Most dental practice owners treat taxes as an unavoidable expense — they write the checks, hope for the best, and wonder if they’re missing opportunities. The reality? Many are.

The tax code rewards proactive dental practice owners who understand and apply the rules. Just as patients rely on you for their oral health, you can protect and strengthen your financial health by knowing which deductions you can claim, when to claim them, and how to structure your practice to your advantage.

The Hidden Cost of Tax Ignorance

Dr. Sarah Chen learned this the hard way. Her $1.8 million dental practice was profitable, but she was paying roughly $60,000 more in taxes each year than necessary. The problem? Her previous CPA treated the practice like any other small business, overlooking dental-specific opportunities such as accelerated equipment depreciation and healthcare-related tax credits.

After moving to a CPA who specialized in dental practices and used a year-round planning approach, Sarah saved $67,000 in her first year — enough to hire another hygienist and expand patient capacity.

Takeaway: Even a well-run, profitable practice can be leaking tens of thousands of dollars in unnecessary taxes without proactive, industry-specific planning.

Equipment Purchases: Your Biggest Tax Opportunity

For many dental practices, equipment is both the largest operational investment and the most powerful tax deduction.

Section 179 deduction allows you to expense qualifying purchases immediately rather than depreciating them over several years. For 2025, you can deduct up to $2,500,000 of qualifying dental equipment, with the deduction phasing out once total purchases exceed $4,000,000 (IRS Publication 946; OBBBA update).

Qualifying items often include:

• Digital X-ray systems

• Dental chairs and operatory equipment

• Practice management software

• Sterilization equipment

• Intraoral cameras

• CBCT scanners and other imaging systems

Example: Dr. Martinez purchased a $45,000 CBCT scanner in December 2025. He can deduct the full amount in 2025 rather than depreciating it over seven years, saving about $13,500 in taxes (assuming a 30% effective tax rate).

Permanent 100% Bonus Depreciation: Thanks to the OBBBA, 100% bonus depreciation is now permanent for qualifying property placed in service after January 19, 2025. This applies in addition to Section 179, meaning even if you exceed the $2.5M Section 179 limit, you can still fully deduct the cost of most new or used qualifying equipment.

The Equipment Purchase Strategy

• Plan ahead: Equipment must be placed in service by December 31 to qualify for that year’s deduction — ordering is not enough.

• Watch for delays: Supply chain issues can push deliveries into the next year, costing you the deduction.

• Keep records: Maintain invoices, delivery receipts, and installation confirmations.

• Leverage financing: You can deduct the full purchase price even if you’re making payments over time.

Practice-Specific Deductions You Can't Afford to Miss

Office Build-Outs and Improvements

Renovating your dental practice can unlock significant deductions if you use cost segregation to accelerate depreciation. Instead of writing off the entire renovation over 39 years, cost segregation breaks the project into components with shorter recovery periods under IRS guidelines:

• Five-year property: Carpeting, window treatments, built-in cabinetry

• Seven-year property: Office furniture, dental equipment

• 15-year property: Plumbing and electrical systems specific to dental operations

Example: Dr. Kim’s $200,000 office renovation included $60,000 in items that could be depreciated over 5–7 years instead of 39. This accelerated depreciation saved her practice about $8,000 in the first year alone.

Special Note on Cost Segregation: A proper cost segregation analysis is a specialized service and often requires an engineering study to substantiate the breakdown. While the study has a cost, the accelerated deductions can provide substantial early-year cash flow benefits that outweigh the expense.

Takeaway: If you’re planning a renovation or expansion, engaging a cost segregation professional can help you unlock deductions much sooner, freeing up cash for reinvestment in your practice.

Staff and Benefits

Your team is your largest expense category — and also one of your biggest tax-saving opportunities.

• Salaries and wages: Fully deductible, including bonuses.

• Health insurance premiums: 100% deductible for employees.

• Training and continuing education: Deductible costs that keep your team’s skills current.

• Retirement plan contributions: Deductible up to annual IRS limits and a powerful way to benefit both you and your staff.

