Tax Planning Playbook for Dentists and Dental Practice Owners

The 11 Most Impactful Tax Strategies for Dentists

1. S-Corp Election — Eliminate Self-Employment Tax on Practice Profits

The single most impactful strategy for a dentist in private practice. A dentist earning $300,000 as a sole proprietor or single-member LLC pays self-employment tax on approximately $277,050 (92.35% × $300,000) — that is $39,117 in SE tax. With an S-Corp election and a reasonable salary of $120,000, FICA is $18,360 (employer + employee combined), saving $20,757 per year. At $400,000 net income, the savings exceed $30,000 annually.

Implementation: File Form 2553 with the IRS to elect S-Corp status. For an existing LLC, the election is made on Form 8832 (entity classification) followed by Form 2553. Late election relief is available under Rev. Proc. 2013-30 if filed within 3 years and 75 days of the intended effective date. The dentist must set a reasonable salary — typically 30–40% of net practice income, benchmarked against ADA compensation surveys.

What to tell your client: “Right now you are paying 15.3% self-employment tax on every dollar of practice profit. With an S-Corp, you pay that tax only on your salary — not on the distributions. On a $300,000 practice, that is a $20,000 check you stop writing to the IRS every year.”

2. Augusta Rule (§280A(g)) — Rent Your Home to Your Practice Tax-Free

Under IRC §280A(g), a homeowner can rent their personal residence to their business for up to 14 days per year and exclude the rental income entirely from gross income. The dental practice deducts the rent as a business expense (IRC §162). For a dentist who owns their practice, this creates a clean income shift: the practice pays rent, takes the deduction, and the dentist receives tax-free income.

Numbers: At $2,000/day × 14 days = $28,000 tax-free income per year. The practice deducts $28,000. At a 37% marginal rate, the net tax benefit is $28,000 × 37% = $10,360 in deductions plus $28,000 in tax-free income. Total value: approximately $20,000–$28,000 depending on state tax rates.

Documentation required: A written rental agreement between the dentist personally and the dental practice entity. Meeting minutes or written purpose (e.g., annual planning retreat, team training, continuing education). Comparable rental rates supported by a market rate analysis (Airbnb comps, local venue rates). The 14-day limit is absolute — one day over and the exclusion is lost for the entire year.

3. Section 179 and Bonus Depreciation — Deduct Dental Equipment Immediately

Dental practices are equipment-intensive: CBCT scanners, CAD/CAM milling units, digital X-ray systems, dental chairs, sterilization equipment, and intraoral cameras can cost $50,000–$500,000 or more. Under IRC §179, a dental practice can deduct up to $1,220,000 in qualifying equipment in the year of purchase (2026 limit). Under IRC §168(k) bonus depreciation is 100% permanent (OBBBA restored it) from 60% in 2024).

Example: A dentist purchases a CBCT scanner for $150,000 and a CAD/CAM system for $80,000 in 2026 — total $230,000. Under §179, the full $230,000 is deductible in 2026, generating a $230,000 deduction. At a combined federal/state marginal rate of 45%, this saves $103,500 in taxes in year one versus straight-line depreciation over 7 years.

Note on 2026 law: The One Big Beautiful Budget Act (OBBBA) proposes restoring 100% bonus depreciation retroactively. If enacted, the bonus depreciation percentage increases from 40% to 100% for property placed in service after January 19, 2025. Advise clients to track purchase dates carefully and consider accelerating equipment purchases if OBBBA passes.

4. Cost Segregation — Accelerate Depreciation on the Dental Office Building

A dentist who owns their office building (or has made significant leasehold improvements) can commission a cost segregation study to reclassify building components from 39-year real property to 5-year, 7-year, or 15-year personal property or land improvements. These shorter-life assets qualify for bonus depreciation.

