Tax Planning for Dentists: Services and Examples

Dentists tend to face a distinct set of tax considerations. Most earn high incomes, own practices that generate business deductions, and regularly purchase equipment — all of which can significantly affect their tax liability. Dental practices are also classified as specified service trades or businesses (SSTBs) under federal tax rules, which means certain deductions and benefits phase out as income rises. For these reasons, effective tax planning usually involves coordinating personal income, practice revenue, retirement contributions, and equipment purchases throughout the year rather than addressing them separately at filing time.

A financial advisor with dental industry experience can help identify which strategies best fit a dentist’s specific situation and goals.

Choosing the Right Tax Classification

One of the most important decisions in tax planning for dentists is selecting the right business structure. The way a dental practice is classified for tax purposes determines how income is taxed, what deductions are available and how payroll taxes apply.

Many dentists initially operate as sole proprietors, reporting income and expenses on Schedule C of their personal tax return. While this structure is simple, it also means the dentist pays self-employment tax on all practice profits. This can significantly increase the overall tax burden.

As practices grow, many dentists transition to an LLC taxed as an S-corporation. This structure allows the dentist to pay themselves a reasonable salary, subject to payroll taxes, while taking the remaining profits as distributions. These distributions are generally not subject to payroll taxes. This, in turn, reduces overall tax liability.

For example, a dentist earning $400,000 through an S-corporation may pay themselves a $200,000 salary and take the remaining income as distributions. Because distributions are not subject to payroll taxes, this structure can reduce FICA tax exposure compared with a sole proprietorship.

In certain circumstances, C-corporation structures may also be considered. Although less common in smaller practices, C corporations may offer advantages for practices planning long-term growth or certain exit strategies. However, double taxation and dividend rules must be evaluated carefully before choosing this structure.

Many dentists also consider holding their practice as real estate in a separate LLC. In this structure, the real estate entity leases office space to the dental practice. This arrangement can create additional deductions through depreciation and interest expenses while also providing asset protection and long-term investment diversification.

Retirement Plan Considerations

Retirement planning plays a central role in tax planning for dentists because retirement contributions can significantly reduce taxable income while building long-term savings.

Several types of retirement plans are commonly used by dental professionals.

• SEP IRA. A SEP IRA is one of the simplest retirement plans for self-employed individuals. It allows contributions of up to 25% of compensation, up to annual IRS limits. However, SEP IRAs require employers to contribute the same percentage for eligible employees, which can increase costs for practices with larger staff.
• 401(k) plan. Larger practices often adopt 401(k) plans with profit-sharing components. This allows dentists to make significant tax-deductible contributions while also providing benefits to employees.
• Solo 401(k). A Solo 401(k) may be attractive for dentists who operate without eligible employees. These plans allow both employee deferrals and employer contributions, enabling higher total contributions than a SEP IRA in many cases. However, once a practice hires eligible staff, the dentist would typically need to transition to a traditional 401(k) plan.
• Pension plan. High-income dentists may also consider cash balance pension plans. These plans allow very large annual contributions, particularly for older dentists nearing retirement. In some cases, dentists over age 50 may contribute up to $290,000 annually to a cash balance plan, and even more when combining it with a 401(k).

Depreciation and Equipment Deductions

Dental practices frequently invest in expensive equipment such as imaging systems, dental chairs, scanners and surgical instruments. These purchases create opportunities for significant tax deductions through depreciation rules.

Two of the most important tax-planning tools for dentists are Section 179 deductions and bonus depreciation:

• Section 179 deductions. Under recent legislation, the Section 179 deduction has been expanded to approximately $2.56 million, with a phase-out beginning at $4.09 million of qualifying purchases in 2026. ¹ This deduction allows practices to immediately expense the cost of certain equipment instead of depreciating it over multiple years.
• Bonus depreciation. Bonus depreciation allows businesses to deduct a large portion of equipment costs in the year of purchase. It has also been restored to 100% for property placed in service after January 2025 ² . Unlike Section 179, bonus depreciation applies automatically to entire asset classes and can create a tax loss.

For example, a dental practice purchasing $250,000 in imaging equipment may deduct most or all of the cost in the same year using Section 179 or bonus depreciation.

Strategic timing of equipment purchases is an important part of tax planning for dentists. If a practice expects unusually high income in a given year, accelerating equipment purchases before year-end may increase deductions and lower taxable income.