• Health Savings Accounts (HSAs): If your practice offers a High-Deductible Health Plan (HDHP), contributions to an HSA are a tax-deductible business expense. For 2025, you and your employees can contribute up to $4,300 for individuals and $8,550 for families. Contributions grow tax-free, and withdrawals for qualified medical expenses are tax-free.

• Other Fringe Benefits: Consider smaller deductible perks like parking or transit passes (up to IRS limits) or a Health Reimbursement Arrangement (HRA) to help employees cover out-of-pocket medical costs.

Retirement Plan Options for Dental Practices

• SEP IRA: Easy to set up, high contribution limits (up to 25% of compensation, max $70,000 in 2025), ideal for owner-only or very small teams.

• SIMPLE IRA: Lower contribution limits but minimal administration, a good option for small to mid-sized teams. For 2025, employee deferrals can be up to $16,500, with a $3,500 catch-up contribution for those 50 and older. Certain SECURE 2.0 Act provisions may allow higher limits for some small employers — consult a tax advisor.

• 401(k): Higher employee deferrals (up to $23,500 in 2025), plus employer match or profit-sharing. The total combined limit (employee + employer) is $70,000 for those under 50, with an additional $7,500 catch-up contribution for those 50 and older. A Solo 401(k) works for practices without employees other than the owner and spouse.

Takeaway: Well-designed benefits not only help attract and keep great staff but also reduce taxable income — turning your largest expense into a strategic tax asset. Ready to design a benefits package that supports your team and your bottom line? A strategic tax professional can help you navigate these options to find the perfect fit for your practice.

Professional Development

Investing in your skills isn’t just good for patient care — it’s also a deductible business expense. Most costs related to maintaining your license or expanding your expertise can reduce your taxable income, including:

• Conference fees: ADA meetings, specialty training, and other professional events.

• Travel expenses: Hotel, airfare, and 50% of business-related meal costs.

• Subscriptions: Professional journals, dental publications, and industry research tools.

• Licensing and association dues: Annual license renewal fees, professional association memberships (e.g., ADA, state dental associations), and DEA registration fees.

• Continuing education: Both required courses for license renewal and elective training to expand your service offerings.

Important IRS Rule: Education expenses must maintain or improve skills needed in your current dental practice. They are not deductible if they qualify you for a new trade or business. While a dentist’s continuing education typically meets this standard, the distinction is important to avoid disallowed deductions.

Marketing That Actually Works (Tax-Wise)

Marketing isn’t just about growing your patient base — it’s also a powerful way to reduce your taxable income. Common deductible marketing expenses include:

• Website hosting and maintenance: Recurring costs for keeping your practice website online and up to date are generally fully deductible in the year they are paid.

• Website development: The cost of building a new website or making significant upgrades may be treated as a capital expense, depreciated over several years (often 36 or 60 months). Some costs, particularly those tied to advertising, may be deductible in the current year. The correct tax treatment depends on factors such as whether the site is built in-house or by a third party, and whether the work qualifies as software development — consult a tax professional for guidance.

• Online advertising: Google Ads, social media campaigns, and other digital marketing.

• Print and physical advertising: Practice signage, brochures, postcards, and other promotional materials.

• Patient referral programs: Rewards or incentives offered for patient referrals, provided they comply with state dental board and federal anti-kickback regulations.

Pro Tip: Track marketing expenses by campaign or channel in your accounting system. This not only makes tax time easier but also helps you measure which efforts bring the highest return on investment.

Estimated Tax Payments: Avoiding Expensive Surprises

Most practice owners underpay their quarterly estimates and end up with penalties. The IRS expects tax payments throughout the year — not just in April.

2025 Quarterly Due Dates (for calendar-year taxpayers):

• Q1 (Jan–Mar): April 15, 2025

• Q2 (Apr–May): June 16, 2025

• Q3 (Jun–Aug): September 15, 2025

• Q4 (Sep–Dec): January 15, 2026

Note: If a due date falls on a weekend or federal holiday, it moves to the next business day.

