Managing Distributions in Your Micro-Corporation PC/PLLC Taxed as an S-Corp

If you’ve formed a micro-corporation as a PC or PLLC taxed as an S-Corp, you’ve already taken a major step toward preserving your professional autonomy and optimizing your tax position. But here’s a question I get from nearly every physician entrepreneur I coach:

“How do I actually get money from my business into my household?”

Managing how and when you pay yourself is an art that blends regulatory compliance with savvy financial planning. Most physicians assume their W-2 paycheck from an employer was the only income stream they needed to understand. But when you're self-employed through your micro-corp, you have to learn a new financial language: salary, distributions, accountable plans, retained earnings, and business reimbursements.

If you’re still unclear about how personal income flows through your micro-corp, read my foundational post first:

🔗 Understanding Household Cash Flow for the Self-Employed Doctor

How Distributions Work in an S-Corp

Let’s break it down:

In a PC/PLLC taxed as an S-Corp, your income is split into two streams:

1. W-2 Salary (Payroll)

   • This is the “reasonable compensation” the IRS requires for the services you perform.

   • This is subject to Social Security (6.2%) and Medicare taxes (1.45%).

2. Owner Distributions

   • This is your share of business profits as the owner.

   • This is Not subject to self-employment tax (15.3%).

   • Can be taken periodically (quarterly, monthly) or at year-end, based on cash availability.

Salary and Distribution Split

By managing this balance well, you can legally reduce your tax burden without reducing your total income.

Traditionally referred to as a “wage and distribution strategy" this approach is widely adopted by small business owners across the United States for its multitude of financial advantages. Splitting your business earnings involves distributing income among different cash flow channels in your business in a manner that reduces the overall tax burden on the household.

By channeling business earnings into cash flow streams that efficiently land in an individual’s household for tax purposes, savvy entrepreneurs can capitalize on potential tax savings, thereby increasing their overall net earnings.

This method not only optimizes the family's financial position but also allows business owners to reinvest the savings into their enterprises or personal ventures.

Given this strategy's ability to maximize after-tax income, it's no wonder that so many small business proprietors are keen to implement it as part of their financial planning repertoire.

Key Steps to Manage Distributions Strategically

1. Set a Reasonable W-2 Salary

   • Benchmark your specialty and scope of work using any national databank.

   • Typically, 40–60% of net profits is defensible as salary for primary care physicians.

   • Avoid paying yourself too low—this triggers IRS audits.

   • Read More: Determining Your Salary as a Self-Employed Doctor

2. Use Accountable Plans for Tax-Free Reimbursements

   • Reimburse yourself for home office, mileage, CME, cell phone, and more.

   • These are business expenses paid personally that your corporation can reimburse tax-free.

   • Every dollar here is one less you need to take as taxable W-2 or distributions.

3. Plan Quarterly Distributions (Profit-Sharing)

   • After payroll, taxes, and business reserves, you can transfer profits to your personal account.

   • Document each distribution (QuickBooks or similar software helps).

   • Consider timing distributions to match household needs (tuition, taxes, vacations).

4. Build a Business Reserve

   • Don’t empty your corporate account with each distribution.

   • Retain 2–3 months of operating expenses to weather lean months or delays in accounts receivable.

5. Work With a Proactive CPA

   • Your CPA should help forecast quarterly profits and recommend optimal W-2 vs distribution splits.

   • Mid-year adjustments help prevent overpayment or underpayment of taxes.

💬 Lessons from the Field

“This week, one of my clients realized they were overpaying $24K per year in payroll taxes because their CPA had set 80% of their business income as self-employment W-2. After restructuring to a reasonable salary and taking quarterly distributions, they not only increased take-home pay but finally started building savings.”

I’ve seen this scenario dozens of times in coaching. The real tragedy isn’t malpractice—it’s missed opportunity.

🔧 Tool of the Week: Accountable Plans for S-Corp Professionals

This free eBook breaks down how to set up an IRS-compliant accountable plan and start reimbursing yourself for business expenses—tax-free. Combine this with strategic distributions, and you’ll unlock thousands in annual tax savings.

📘 Download the Accountable Plan Guide →

💼 Case Study: Dr. Angela's S-Corp Pay Strategy

Dr. Angela formed a PLLC taxed as an S-Corp after leaving a W-2 OB/Gyn hospital job. In her first year:

• Revenue: $400,000

• W-2 Salary: $200,000

• Distributions: $160,000 (after expenses and reserves)

• Tax-Free Reimbursements via Accountable Plan: $20,000 (office rent, CME, phone, travel)

• Total Household Cash Flow: $380,000

Her effective tax rate dropped by over 6% compared to her previous W-2 job, and she finally had money set aside for retirement and investment goals.

This is the power of business literacy in action. You don’t need an MBA—you just need to manage your flow.

🚀 Scale with Strategy: Business Strategy Meeting

If you're not sure how to implement this in your own practice, book a PEA Business Strategy Meeting. For just $500, we’ll sit down and map your:

• Salary vs distribution plan

• Household cash flow optimization

• Tax-reduction tactics like accountable plans

• Long-term micro-business income strategy

🎯 Book a Strategy Meeting Now →

Need deeper support?

🧭 Get Started With 1:1 Business Coaching →

Final Thoughts

Running your practice through a PC or PLLC taxed as an S-Corp is more than a tax maneuver—it’s a mindset shift. You move from being a passive earner to a strategic wealth builder. Managing your distributions is the practical, tactical heart of that transformation.

This is your business. You earned it. Now manage it like a pro.