLY PUT business expenses on the card(s) you designate as your business cards.

If you need more Amex points then use the Platinum card on some expenses. If you need more hotel points then use your hotel branded card.

Some businesses such as medical licensing payment portals don't accept Amex so you may benefit from another credit card, but this one could be a free card. Just make sure there is a separation between different cards for personal and business expenses. 

Step 4: Pay Yourself a Reasonable Salary

Here lies the magic of the S Corp.

Your income is now divided into:

        •        W-2 Salary: Subject to self-employment taxes (Social Security & Medicare)

        •        Owner Distributions: Not subject to self-employment tax—your tax savings sweet spot

For example, if you earn $300,000 and pay yourself a $120,000 salary, the remaining $180,000 may bypass payroll taxes—saving you potentially $20,000+ annually.

Warning: The IRS expects your salary to be “reasonable” for your role. Too low, and you invite audits. A good CPA can help strike the right balance.

State Requirements & Recurring Costs

Some states add complexity. For instance:

        •        California requires an $800 annual franchise tax, regardless of income.

        •        Other states like New York and Texas have their own filing fees and compliance requirements.

        •        If you work in multiple states, consult your CPA about nexus rules and multi-state taxation.

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Key Tax Benefits of an S Corp

        •        Reduced self-employment taxes

        •        Eligibility for Solo 401(k) or SEP IRA contributions

        •        Deductible health insurance premiums

        •        Clean handling of business expenses (CME, travel, home office)

        •        Potential for spouse hiring strategies

Common Mistakes to Avoid

        •        Forgetting to run payroll for yourself

        •        Missing the S Corp election deadline

        •        Commingling personal and business funds

        •        Not paying estimated taxes quarterly

        •        Ignoring state-specific compliance (like CA’s $800 fee)

Is an S Corp Right for You?

If you’re a high-earning locums physician earning over $100K/year as a 1099 contractor, the S Corp structure can be a game-changer. But it comes with complexity. For those still transitioning into 1099 life or earning less consistently, a sole proprietorship or simple LLC might suffice—at least for now.

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Final Thought

Forming an S Corp isn’t just about taxes — it’s about taking yourself seriously as both a physician and a business owner. It’s a way to keep more of what you earn, protect your time, and create long-term financial leverage. If you’re committed to building something sustainable through locums, this is a step worth taking.

Want a glimpse of what that looks like in real life? Come hang out with us on Instagram @locumtraveler — we share stories, scenery, and insights from the road.

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Financial Disclosure:

Just a quick note: This is for educational purposes only. The opinions expressed in this blog post are my own and are provided for informational purposes only. I’m not a licensed financial advisor, and the information shared here should not be considered financial, legal, or tax advice. Please consult with a qualified financial planner or tax professional before making any financial decisions. While I may discuss certain products, services, or financial strategies, it’s important to conduct your own research and consider your individual circumstances when making financial decisions.