If you run a dental practice and want a simple answer to how you can save big on taxes, here it is: work closely with a focused advanced tax strategies for doctors and dentists, choose the right business structure (often an S corporation), track every legitimate business expense, set up strong retirement and benefit plans, and treat tax planning as a year-round habit, not a last-minute task in March or April. That is the short version. The longer version is where most of the real savings show up.
I want to walk through this in a way that feels more like sitting across the table with a coffee, not reading a textbook. Some of this might sound basic. Some of it might feel a little aggressive. You might disagree with a few parts, and that is fine. But if your practice is sending six figures to the IRS every year, it is worth slowing down and checking where the money is slipping out.
Why dental practices often overpay in taxes
Many dentists think their accountant “handles taxes” already. I do not fully agree with that idea. A normal tax preparer usually focuses on:
- Filing returns on time
- Keeping you out of trouble with the IRS
- Recording what already happened
That is not the same as planning. Planning asks a different question: “What could we do differently this year so that your tax bill a year from now is lower?”
Dental and medical practices have a few traits that make planning very powerful:
- High income, often in the 32% to 37% federal tax bracket
- Predictable revenue year after year
- Heavy equipment and buildout costs
- Staff benefit needs that can be structured in smart ways
If you are earning 300k, 500k, or 1M+ from your practice, small percentage changes add up fast. Saving 8% to 12% in total tax each year can mean tens of thousands of dollars. Sometimes more. I have watched owners shrug at saving 20k one year, then realize five years later that they could have paid off their student loans with that money.
Tax savings for dental practices rarely come from one magic trick. They come from 10 to 20 small, deliberate choices made over several years.
Choosing the right business structure for your practice
This is one of the most misunderstood areas. People say things like: “Everyone tells me to be an S corp, so I set one up.” That is not good enough. You can save money with an S corporation, but you can also create problems if it is set up or run poorly.
Sole proprietor vs LLC vs S corporation
Very quick rundown, without legal jargon:
| Structure | Who uses it | Key tax traits | Common issue |
|---|---|---|---|
| Sole proprietor | New or very small practices | All profit subject to income tax and self-employment tax | Often overpay in self-employment tax |
| LLC (taxed as sole prop or partnership) | One or more owners who want liability protection | Still often pays self-employment tax on most income | Owners assume “LLC” itself saves tax, which is not really correct |
| S corporation | Profitable practices with stable income | Owners split income between W-2 wages and S corp profit | Risk of unreasonably low salary and IRS pushback |
For many dentists with strong, consistent profit, an S corporation structure can help because you only pay payroll taxes on the W-2 wage portion, not on all of the profit. That part is well known. What gets less attention is that you must pay yourself a “reasonable” wage. Not a token number.
If you pay yourself 60k as a dentist who brings in 600k and take the rest as S corp profit, that is asking for trouble. A tax advisor who knows dental practices will compare your role, hours, location, and typical associate rates before recommending a salary number.
The structure itself does not save tax. The way you run money through that structure is what matters.
When an S corporation makes sense for a dentist
There is no perfect threshold, but there are some patterns that show up often:
- Net profit consistently above 200k after basic expenses
- Stable or growing patient base
- You work in the practice, not just as an absentee owner
If your profit swings a lot from year to year, or you are still in the early growth stage, staying as an LLC taxed as a sole proprietor for a while might be fine. One mistake I see: dentists rush into an S corporation before they really have consistent profit, then regret the extra payroll work and compliance costs.
Year-round tax planning vs one-time fixes
There is a common pattern in many practices. Around March, the owner emails their accountant, gets the tax projection, feels sick for a day, writes a big check, and says “next year will be different.” Then nothing of substance changes.
I think it helps to break tax planning for a dental practice into three time frames.
1. Long-term setup decisions
This is the groundwork:
- Entity type and ownership structure
- How you pay yourself (wage vs profit distributions)
- Retirement plan design (solo 401(k), group 401(k), cash balance, etc.)
- Buy-in or buy-out terms with partners
These moves are not made every year. But when they are wrong, you can lose money for a decade.
2. Annual planning rhythm
Your tax advisor should not be someone you speak with once a year. A better rhythm looks like:
- Start of year: review prior year, set salary level, plan major purchases
- Midyear: estimate taxable income, adjust withholdings and retirement contributions
- Fall: final review of year, consider equipment buys or prepaying expenses where it fits
Is this more work? Yes. But if each cycle can shave 20k to 80k off your combined federal and state bill, the tradeoff seems pretty reasonable.
3. Ongoing habits inside the practice
This is where many owners underestimate the impact. I am talking about small but consistent behaviors:
- Keeping clean books every month, not just at tax time
- Coding expenses clearly so they are easy to analyze
- Sticking to written policies on owner perks, auto use, travel, and CE
- Reviewing financials on a schedule, not “when I have time”
You might think this sounds boring. Fair. It is not glamorous. But most of the large tax strategy ideas fall flat if the books are a mess.
