Running a dental practice keeps you busy enough. You don’t have time to keep up with all the latest tax changes in the 2025 Tax Relief Act. Here’s a quick guide to everything you, as a dental practice owner, need to know about the Qualified Business Income Deduction for dentists.
The Qualified Business Income (QBI) deduction, which was scheduled to expire in 2025 was made permanent. That’s good news for dental practice owners!
The QBI deduction can reduce your personal tax bill by up to 20% of qualifying practice income, but its real value comes from using it as a planning tool to impact practice decisions, like owner compensation, equipment timing, retirement plan design and even the after-tax value, when you sell your practice.
What Is The Qualified Business Income (QBI) Deduction?
The QBI deduction lets owners of sole proprietorships, partnerships, and S corporations deduct up to 20% of qualifying business income on their personal return. That means if your practice earns, say, $180,000 in net income, you could deduct $36,000 of that before calculating your personal tax bill.
For a small or midsize dental practice, that often translates into real cash flow. Less tax paid today and more money to invest in staff, equipment, or retirement.
Dental Practices And Phase Out Thresholds
Most dental practices fall into the Specified Service Trade or Business (SSTB) category because they are health service providers. That matters because SSTBs face a phase out of the QBI benefit as taxable income rises.
If your taxable income is below the lower threshold, you get the deduction like anyone else.
If your income exceeds $197,300 (single) or $394,600 (married), you get a partial deduction, calculated by the IRS.
If you exceed the top of the band $247,300 (single) or $494,600 (married), the QBI deduction for the clinical practice income disappears. W-2 wage and qualified property limits apply.
There’s a catch, though; don’t assume every dollar you earn from practice operations is SSTB income. If your practice has material non-clinical income (e.g. selling supplies, running a separate lab, or qualifying rental real estate), that income may be treated separately for QBI purposes, which is why careful accounting and segmentation matter.
How QBI Is Calculated for Dental Practices
You should calculate QBI separately for each trade or business you run. If your taxable income is below the threshold, you generally take 20% of QBI or taxable income, whichever is smaller.
Here’s an example to illustrate what we mean:
Qualifying Business Income (QBI) = $120,000
Taxable income before QBI deduction = $150,000
20% of QBI = 0.20 × 120,000 = 24,000
20% of taxable income = 0.20 × 150,000 = 30,000
Allowed QBI deduction = the smaller of the two = $24,000.
If your taxable income is above the SSTB thresholds, the simple 20% rule is then subject to wage and property caps.
Wage & Property Limits
Things get a little more calculated for high-income earners. Once you’re in the SSTB income band, wage and property rules come into play.
In simple terms, the tax code gives you two alternative caps, and you must use the larger one.
- Option A is simply half of the W-2 wages your practice paid.
- Option B is a mix of wages and capital: it is 25% of your W-2 wages plus 2.5% of the original cost of the qualifying property you own. Qualifying property means things like dental chairs, imaging equipment, cabinetry, and other clinic fixtures at their purchase cost, not their current depreciated value.
Here’s a quick example:
Suppose you file single and your taxable income is $300,000, which is above the single upper limit of $247,300. Your practice had a QBI of $200,000, you paid $60,000 in W-2 wages, and the qualifying equipment you bought this year had an unadjusted basis immediately after acquisition (UBIA) of $400,000.
Compute the two options:
Option A: 50% of W-2 wages
0.50 × $60,000 = $30,000.
Option B: 25% of W-2 wages + 2.5% of UBIA
0.25 × $60,000 + 0.025 × $400,000 = $25,000.
Take the greater of the two: $30,000. So even though 20% of your QBI would be 0.20 × $200,000 = $40,000, your allowed deduction will be capped at $30,000 because the wages and property test limits you.
In short, paying more W-2 wages or buying more qualifying property can raise that cap and let you claim a larger QBI deduction.
Strategies to Protect Your QBI Benefit
Here are some other tax breaks in 2025 that could help lower your overall taxable income and keep you within the lower income thresholds of the SSTB phase band.
Timing Equipment Purchases
Buying equipment and making improvements can lower your taxable income in the year you buy them, if you use Section 179 or bonus depreciation.
In 2025, those rules are generous again, allowing you to write off equipment, software, and building upgrades in the same year you buy them. Hence, timing a big purchase can drop your taxable income and help you avoid the SSTB phase band.
Compensation & Entity Strategy
For S-corporation owners, how much you pay yourself as W-2 wages vs distributions is a major QBI planning decision. Paying reasonable W-2 wages helps support a higher wage-based cap (Option A) and can increase Option B as well.
Talk to your CPA before making structural payroll changes. The right salary balances employment taxes, QBI caps, and reasonableness standards.
Rental real estate
If you own a rental property and run it like a business, that rental income can count toward your QBI. The IRS created a safe harbor rule that makes it easier to prove a rental is a business, it mainly involves keeping certain records and showing you spend time managing the property.
Retirement Savings
Putting money into a retirement plan lowers your taxable income right away. For smaller practices, a Solo 401(k) or SEP-IRA lets you shelter a decent chunk of income. For higher earners, a defined benefit plan can allow much larger contributions.
Pass-Through Entities Tax (PTET) at the State Level
Some states let pass-through entities pay state tax at the entity level using a pass-through entities tax (PTET) election and then give owners a credit.
That can change the federal and state tax interaction and sometimes make sense if you live in a high tax state.
QBI Considerations When Buying A Practice
When you’re buying a practice, QBI affects more than just next year’s tax bill. It changes the practice’s after-tax cash flow and therefore its value to you. How the sale is structured (asset allocation vs. equity purchase), the taxable income profile in the sale year (ordinary income vs. capital gain), and owner compensation around closing all influence whether future practice income will qualify for the QBI deduction.
For buyers, that means QBI should be part of acquisition modeling and purchase-agreement negotiations.
Need Help Planning Your QBI Deductions?
QBI rules are technical and interact with many moving parts, your outcome really depends on your unique practice setup. Start planning early, you don’t want to treat this as a line item during tax season.
Book a QBI strategy with Virjee Consulting. We work extensively with dental practices and can model your QBI deductions under different scenarios and translate them into decisions that matter for your bottom line.