However, dentists should also consider state conformity rules. Many states do not fully adopt federal bonus depreciation rules. In these cases, Section 179 may be the safer deduction because it is more widely recognized by state tax systems.

Income and Deduction Optimization

Beyond retirement contributions and equipment deductions, dentists often use tax planning strategies designed to manage taxable income and maximize available deductions.

One important consideration is the Qualified Business Income (QBI) deduction. This deduction allows eligible business owners to deduct up to 20% of qualified business income. However, dental practices are classified as specified service trades or businesses, meaning the deduction phases out at higher income levels.

In 2026, the QBI deduction begins phasing out between approximately $201,750 and $276,750 for single filers, and between $403,500 and $553,500 for married couples filing jointly.

Dentists whose income falls within or near this range may use several strategies to remain eligible for the deduction. Increasing retirement contributions, funding health savings accounts and making charitable contributions can all reduce taxable income while potentially preserving the QBI benefit.

Another strategy sometimes used in tax planning for dentists is the pass-through entity tax (PTET) election. This election allows certain businesses to pay state income taxes at the entity level rather than on the owner’s personal return.

Federal tax law limits the state and local tax (SALT) deduction on personal returns. Therefore, paying state taxes at the entity level may allow dentists to effectively bypass this limitation in states that permit PTET elections.

Managing these deductions and income thresholds requires careful planning throughout the year. Dentists who monitor income and deductions proactively may have greater flexibility to optimize tax outcomes.

Tax Planning for Dentists Preparing to Sell Their Practice

For many dentists, the practice itself represents their largest financial asset. Tax planning for dentists should therefore include long-term strategies to reduce taxes when selling the practice.

Asset Sale vs Entity Sale

Dental practice sales are typically structured as either asset sales or entity sales.

In an asset sale, the buyer purchases specific assets of the practice, such as equipment, patient lists and goodwill. Different assets are taxed differently, meaning some proceeds may be taxed as ordinary income while others qualify for capital gains treatment.

Entity sales involve selling ownership shares of the business itself. These transactions are less common, but may provide more favorable capital gains treatment in certain situations.

Installment Sales

Some practice sales are structured as installment sales, in which the buyer pays the purchase price over multiple years ³ .

This structure allows the dentist to recognize income gradually rather than all at once, potentially reducing the tax burden by keeping income in lower tax brackets.

Goodwill Allocation

The allocation of sale proceeds among different asset categories can significantly affect taxes. Payments attributed to goodwill are generally taxed at capital gains rates, which are often lower than ordinary income rates.

Planning Retirement Contributions Before Sale

Dentists approaching a practice sale may also maximize retirement contributions in the final high-income years before the sale. Large contributions to retirement plans can reduce taxable income while accelerating retirement savings.

How a Financial Advisor Can Help With Tax Planning for Dentists

A financial advisor can help dentists in several ways:

• Tax planning. Tax planning for dentists often involves multiple financial considerations that extend beyond annual tax returns. Coordinating retirement plans, business income strategies and investment decisions requires a structured approach.
• Professional coordination. A financial advisor can help dentists coordinate planning between CPAs, attorneys and retirement plan specialists. This collaboration helps ensure tax strategies align with both practice operations and personal financial goals.
• Retirement planning. Advisors may also help evaluate retirement plan design, including whether a cash balance plan or profit-sharing plan is appropriate based on income levels and staffing structure.
• Investment planning. Investment planning is another important component. Coordinating investment decisions with tax strategies can help dentists reduce capital gains exposure and improve long-term after-tax returns.
• Life transitions. Finally, financial advisors can help dentists prepare for major transitions, such as practice sales. Evaluating liquidity needs, retirement income strategies and tax implications of a sale can help ensure the transaction supports long-term financial independence.

Bottom Line

Tax planning for dentists involves much more than filing an annual return. Between high income, costly equipment purchases, and the potential for a future practice sale, the tax decisions dentists face throughout the year can have a meaningful impact on long-term wealth. Coordinating retirement contributions, business structure, equipment deductions, and income timing can help reduce tax exposure while keeping broader financial goals on track.

Tax Planning Tips:

• A financial advisor can help dentists build a year-round tax strategy that accounts for retirement contributions, business structure, and equipment deductions alongside their long-term goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an estimate.

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