Tax deductions dental practices often miss or underuse
I will not pretend there are hidden codes that only insiders know. The tax code is public. The challenge is recognizing which parts apply to your practice, and then actually following through.
Retirement plans built for high-income dentists
One of the largest tax shields available for many practice owners is a custom retirement plan package. Not just a simple IRA.
Examples that come up often:
- Traditional 401(k) with profit sharing
- Safe harbor 401(k) to help pass testing when staff earning varies
- Cash balance plan on top of a 401(k) for very high earners
| Plan type | Rough owner contribution range | Best for |
|---|---|---|
| Solo 401(k) | Up to around 69k per year (age and limits can change) | Owner with no staff other than spouse |
| Group 401(k) with profit sharing | Owner can often reach near the max; staff receive smaller percentage | Practices with several employees |
| Cash balance plan | High six-figure contributions possible in some cases | Owners earning 500k+ who want to shelter large sums |
Retirement plans are one place where some owners go wrong in the other direction. They try to cut staff costs too much, design a plan that looks unfair, and run into testing issues or morale problems. A good advisor will model different designs and show you the tradeoffs clearly.
Cost segregation for building owners
If you own your building or plan to build one, cost segregation can be a big piece of tax planning. The basic idea is fairly simple: instead of depreciating the whole building over 39 years, you break parts of it into categories with shorter lives.
That might include:
- Cabinetry and built-in dental units
- Flooring, lighting, certain plumbing and electrical systems
- Exterior improvements like parking or signage
By accelerating depreciation on those pieces, you can create large deductions in the first few years instead of slowly over decades. Some people think this is pushing the limits. It can be, if done lightly or by guessing. A proper cost segregation study uses engineers and detailed reports.
For a dental building, a well done cost segregation study can shift tens or even hundreds of thousands of dollars of deductions into earlier years.
This does not erase tax forever. It shifts timing. But the timing shift can be very valuable if you are in very high brackets now and plan to retire or reduce hours later.
Equipment and technology purchases
Dentistry is heavy on equipment: chairs, digital scanners, CBCT, sterilization units, computers, software. Many of these items can qualify for special depreciation rules in the year of purchase, such as Section 179 or bonus depreciation, subject to current limits.
The mistake I see is not so much missing the deduction, but timing things poorly. For example:
- Buying a large piece of equipment in a low profit year instead of a high profit year
- Stacking multiple large purchases into one year without checking if the deduction will be fully useful
- Financing equipment with debt but forgetting that the tax deduction is based on cost, not cash paid that year
Sometimes people think “I will buy more to save tax.” That is where I will push back. A 100k equipment buy to save 30k in tax still costs you 70k. If the equipment does not support your clinical plan or patient flow, then it is just expensive tax planning theater.
Deductions that often trigger questions
There are areas where the law allows deductions, but the IRS looks at them more closely. You can still use them. You just need documentation and reasonable behavior.
Auto and travel
Using a vehicle for the practice can be deductible. But a giant luxury SUV that is mostly used for personal errands with “practice” wrapped on the side will raise eyebrows if audited.
Better approach:
- Track mileage carefully, using a log or app
- Separate personal and business trips clearly
- Keep clean records of travel that is truly for CE or conferences
For travel, a dental conference in another city with real education and meetings is normally fine. A “conference” that happens to be near a family vacation spot and includes only a couple of thin sessions might not hold up well. This is where real judgment comes in.
Home office for dentists
Many dentists skip the home office deduction because they assume it is not allowed for someone whose work is physically in a clinic. The truth is more nuanced. If you regularly use a part of your home exclusively for practice management work, you may have a case.
Examples of work that might happen there:
- Reviewing charts and treatment plans
- Working on practice financials and HR issues
- Planning marketing or community outreach
You still need to meet the rules: regular and exclusive use, and it should be your main place for that administrative work. If the practice office has a dedicated admin room you already use, the home office argument gets weaker.
Paying yourself: salary, distributions, and perks
How you take money out of your practice has a big effect on tax and cash flow. It is not just a matter of taking “whatever is left over.”
Setting a reasonable salary
For S corporation owners, the salary question is central. A proper dental practice tax advisor will not pick a number out of thin air. They may look at:
- Average associate dentist pay in your region
- Your actual clinical hours vs owner admin time
- Procedure mix and complexity
- Years of experience and any special training
If your total practice profit is, say, 450k, a salary of 220k with 230k as S corp distributions might be defensible. A 60k salary with 390k distributions is probably not.
Health insurance and fringe benefits
Many owners still pay health insurance in awkward ways. Some have it run personally with no tie to payroll. Others pay it through the practice but do not treat it properly on the W-2.
Handled correctly, an S corp owner can often deduct health premiums and set things up so that they do not inflate Social Security and Medicare taxes more than needed. This area is a bit technical, but the net result is that the way your insurance and HSA are structured can affect your total tax by thousands per year.
There are also other possible benefits:
- Group disability and life coverage
- Dental care for staff on terms that are fair but still tax-smart
- Education and training support for key team members
Each of these has rules. The point is not to overload you with details here, but to say this clearly: benefits are not just about being generous. They are also tools to shape your tax picture in a lawful way.
