4 High Impact Tax Strategies to Grow Your Dental Practice

4 High Impact Tax Strategies to Grow Your Dental Practice

A recap of our Dental Economics Solutions Lab with Gelt CPA Rachel Richards

Check out the full video here

For most dentists, taxes show up once a year when stress is highest. But if you own your practice, taxes are also one of the biggest levers you have for growth. A few smart moves can free up real dollars for technology, hiring, expansion, and your own wealth.

In a recent Dental Economics Solutions Lab, Gelt CPA Rachel Richards walked through four high impact strategies using a two doctor practice as a case study. Here are the key ideas in plain language.

1. Get your entity structure working for you

In the case study, Bright Side Dental Partners is a two owner practice with about 840,000 dollars of profit before owner pay, set up as an LLC taxed as a partnership.

Partnerships are common and flexible, but they have a hidden cost. Almost all of the income that flows to the partners is subject to both income tax and self employment tax, which is Social Security and Medicare.

How S corporations help

When a practice is taxed as an S corporation:

• You still pay income tax on the profit
  
• You only pay Social Security and Medicare on your W 2 salary
  
  

Distributions above that salary are usually not subject to self employment tax. That is why S corporations can be such a strong tool for profitable practice owners.

For multi doctor practices, Rachel often recommends a hybrid structure. The main practice stays as an LLC taxed as a partnership, and each doctor forms a personal S corporation. The S corporations become the partners in the LLC. The LLC pays the S corporations, and the S corporations pay each doctor a mix of salary and distributions. This keeps the practice financials clean and lets each doctor customize their own tax planning.

2. Pay yourself strategically as an owner

Once S corporations are involved, the next key term is reasonable compensation.

The IRS does not give a fixed number for what an owner must pay themselves. Your salary simply has to be defensible.

A practical starting point is what you would earn as an associate in someone else’s practice. From there, you adjust based on how profitable the practice is, how much you are reinvesting, and how much cash you actually take out of the business.

If you are pulling 500,000 dollars out of the practice and only 100,000 dollars is W 2 salary, that can look aggressive. Many owners end up with a mix where a meaningful share of what they take out is salary and the rest is distributions, but the exact split is personal.

Compensation also affects how much you can put into certain retirement plans. In the Bright Side case, each owner paid themselves 250,000 dollars of W 2 wages from their personal S corporation and took the rest as distributions. That gave them room for larger retirement contributions and still left significant income taxed as distributions instead of payroll.

3. Capture mixed use deductions you are missing

Most dentists already deduct the obvious items such as equipment, lab and supply costs, staff wages, and continuing education. Where money is often left on the table is in mixed use expenses, the things that are partly business and partly personal.

Think about:

• Cell phone and internet used for both work and home
  
• A real home office where you handle admin and management
  
• A vehicle used for CE trips, supply runs, or patient related travel
  
• Travel where CE is the main purpose
  
• Office environment items that improve patient experience and staff morale
  
• Team perks and events that qualify as employee benefits
  
  

Rachel’s rule of thumb is simple: if it genuinely helps you run, grow, or manage the practice, it is worth asking whether it belongs in the tax conversation.

The accountable plan

If you pay for expenses personally and the practice reimburses you, you want those reimbursements to be tax free and deductible.

An accountable plan is a short written policy that:

• Lists what expenses can be reimbursed
  
• States what documentation is required
  
• Confirms that reimbursements are only for actual business costs
  
  

With that in place, the practice gets a clean deduction and you avoid having reimbursements treated as taxable income.

Vehicles, buildouts, and equipment

With vehicles, standard mileage is simple, but in some cases tracking actual expenses and deducting the business use percentage can produce a much larger deduction, especially if the vehicle is used mostly for practice purposes. Driving from home to your main office is commuting and generally not deductible. Driving to CE, a second location, supply runs, or patient visits is business mileage.

If you are planning a buildout, new operatories, or a large technology upgrade, do not just record one lump sum in your books. Work with your tax advisor to break costs into categories such as equipment and qualifying leasehold improvements. Some items may qualify for faster depreciation, which can create a much larger deduction in the first year, even if you financed the project.

4. Use retirement and succession planning to build wealth

Retirement plans are one of the best tools for moving money out of taxable income today and into long term wealth for you and your team.

At a basic level, you have individual IRAs, traditional or Roth, with modest annual limits. For practice owners who want to save more, 401 k plans are often the sweet spot. Owner contributions can be high, there is flexibility in plan design, and the salary required to hit the annual maximum is often lower than what a SEP would require for the same contribution.

For highly profitable, stable practices, a cash balance plan or other defined benefit plan can take things further. In the right situation, these plans can allow contributions in the two hundred thousand to three hundred thousand dollar range per year. That can transform both your current tax bill and your retirement readiness, but it comes with higher costs and commitments and has to be designed carefully with an actuary and advisor.

Succession planning

How you structure your entity today also affects how you can sell later and how that sale will be taxed. Two questions matter a lot:

• Are you selling assets, equity, or a mix of both
  
• How is the price allocated between equipment, patient lists, contracts, and goodwill
  
  

Buyers and sellers often have opposite preferences on these points, so it is worth involving your CPA and attorney early, not just when you receive an offer.

The bottom line

There is no single perfect tax setup for every dentist. The best plan is one that fits how you actually want to practice and live, uses tools that match your profit level and goals, and turns things you are already doing into deliberate, well documented tax advantages.

If you are not sure where to start, look first at your entity structure, how you pay yourself, and whether you are missing obvious mixed use deductions. Those three areas alone can often unlock meaningful savings that you can reinvest directly into your practice and your future.

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