Safe Harbor Rule: To avoid penalties, pay at least the either:

• 90% of your current year's actual tax liability, or

• 100% of your prior year’s tax liability (110% if prior-year AGI exceeded $150,000).

Cash Flow Tip: Set aside 25–30% of practice profits each month in a separate tax account. This ensures you have funds ready for quarterly payments and avoids painful year-end surprises.

Don’t Forget State Taxes: If your state requires quarterly estimated payments, you’ll need to budget for those as well — especially if you practice in a high-tax state or operate in multiple states. Under the OBBBA, the federal SALT deduction cap is temporarily increased to $40,000 (through 2029, phased down for higher incomes), which may make state tax planning — including Pass-Through Entity (PTE) elections — even more valuable.

Entity Structure: S-Corp vs. LLC

Your business structure has a direct impact on how much tax you pay on practice income. For a deeper dive into entity options — including multi-owner structures, professional corporations, and hybrid setups — see our guide: Dental Corporate Entity Structuring Made Simple.

S-Corporation election can save significant self-employment taxes for profitable practices:

• The strategy: Pay yourself a reasonable salary subject to payroll taxes, then take the remaining profits as distributions, which are not subject to self-employment tax.

• The savings: On $300,000 in practice profit, paying a reasonable salary of $120,000 could save around $27,540 in self-employment taxes. This is a simplified example — actual savings vary based on your income mix and other tax factors. Self-employment tax is generally 15.3% (12.4% Social Security up to $168,600 in 2024, adjusted annually, plus 2.9% Medicare, with only the Medicare portion applying above the Social Security wage base).

When it makes sense: Generally profitable practices with consistent income above $150,000 annually and the practice can support a reasonable salary without consuming most profits.

When to reconsider: Startup practices, highly variable income, or if reasonable salary requirements would leave little profit to distribute.

QBI Deduction for Dental Practices: Dentists operate as a Specified Service Trade or Business (SSTB) under IRC Section 199A. This means the 20% Qualified Business Income (QBI) deduction phases out entirely above certain taxable income thresholds (about $383,900–$483,900 MFJ for 2024; inflation-adjusted for 2025). If your income is above the phaseout, QBI benefits may be limited or eliminated, even with an S-Corp.

Transition Tip: Sole proprietors considering an S-Corp election should also understand Schedule C filing requirements, as this can help evaluate whether the change will produce net tax savings after factoring in payroll costs and compliance requirements.

Record Keeping That Saves Money

Dental practices are often an IRS focus area due to factors like cash transactions and high-income potential. Proper documentation is your best defense against an audit and ensures you can substantiate every deduction you claim.

Essential Records to Maintain

• Equipment purchases: Invoices, delivery receipts, and financing documents.

• Business meals: Receipt, business purpose, and names of attendees.

• Travel expenses: Purpose of the trip, dates, and accommodation receipts.

• Vehicle use: Contemporaneous mileage logs for business travel (commuting does not qualify).

• Home office: Documentation of the portion of your home used for practice administration. To qualify, the space must meet the IRS exclusive and regular use test. You can use the simplified method ($5 per square foot up to 300 sq ft) or the actual expense method (tracking direct and indirect costs).

Business vs. Personal Funds: Mixing personal and business expenses — even small purchases — can be viewed as commingling funds. This can lead to disallowed deductions and increased audit risk. Use separate bank accounts and credit cards, and reimburse yourself for personal purchases rather than paying them directly from the business account.

Digital Tip: Use cloud-based accounting software that integrates with your practice management system. This automates much of your documentation and ensures receipts, invoices, and mileage records are stored securely and are easy to retrieve.

Healthcare-Specific Credits

Several valuable tax credits are designed with healthcare providers in mind — and they can add up to meaningful savings for dental practices.

• Small Business Health Care Tax Credit: Available to practices with fewer than 25 full-time equivalent employees and average annual wages below $65,000 (2025, inflation-adjusted). Worth up to 50% of the premiums you pay for employee health insurance.

