All the dentists we have met share a common trait. They are busy professionals focused on patient care and practice growth, but lack the time or expertise to fully manage their tax planning. Due to this, their tax strategy is often overlooked until it’s too late, resulting in money left on the table. Today, we are here to discuss why practice owners and associates need a proactive tax strategy for dentists to effectively manage their taxes.
Why a Tax Strategy for Dentists is Vital
Dentists are in a unique position. Often, owning businesses, equipment, and property creates extensive layers to their tax profile, which can quickly become overwhelming to manage. These high-income earners will end up facing higher tax burdens if they continue without planning a tax strategy for dentists specifically.
Key Benefits of Tax Planning
#1: Lower Effective Tax Rates
The term effective tax rate refers to the percentage of income that an individual or business pays in taxes. A proper tax strategy for dentists helps reduce the amount of your income that is taxed by utilizing legitimate methods of shifting income and maximizing deductions. By tax planning, you can significantly lower your tax liability, keeping more of what you earn.
#2: Increased Deductions
Dentists have access to numerous legitimate deductions that can reduce their taxable income. For example, Section 179 can provide deductions on dental equipment and tools. That’s just the beginning; there are opportunities for deductions for continuing education, retirement plan contributions, office rent, utilities, software, staff wages, and many more expenses. Proper tax planning with a dental tax strategist means you will learn of and take advantage of every deduction available to lower the amount of income that gets taxed, resulting in a smaller tax bill.
#3: Financial Timing
Tax planning also involves strategically scheduling when you earn income or make expenditures. While there are obviously some income and expenses you can’t modify, there are likely more opportunities than you expect. For example, if you’re having a high-earning year, you might make large deductible purchases or retirement contributions before December 31. Since IRS taxes are based on the calendar year, shifting income or expenses from one year to another can optimize when and how you’re taxed.
#4: Opportunity Planning
Planning a tax strategy for dentists isn’t just about this year’s tax season; it can help you see a full financial picture of your practice that you can utilize to project goals and estimates in the coming years. When you know what to expect, you can make smarter decisions about hiring staff, upgrading equipment, expanding your office, or contributing more to retirement accounts.
Common Tax Mistakes Dentists Make
#1: Waiting Too Long:
Why It’s a Problem: One of the most common mistakes we see dentists make is waiting until tax season to get their affairs in order. Organizing financials last minute can lead to missed deductions, rushed decisions, and a high chance of errors. Plus, you can lose out on opportunities for strategic tax planning that could have lowered your tax bill if handled earlier in the year.
What to Do Instead: Stay organized year-round with up-to-date bookkeeping and regular check-ins with your dental tax strategist guarantees a streamlined and optimized tax season.
#2: Forgetting Separation:
A critical component of tax strategies for dentists that is often overlooked or implemented too late is separating personal and business finances, such as using the same bank accounts or credit cards for both.
Why It’s a Problem: Mixing personal and professional finances can make bookkeeping jumbled, making it harder to track deductible business costs and increasing your risk during an IRS audit.
What to Do Instead: Setting up and using separate bank accounts and credit cards for your practice eliminates this issue, making tax filing smoother and more efficient.
#3: Overlooking Credits
Why It’s a Problem: There are several tax breaks geared explicitly toward healthcare providers, including dentists, but many go unnoticed. If you or your accountant isn’t actively looking for these opportunities, you may be paying more than necessary on your taxes each year.
What to Do Instead: Working with a dental tax strategist ensures you take advantage of the niche deductions for your industry to the fullest extent.
Tax Strategies for Dentists That Work
When developing a tax strategy for dentists, this is where we recommend any business should start.
First, choose the correct business entity, such as Sole proprietorship, LLC, S Corporation, and C Corporation, as your legal structure affects how you’re taxed and how much you can save. Working with a dental tax strategist will ensure you are set up with the best structure based on your income, growth plans, and risk profile.
Second, plan early for retirement and contribution strategies. Dentists can significantly reduce their taxable income by contributing to retirement accounts, such as SEP IRAs, 401(k)s, or other defined contribution plans. These contributions are often tax-deductible, meaning you save for the future while lowering your tax bill.
Third, if possible, you may be able to hire family members legitimately. In case you were unaware, you can pay family members a reasonable wage for real work—like filing, cleaning, or social media help. Not only are their wages tax-deductible for the business, but you can provide a legitimate way to bring added income into the family.
Lastly, you always want to leverage depreciation and Section 179 deductions. We mentioned them briefly earlier, but we want to reiterate that since dental practices often invest in expensive equipment, you should always take available measures to write off those costs and lower your taxable income.
How PorterKinney Helps – Your Local Dental Tax Strategist
At PorterKinney, we specialize in helping dental professionals—whether you’re a solo practitioner, group practice owner, or high-earning associate—enhance your financial outcomes and minimize your tax burden. As your local, proactive tax advisors, we’re here to provide the support and guidance you need to grow your business and minimize your taxes.
Stop leaving money on the table. Schedule a tax strategy session with PorterKinney, PC, and see how much smarter your next year can be.