Example: A dentist purchases a $1.2M dental office building. A cost segregation study identifies $300,000 in 5-year property (dental-specific plumbing, electrical for equipment, cabinetry) and $120,000 in 15-year land improvements (parking lot, landscaping). At 100% bonus depreciation (restored by OBBBA for property placed in service after Jan 19, 2025) in 2026: $300,000 × 40% = $120,000 + $120,000 × 40% = $48,000 = $168,000 in additional first-year deductions versus straight-line depreciation. Tax savings at 37%: $62,160 in year one.

When it makes sense: Cost segregation studies typically cost $5,000–$15,000 for a dental office. The ROI is almost always positive for buildings over $500,000. The study must be performed by a qualified engineer or cost segregation specialist.

5. Defined Benefit Plan — Contribute $100,000–$300,000+ Per Year

A defined benefit (DB) plan allows high-income dentists to make far larger tax-deductible contributions than a 401(k) or SEP-IRA. The maximum annual contribution depends on age, income, and the actuarially determined benefit. A dentist age 50 can typically contribute $150,000–$300,000+ per year to a DB plan, generating an above-the-line deduction of the same amount.

Combined retirement strategy: S-Corp dentist + Solo 401(k) ($70,000 in 2026) + Defined Benefit Plan ($200,000) = $270,000 in annual retirement contributions. At a 37% marginal rate, this generates $99,900 in annual tax savings — money that would otherwise go to the IRS is instead building the dentist's retirement wealth.

Caveat: DB plans require annual actuarial calculations and minimum funding requirements. They are best suited for dentists with stable, high income who are within 10–15 years of retirement. If the practice has employees, the DB plan must cover them as well (though contribution formulas can be structured to minimize employee costs).

6. Qualified Business Income (QBI) Deduction — 20% Deduction on Practice Income

Under IRC §199A, owners of pass-through entities (S-Corps, partnerships, sole proprietors) can deduct up to 23% of qualified business income (OBBBA §70301). For a dentist with $300,000 in QBI, this is a $60,000 deduction — worth $22,200 in tax savings at a 37% rate. However, dentistry is a Specified Service Trade or Business (SSTB), which means the deduction phases out for high-income dentists.

Phase-out thresholds (2026): The QBI deduction begins to phase out at $197,300 (single) / $394,600 (MFJ) and is fully phased out at $247,300 (single) / $494,600 (MFJ). Dentists above these thresholds receive no QBI deduction on dental income. However, rental income from a separately owned dental office building is not SSTB income and qualifies for the full QBI deduction.

Planning opportunity: A dentist who owns the office building in a separate LLC and leases it to the practice can generate QBI deduction on the rental income even if the dental practice income is above the phase-out threshold. This is a commonly overlooked planning opportunity.

7. Home Office Deduction — Deduct Administrative Work Space

A dentist who performs administrative work (billing, scheduling, insurance claims, continuing education) from a dedicated home office space may qualify for the home office deduction under IRC §280A(c). The space must be used regularly and exclusively for business. For an S-Corp dentist, the deduction is taken as an accountable plan reimbursement from the corporation — not on Schedule C.

Method: The regular method calculates the deduction as (home office square footage / total home square footage) × total home expenses (mortgage interest, rent, utilities, insurance, repairs, depreciation). The simplified method allows $5 per square foot up to 300 square feet ($1,500 maximum). The regular method almost always produces a larger deduction for homeowners.

8. Vehicle Deduction — Deduct the Practice Vehicle

A dentist who uses a vehicle for business purposes (driving between practice locations, continuing education, supply runs, bank deposits) can deduct the business-use percentage of vehicle expenses. For a vehicle used 80% for business, 80% of actual expenses (depreciation, fuel, insurance, maintenance) or 80% of the IRS standard mileage rate ($0.70/mile in 2026) are deductible.

Heavy SUV strategy: A vehicle with a gross vehicle weight rating (GVWR) over 6,000 lbs (e.g., Ford Expedition, Chevy Suburban, Tesla Model X) qualifies for §179 expensing up to $30,500 in 2026 (the SUV cap) plus 100% bonus depreciation (restored by OBBBA for property placed in service after Jan 19, 2025) on the remaining basis. A $90,000 SUV used 100% for business: $30,500 (§179) + ($90,000 − $30,500) × 40% = $30,500 + $23,800 = $54,300 in year-one deductions.