• Disabled Access Credit: Covers 50% of eligible expenses for making your practice accessible to individuals with disabilities, up to $5,000 annually.

Some OBBBA updates have expanded or extended related credits, and certain practices may also qualify for enhanced childcare, paid leave, or energy-efficiency credits.

For a deeper dive into both healthcare-specific and general small business credits — including those for new practices — see our guide: Startup Tax Credits: The Ultimate Savings Guide.

Year-End Tax Planning Checklist

Before December 31st:

 ☐ Review equipment needs and place orders early enough to ensure items are placed in service (delivered and operational) by year-end to qualify for 2025 deductions — remember the $2.5M Section 179 limit and permanent 100% bonus depreciation.
☐ Prepay January expenses such as rent, insurance, or supplies to pull the deduction into the current year (cash-basis taxpayers only).
☐ Maximize retirement plan contributions to SEP IRA, SIMPLE IRA, or 401(k) accounts before contribution deadlines.
☐ Document vehicle mileage for all practice-related travel (commuting does not qualify).
☐ Schedule and pay for practice improvements that qualify for accelerated depreciation or credits, such as ADA-compliant renovations.

January Planning:

 ☐ Calculate Q4 estimated payment (due January 15, 2026). Remember to include any required state estimated payments.
☐ Organize tax documentation — invoices, receipts, payroll records, and year-end reports from your accounting software.
☐ Review prior year results with your CPA to identify missed deductions or credits.
☐ Plan major equipment purchases for the year ahead to align with cash flow and tax strategy.

Common Mistakes That Cost Money

• Mixing personal and business expenses: Even small personal purchases on a business card can be viewed as commingling funds, which may lead the IRS to deny legitimate deductions and increase audit risk. Maintain separate bank accounts and credit cards, and reimburse yourself for personal expenses rather than paying them directly from business accounts.

• Missing the equipment deadline: For deductions like Section 179 and bonus depreciation, equipment must be delivered and operational by December 31 — not just ordered. Supply chain delays can cost you the deduction for the year.

• Inadequate mileage tracking: Business-related mileage is deductible, but you need contemporaneous logs with dates, destinations, and business purposes. Commuting from home to your main office is not deductible.

• Ignoring state taxes: Multi-state practitioners face complex compliance requirements. In high-tax states, consider a Pass-Through Entity (PTE) tax election, which may allow the entity to deduct state taxes at the business level and bypass the federal $40,000 SALT cap (through 2029 under current law). Rules vary by state.

When to Get Professional Help

Tax planning isn’t a luxury for dental practices — it’s a necessity. Consider upgrading your tax strategy if:

• Your practice generates more than $500,000 annually.

• You’re planning major equipment purchases or an expansion.

• You operate in multiple states.

• Your current tax professional doesn’t specialize in healthcare-related opportunities.

The cost of professional tax planning often pays for itself in the first year through identified savings and avoided penalties. AI-powered tools can help CPAs analyze financial data more efficiently and spot potential opportunities, but the best results come when technology supports an experienced CPA — ideally one who understands the dental industry’s unique tax landscape.

Take Action Now

Don’t wait until tax season to think about taxes. Strategic planning is a year-round process, and the most valuable opportunities often require early action.

Where to Start:

• Calculate your effective tax rate on practice profits.

• List major equipment needs for the next 12 months.

• Review your quarterly payment schedule to avoid underpayment penalties.

• Evaluate your business structure to ensure it still fits your practice size and goals.

For comprehensive guidance on dental tax strategies, including advanced techniques beyond the fundamentals covered here, explore Town's professional services or browse our comprehensive tax resources. We recommend working with a CPA who specializes in dental practices to ensure you capture every available benefit.

Disclaimer: This content is for educational purposes only and does not constitute personalized tax advice. Tax laws are complex and subject to change. Individual circumstances can vary significantly, and strategies that work for one taxpayer may not be suitable for another. Always consult a qualified tax professional — ideally one with dental industry expertise — before implementing any tax planning strategies.