Dental Practice Tax Planning: Equipment, Payroll, and Entity Questions

Key takeaway: Dental-practice tax planning connects equipment, owner pay, staff benefits, legal ownership and the owner’s full tax picture. Evaluate a purchase or election before committing, using the relevant tax year’s rules and a cash forecast that includes debt, payroll and employee-plan costs.

This article is part of our guide to industry accounting specialties.

A new imaging unit, an associate hire or an ownership change can affect several parts of the plan at once. A large equipment deduction may reduce taxable income and affect the QBI calculation; owner wages affect payroll taxes and retirement contributions; a new investor can affect both S corporation eligibility and Florida dental-practice ownership rules.

Start with the practice and owner records

Identify the state-law entity, federal tax classification, owners, elections and related businesses. Use reconciled financial statements, payroll records, prior returns, owner income information and estimated payments. A practice’s profit-and-loss statement alone does not show its cash availability or the owner’s complete tax liability.

List upcoming equipment, hiring, benefit, lease and ownership decisions with their deadlines. Model the current year and subsequent years. Separate taxes owed by the entity from those owed by owners, and keep loan principal, owner distributions and tax reserves distinct from deductible operating expenses.

Classify equipment and document when it is placed in service

Itemize clinical equipment, computers, furniture, software, building work and installation. Determine each asset’s cost, recovery class, depreciation method and business use from its actual description and the applicable rules. Do not assign every dental purchase the same five- or seven-year recovery period based on a vendor list.

IRS Publication 946 explains depreciation and the asset-class guidance. Equipment is placed in service when it is ready and available for its specific intended use. An order, deposit, financing signature or unopened delivery does not by itself establish that date. Retain installation, testing and availability records as applicable.

For a purchase or trade-in, retain the itemized agreement, invoices, financing terms, ownership and business-use support, delivery and in-service dates, and records for any asset disposed of. A disposal may have its own gain, loss or recapture consequences.

This connects to Dental Equipment Financing — see “Dental Equipment Financing: Accounting and Tax Records to Maintain” for the details.

Compare bonus depreciation, section 179 and regular depreciation

Publication 946 explains that 100% bonus depreciation applies to certain qualifying property acquired and placed in service after January 19, 2025, unless an applicable election changes the treatment. Eligible categories include qualifying MACRS property with a recovery period of 20 years or less and certain other property. Both new and some used equipment can qualify; acquisition rules, related-party restrictions, business use and other exclusions still matter.

Review a binding purchase contract and the actual acquisition history rather than assuming a later delivery or payment establishes eligibility under the new acquisition-date rule. Property acquired earlier can follow different rules. Apply the law to each asset and tax year.

Hypothetical example: a practice acquires a $180,000 CBCT unit and $90,000 of operatory equipment after January 19, 2025 and places both in service in 2026. Assume each asset qualifies for 100% bonus depreciation, is used entirely for the qualifying business, has the stated depreciable basis and is not subject to an election out or other exclusion. The potential bonus deduction is $180,000 + $90,000 = $270,000. That is a deduction from taxable income, not $270,000 of tax savings.

For tax years beginning in 2026, Publication 946 gives a maximum section 179 deduction of $2,560,000, reduced when qualifying section 179 property placed in service exceeds $4,090,000. Section 179 also has a business-income limitation and other requirements; unused amounts may carry forward. Bonus depreciation and regular depreciation follow different rules. Apply the required ordering so the same basis is not deducted twice.

A financed purchase can qualify even though loan payments continue afterward. The cash forecast must still include the down payment, principal, interest, installation, maintenance and operating costs. Principal payments reduce debt rather than creating a second deduction for the equipment. A book depreciation schedule may differ from tax expensing, so maintain both where needed.

Consider basis, at-risk, passive-activity, excess-business-loss and other applicable limitations before assuming the owners can use every deduction immediately. Compare taking available accelerated deductions with permitted elections and future-year effects, including QBI and state tax treatment.

Set owner pay according to tax classification

The IRS explains LLC defaults and elections in Publication 3402. An LLC remains an LLC under state law even when it elects corporate tax treatment.

For S corporation shareholder-employees, use the IRS reasonable-compensation guidance. Document clinical and administrative duties, time, experience, comparable compensation and the source of practice receipts. There is no universal salary-to-distribution percentage. Reconcile wages, payroll liabilities, benefits, reimbursements and distributions to their supporting records.

Review associates, staff and health benefits

An associate agreement, part-time schedule or Form 1099 does not by itself establish independent-contractor status. Evaluate the actual working relationship, including behavioral control, financial control and the parties’ relationship, under the IRS worker-classification guidance. Coordinate state employment requirements separately.

Before the first payment, establish the employer, payroll registrations, deposits, wage reporting, benefit arrangements and reimbursement procedure. Reconcile employee withholdings and employer taxes separately from net wages so funding the payroll account does not create a second wage expense.

Health insurance for a greater-than-2% S corporation shareholder-employee has special treatment. Under the IRS compensation and medical-insurance guidance, premiums paid on the owner’s behalf generally are deductible by the corporation and included in Form W-2 box 1. They are excluded from Social Security, Medicare and FUTA wages when the applicable plan-or-system conditions are met. Do not automatically process them like ordinary employee pretax benefits.