9. Hiring Family Members — Shift Income to Lower Tax Brackets

A dentist who employs a spouse or children in the practice can shift income from the dentist's 37% bracket to the family member's lower bracket. A spouse employed in the practice earns a reasonable salary for services rendered (bookkeeping, front desk, marketing, sterilization). The salary is deductible by the practice and taxable to the spouse at their lower rate.

Children strategy: Children under 18 employed by a sole proprietor or partnership (where both partners are parents) are exempt from FICA taxes. A child earning $14,600 (2026 standard deduction) pays zero federal income tax. The practice deducts the salary. Net benefit: $14,600 × dentist's marginal rate (e.g., 37%) = $5,402 in tax savings per child per year. The child must perform real services (answering phones, filing, social media, cleaning) and be paid a reasonable wage.

10. Accountable Plan — Reimburse Business Expenses Tax-Free

An S-Corp dental practice can establish an accountable plan to reimburse the dentist-employee for out-of-pocket business expenses. Reimbursements under an accountable plan are deductible by the corporation and not includable in the dentist's gross income. Qualifying expenses include: continuing dental education (CE courses, conferences), professional dues (ADA, state dental association), dental journals and subscriptions, home office expenses, business-use vehicle expenses, and tools and equipment under the expensing threshold.

What makes a plan “accountable”: The plan must have a business connection (expenses must be ordinary and necessary business expenses), the employee must substantiate expenses with receipts and documentation within a reasonable time (60 days), and any excess reimbursements must be returned within 120 days. An accountable plan should be documented in a written plan document adopted by the corporation.

11. Dental Practice Acquisition — Allocate Purchase Price to Maximize Deductions

When a dentist acquires an existing dental practice, the purchase price must be allocated among the assets acquired (equipment, furniture, patient records, goodwill, covenant not to compete). The allocation determines the tax treatment: equipment is depreciable over 5–7 years (or immediately under §179/bonus depreciation); a covenant not to compete is amortizable over 15 years under §197; patient records and goodwill are also §197 intangibles amortized over 15 years.

Planning opportunity: Allocating more of the purchase price to equipment (depreciable immediately) and less to goodwill (amortized over 15 years) accelerates deductions. However, the allocation must be consistent between buyer and seller (both file Form 8594). The seller prefers goodwill (capital gains treatment) while the buyer prefers equipment (ordinary deductions). This is a negotiating point in practice acquisitions.

First Meeting Checklist: Questions to Ask Every Dentist Client

Use this checklist in the first client meeting to identify which strategies apply and estimate the savings opportunity:

• What is your practice entity structure? (Sole proprietor, LLC, S-Corp, PC?)
• Do you own or lease your office building?
• What equipment purchases are planned for the next 12–24 months?
• Do you have a retirement plan? (401(k), SEP-IRA, SIMPLE IRA, defined benefit?)
• Does your spouse work in the practice? Do you have children who could work in the practice?
• Do you use your home for any practice-related work (billing, CE, meetings)?
• Do you have a vehicle used for practice purposes?
• Are you planning to acquire another practice in the next 2–3 years?
• What is your approximate net practice income? (To determine S-Corp savings and QBI phase-out)
• Do you have significant capital gains from investments or real estate?

Documentation Checklist for Dentist Clients

Ensure these documents are in place before filing:

• S-Corp election: Form 2553 acknowledgment letter from IRS
• Reasonable compensation analysis: ADA compensation survey, written documentation
• Augusta Rule: Written rental agreement, meeting agenda/minutes, market rate comparable
• Equipment deductions: Purchase invoices, placed-in-service dates, business-use percentage
• Cost segregation: Engineer's report with asset classifications and useful lives
• Retirement plan: Plan documents, contribution calculations, actuarial report (DB plan)
• Accountable plan: Written plan document, expense reports with receipts
• Family employment: Employment agreement, time records, payroll documentation
• Vehicle: Mileage log or actual expense records, business-use percentage