Planning for practice growth, partners, and exit
Tax planning changes as your practice evolves. What works for a single owner with one location may not fit a group practice or a practice approaching sale.
Adding an associate or partner
Taking on an associate can be a big swing: revenue increases, payroll rises, and your role shifts. The tax questions include:
- Should the associate be an employee or an independent contractor?
- Is there a clear path for partnership, and how is that structured?
- How will buy-in be taxed for you and for them?
Some owners try to keep associates as contractors for too long. That can backfire if the facts of the relationship really look like employment. The IRS and state agencies care about this, and the penalties can be real. A cautious approach is better here.
Preparing to sell or step back
One of the largest tax events in your career will be selling your practice, whether to a DSO, another dentist, or a partner. Many owners start planning for this too late.
Some questions to work through years in advance:
- Is the practice held in a C corp, S corp, or other entity, and what does that mean for gain on sale?
- Will it be an asset sale or a stock/ownership sale?
- How will the purchase price be allocated between goodwill, equipment, and other assets?
- Can installment sale terms spread income over several years in a sensible way?
The same practice could be structured in two different sale deals and produce very different tax bills. For example, a higher share of goodwill often produces better long-term capital gain treatment, which can be taxed at lower rates than ordinary income. You cannot always control this fully, but you can negotiate, and your advisor should be active in that process.
Separating personal and practice finances
I have seen smart, capable dentists throw away tax savings because their personal and business lives are tied in knots financially. It happens slowly: one credit card used for both groceries and supplies, a car used for both commutes and errands, a random mix of transfers between accounts.
Strong separation usually looks like:
- Dedicated business checking and savings accounts
- Business-only credit cards
- Regular, clean owner distributions rather than random transfers
- Clear documentation of any loans between you and the practice
This is not about perfection. You will mess up occasionally. But if 90% of your flow is clear, your books become much more reliable. That, in turn, allows smarter tax moves.
Your tax advisor can only plan around the numbers they see. If your practice and personal spending are blended, you are hiding chances to save from yourself.
Working with a tax advisor who understands dentists
You do not need a celebrity CPA. You do need someone who works with multiple dental and medical practices and is willing to be proactive.
Questions to ask a potential advisor
- How many dental or medical practices do you work with on an ongoing basis?
- Do you only prepare returns, or do you offer structured planning during the year?
- How do you help clients decide on S corp salary levels?
- How often do you review entity structure and retirement plan design?
- Can you walk me through a recent planning idea that saved a client real money?
If they hesitate, give vague buzzwords, or focus only on “we make sure everything is filed” then your tax bill might be higher than it needs to be. Some owners stay in that situation for years out of habit, not because it is the best fit.
What you need to bring to the table
It is easy to blame advisors when taxes feel high. Sometimes that is fair. But sometimes the owner is part of the problem without realizing it. To get strong results, you need to:
- Share complete financials and not hide big decisions until after they happen
- Be willing to adjust habits like how you pay yourself or structure benefits
- Respond to requests for information on a reasonable timeline
A good advisor can show you opportunities and risks. You still have to decide and follow through.
What does “saving big” actually look like in practice?
Let us be concrete. Saying “save big” sounds vague by itself, and I said I would avoid hype.
Imagine a solo dentist with one practice, earning around 450k of profit before owner pay. With thoughtful planning, over several years, a tax advisor might help by:
- Shifting from sole proprietor to S corporation with a realistic wage
- Structuring a 401(k) with profit sharing to allow high owner contributions
- Adding a cash balance plan once profits are stable enough
- Planning timing of equipment purchases around strong years
- Running a cost segregation study on a new building purchase
That package of changes might reduce total annual tax by, say, 30k to 80k or more, depending on state and exact numbers. Over 10 years, that is 300k to 800k in kept wealth, not counting growth on invested savings.
Is every case like that? No. Some practices are smaller. Some are in states with different rules. Some owners are late in their careers and have less time to benefit. But the range exists. And ignoring planning can cost far more than the advisor fees.
A quick Q&A to wrap up
Q: My accountant already files my taxes. Do I really need anything else?
A: Filing and planning are not the same. If your current accountant meets you once a year, does not bring up strategy proactively, and rarely talks about entity structure, retirement design, or timing of big moves, you probably do not have a true planning relationship. You might decide that is fine, but it is good to be honest about what you are getting.
Q: Is an S corporation always the right choice for a dental practice?
A: No. Some practices are too small or too volatile in profit for the extra work to be worth it. Others have ownership or state law complications. It is a powerful tool, but it is not automatic. If someone tells you “every dentist should be an S corp” without asking detailed questions, I would be careful.
Q: What is one change I can make this year that will likely help?
A: Set up a midyear tax review with someone who understands dental practices and give them full access to your current books, payroll, and plans for the rest of the year. Then actually act on at least one of their suggestions, even if it feels a bit uncomfortable at first. Tax savings have a habit of showing up when planning becomes a routine, not a last-minute reaction.