The owner may qualify for a separate self-employed health-insurance deduction when the coverage is established by the S corporation and the remaining requirements are met. Eligibility for subsidized employer coverage can restrict that deduction. If the owner pays the premium personally, coordinate the corporation’s qualifying reimbursement and wage reporting; merely paying a personal policy does not establish the required corporate arrangement. Review ownership attribution and the benefit records before issuing Forms W-2.

Include employee coverage in retirement-plan planning

Compare a SEP, SIMPLE IRA, 401(k) or other suitable plan using the owner’s intended contribution, employee census, compensation, service, cash capacity and administrative requirements. A practice with eligible staff cannot assume an owner-only arrangement.

IRS Publication 560 explains that SEP contributions must follow the written allocation formula and applicable nondiscrimination rules; contributions generally must cover all participating employees who performed services for the relevant year, including those who subsequently left. Qualified plans have participation and coverage requirements, and 401(k) plans may involve testing or safe-harbor obligations.

Include eligible part-time, leased or related-business employees as the applicable rules require. Review adoption, employee notices, contribution and deposit deadlines with the plan administrator. Do not budget only the owner’s contribution while omitting required staff costs. For an S corporation, distributions do not replace wage compensation when determining the owner’s retirement-plan contribution base.

Apply healthcare QBI limits to the owner’s taxable income

Dental services are a specified service trade or business, or SSTB, for section 199A. The Form 8995-A instructions identify dentists within the health category. Eligible pass-through owners may benefit from QBI rules, but employee wages and C corporation income are not treated as the owner’s QBI from a pass-through practice.

For tax years beginning in 2026, IRS Revenue Procedure 2025-32, section 3.26, provides the following taxable-income thresholds and upper endpoints. Use taxable income before the QBI deduction, not practice gross receipts or the amount distributed to the owner.

At or below the threshold, the SSTB restriction does not itself exclude the dental income. Within the range, the eligible share phases out and other limitations may apply. Above the upper endpoint, that SSTB does not contribute an eligible QBI component. Other deduction requirements still apply; a lower income figure does not automatically establish the deduction.

Equipment deductions, retirement contributions, wages, other household income and capital gains can interact with the calculation. Model the complete return. Taking more or less cash from an account does not, by itself, change taxable business profit or the QBI result.

Coordinate Florida ownership law with the tax election

Tax classification does not establish who may legally own or control a dental practice. Florida section 466.0285 restricts nondentist proprietorship and interference with dentists’ professional judgment, with requirements addressing eligible professional entities, equipment arrangements and clinical control. Have counsel evaluate proposed owners, entity documents, management agreements, equipment leases and clinical-control arrangements before signing.

An S election separately requires eligible shareholders and other federal conditions under the IRS S corporation rules. A tax election does not cure a state licensing problem. A spouse, trust, investor, management company or new associate can raise different legal and federal tax questions.

Before a restructuring, identify the actual transaction, elections, effective dates, basis, debt, contract consents and continuing filings. A legal-form change and a federal tax-classification change are separate events; some changes can trigger taxable transactions.

Keep the plan current as decisions change

Maintain one calendar for purchases, payroll, benefits, tax elections, estimated payments and ownership decisions. Review reconciled results and projections periodically, and update them before material commitments. Preserve the calculations and documents supporting each decision rather than relying on a vendor’s savings estimate.

For a dental-practice planning discussion, bring current financials, owner and entity returns, payroll and benefits records, the employee census, equipment quotes and proposed ownership documents. Confirm the analysis, legal coordination, recurring work and fees in writing.

Frequently asked questions

Can a dental practice deduct the full cost of financed equipment immediately?

Qualifying property acquired and placed in service after January 19, 2025 may qualify for 100% bonus depreciation, subject to the applicable requirements and elections. Financing does not by itself prevent the deduction, but the debt remains payable and the deduction is not a refund of the equipment cost.

Does every dental practice owner need wages and distributions?

No. That model is relevant to corporate classifications, including reasonable compensation for an S corporation shareholder-employee. A sole proprietor, individual owner of a disregarded LLC or partner in a partnership generally is not an employee of their own business for these purposes.

Can a dentist claim the qualified business income deduction?

Potentially. Dentistry is a specified service trade or business. Eligibility depends on the owner’s taxable income before the QBI deduction, filing status and other requirements; the practice’s gross receipts alone do not decide the result. Above the applicable phaseout range, the dental SSTB does not generate an eligible QBI component.

How should greater-than-2% S corporation owner health insurance be handled?

Premiums paid or reimbursed under a qualifying corporation-established arrangement generally must be included in the shareholder-employee’s Form W-2 box 1. Social Security and Medicare treatment and the owner’s separate self-employed health-insurance deduction have additional requirements. Coordinate the arrangement and reporting before year-end.

Can a practice retirement plan cover only the dentist?

Not automatically when there are eligible employees. Apply the chosen plan’s participation, contribution and nondiscrimination rules, including relevant related-business rules. Budget staff contributions and administration together with the owner’s intended benefit.