Tax Planning for Dentists, Built Around Your Practice

Tax Planning for Dentists: What Most General CPAs Miss

A generalist CPA usually files a correct return. What they usually do not do is year-round tax planning built around how a dental practice actually earns and spends money.

The planning conversations that matter for a practice owner are owner compensation, entity structure, equipment purchase timing, retirement plan design and associate classification. Most of them need to happen before December 31, not in April.

Should a Dentist Form an S Corporation?

For many owners of a profitable practice, an S corporation election is worth modeling, but it is a decision with trade-offs, not a default. The IRS says S corporations must pay reasonable compensation to a shareholder-employee before non-wage distributions may be made (IRS).

Getting that salary number right, documenting how you got there and running it through payroll is where most dentists go wrong. We once reviewed a practice a client was buying where the selling doctor had paid themselves no salary at all and taken everything as distributions, which is exactly the kind of exposure we look for. We cover the salary question in reasonable compensation for dentists.

Equipment Purchases and Depreciation Timing

Dental equipment is expensive, and when you buy it, how you finance it and how it is depreciated all change your tax picture. The IRS describes depreciation as an annual income tax deduction that lets you recover the cost of property over the time you use it (IRS Publication 946).

The right timing depends on where your income is headed. A practice planning to sell in a few years should think about equipment differently from one planning to expand, so we model it before the purchase order goes out.

What Retirement Plans Make Sense for Dentists?

The right plan depends on practice profitability, your age and the size of your team. A 401(k) with profit sharing is the starting point for many practices.

Some high-income owners add a cash balance plan, which is a defined benefit plan with ongoing funding obligations, not just a bigger 401(k). We explain when one makes sense in cash balance plans for dentists.

How Do Quarterly Estimated Taxes Work for Practice Owners?

The IRS says taxes must be paid as you earn income during the year, through withholding or estimated tax payments, and that includes S corporation shareholders (IRS).

Surprise tax bills happen when nobody is projecting your liability during the year. We model your estimates each quarter and adjust as your income changes, so you know what is coming well before April.

When Should a Dentist Switch CPAs?

The first signal is a CPA who only calls in February to ask for the tax organizer. The second is a CPA who cannot talk about your practice in dental language, like production per provider, hygiene reappointment or lab percentage.

The third is a CPA who has never raised owner compensation, retirement plan design or equipment timing in a planning conversation. Those are the basics of tax planning for dentists, and they should come up every year.

Related Virjee Dental Services

Most dentists working with Virjee on tax planning also use our dental accounting and bookkeeping services so the planning runs against accurate monthly numbers, our dental CFO services for practice profitability work, and our dental practice valuation calculator when an exit or partnership comes into view. Buying a practice? Start with our dental practice purchase consulting.