Tax Strategy for Dentists: Practice Structure, Equipment, and Retirement

Dentistry is one of the better tax planning situations in professional services. Practices are capital intensive, which creates depreciation deductions that most professional practices never get. Owners frequently own their building. And profit margins on a well-run practice support serious retirement plan funding.

Entity Structure

A single-location practice belongs in a professional entity taxed as an S corporation. On a practice producing $450,000 of profit with a $200,000 salary, the $250,000 distributed avoids the 2.9% Medicare tax and, at that income level, the 0.9% additional Medicare tax, saving roughly $9,000 annually.

Reasonable Compensation

For a solo owner producing $700,000 personally, that supports a salary around $200,000 to $230,000. Profit above that is a return on the equipment, the hygiene department, the staff, and the ownership of the practice itself, and it is properly distributed. Our reasonable compensation guide covers documentation.

Equipment Is a Real Deduction

This is where dentistry differs from medicine and law. Chairs, delivery units, digital sensors, CBCT and panoramic imaging, intraoral scanners, mills and 3D printers, sterilization equipment, and practice management hardware are all five-year or seven-year MACRS property.

With 100% bonus depreciation restored under OBBBA for property acquired after January 19, 2025, a practice adding a $180,000 CBCT and $90,000 of operatory equipment can deduct the full $270,000 in the year placed in service. Section 179 remains available as an alternative with its own limits and taxable income constraint. Financed purchases still generate the full deduction in year one even though cash outflow is spread over the loan, which is the single most useful fact in dental tax planning. See our equipment depreciation guide.

Retirement Plans

Above that, a cash balance plan lets an owner in her late forties or fifties contribute $120,000 to $220,000 annually. Staff cost in a combined design typically runs 5% to 7.5% of covered payroll, which on a $600,000 staff payroll is $30,000 to $45,000. That is deductible, and against a $180,000 owner contribution at a 37% federal rate it nets out clearly favorable. Our cash balance plan guide works through a comparable example.

Accountable Plan

A written accountable plan under Treas. Reg. Sec. 1.62-2 lets the practice reimburse the owner for the home office used for treatment planning and administration, continuing education travel, licensing and board fees, study club dues, professional publications, and the business use of a personal vehicle for trips to the lab, the bank, and satellite locations.

Reimbursements are deductible to the practice and tax-free to the dentist. Without the plan, these expenses are simply lost, because unreimbursed employee business expenses are not deductible. Our accountable plan article covers the substantiation rules.

The Augusta Rule

IRC Sec. 280A(g) allows the practice to rent the dentist's home for up to fourteen days per year without the rental income being taxable to the dentist. Annual planning meetings, quarterly financial reviews with the practice administrator, and team leadership sessions are the usual uses.

Rate support matters. Pull written quotes from two local hotels or event venues for comparable meeting space, sign a rental agreement between the practice and the dentist personally, and keep an agenda and attendance record. Fourteen days at $1,500 produces $21,000 of deduction. Our Augusta Rule guide has the checklist.

Cost Segregation on the Practice Building

Dentists own their buildings more often than most professionals, and dental build-outs are unusually component-rich. Operatory plumbing, vacuum and compressed air systems, dedicated electrical for chairs and imaging, lead shielding, millwork and cabinetry, specialty lighting, and finish work all sit outside the 39-year structure.

Studies on dental buildings and condos commonly reclassify 30% to 40% of depreciable basis into five, seven, and fifteen-year property. On a $1,600,000 building with $1,300,000 of depreciable basis, a 35% reclassification is $455,000 deductible in year one under IRC Sec. 168(k). If the building was purchased in a prior year, Form 3115 allows a catch-up of the missed depreciation in the current year without amending. See our Form 3115 catch-up guide and our cost segregation service page.

QBI and the SSTB Problem

Dentistry falls within health under IRC Sec. 199A(d)(2), so it is a specified service trade or business and the 20% deduction phases out above the income thresholds. OBBBA made the deduction permanent and widened the phase-in range starting in 2026, which helps owners near the threshold and does nothing for owners well above it.

Frequently Asked Questions

Can a dentist deduct a new CBCT machine in full?

Yes, in most cases. Imaging equipment is five-year MACRS property and qualifies for 100% bonus depreciation under IRC Sec. 168(k) for property acquired after January 19, 2025. The full cost is deductible in the year placed in service even if the purchase was financed.

What salary should a dental practice owner take?

Benchmark to what you would pay an associate to produce your personal clinical production, generally 28% to 33% of that production. For an owner producing $700,000 personally, that supports roughly $200,000 to $230,000 of W-2 salary, with remaining profit distributed.

Do dentists qualify for the QBI deduction?

Usually not. Dentistry is health, which is a specified service trade or business under IRC Sec. 199A(d)(2), so the deduction phases out above the income thresholds. Owners near the threshold can sometimes get under it using retirement contributions and depreciation.

How much does cost segregation recover on a dental building?

Studies commonly reclassify 30% to 40% of depreciable basis because of operatory plumbing, vacuum and air systems, dedicated electrical, lead shielding, and heavy millwork. On $1,300,000 of basis, a 35% reclassification is $455,000 deductible in year one.

Is a cash balance plan worth it with fifteen employees?

Usually yes at practice owner income levels. Staff cost in a combined 401(k) and cash balance design typically runs 5% to 7.5% of covered payroll. Against an owner contribution of $150,000 or more at a 37% rate, the net position is clearly favorable.

---