CPA for Dental Practices

Dentistry is a high-investment profession. Between student loans, equipment costs, practice acquisition or build-out, and the operational complexity of running a healthcare business, dentists face financial challenges that require specialized tax planning. Myung Keon Kim CPA works with dental professionals at every stage — associates building their first book of patients, practice owners expanding to multi-location, and dentists planning their exit.

Entity Selection for Dental Practices

New York dentists typically practice through one of three structures: sole proprietorship (or single-member LLC), professional limited liability company (PLLC), or professional corporation (PC). Each has different tax implications. A sole proprietor pays self-employment tax on 100% of net income. A PLLC is a pass-through entity that can elect S-Corp status. A PC can elect S-Corp treatment or operate as a C-Corp (which has limited appeal after the Tax Cuts and Jobs Act capped the C-Corp rate at 21% while eliminating the personal service corporation carve-out).

For most dental practice owners, the PLLC taxed as an S-Corp is the optimal structure. The S-Corp election allows you to pay yourself a reasonable W-2 salary for your clinical work and take additional income as distributions — which are not subject to the 15.3% self-employment tax (or payroll taxes on the employer side). New York's new Pass-Through Entity Tax (PTET) election adds another dimension: S-Corp shareholders can elect to have the entity pay state income taxes at the entity level, generating a federal deduction that effectively circumvents the $10,000 SALT cap for individuals.

Associateship vs. Practice Ownership

Associate dentists employed by a practice receive W-2 wages and have limited tax deduction opportunities — most expenses must be unreimbursed employee business expenses, which are no longer deductible federally after 2017. Independent contractor associates (1099 dentists) have more flexibility: self-employment income is fully deductible against business expenses, and you can contribute to a solo 401(k) or SEP-IRA to dramatically reduce taxable income.

Making the jump to ownership is a major financial decision. Practice acquisition prices in New York typically range from 60–80% of annual collections, with significant goodwill premiums in high-demand areas. Before signing a purchase agreement, we model the after-tax cash flow of ownership versus continuing as an associate, including the effect of acquisition financing (interest deduction), increased Section 179 deductions on equipment, and the potential for retirement plan contributions.

Practice Acquisition Tax Implications

When you purchase a dental practice, the IRS requires the buyer and seller to agree on how the purchase price is allocated among the assets using Form 8594. The allocation matters enormously: for the buyer, assets allocated to equipment and supplies are depreciable or expensable immediately under Section 179, while goodwill and patient lists are amortized over 15 years. Covenants not to compete are also amortized over 15 years but may carry ordinary income consequences for the seller.

We review purchase agreements before they are signed to identify allocation issues, flag unfavorable terms from a tax standpoint, and structure the deal to maximize your after-tax position. A $50,000 difference in how purchase price is allocated between equipment (faster write-off) and goodwill (slower write-off) can change your after-tax cash flow by several thousand dollars in year one.

Dental Supplies and Consumables

Dental supplies — composites, cements, impression materials, gloves, masks, handpieces, burs — are deductible as ordinary business expenses in the year purchased under the cash method of accounting, which most small dental practices use. The distinction between supplies (expensed) and equipment (depreciated) turns on whether the item has a useful life of more than one year and a cost above the practice's capitalization threshold (commonly $2,500 under the IRS safe harbor for small businesses). We help you set and document a consistent capitalization policy, which protects you in an audit.

Patient Payment Tracking and Revenue Recognition

Dental practices collect from multiple sources: patient out-of-pocket (cash, credit card, CareCredit), dental insurance (Delta Dental, Aetna, Cigna, MetLife), and Medicaid/Child Health Plus. Each has different collection timing and contractual adjustment considerations. Under cash-basis accounting, you recognize income when received — not when the claim is submitted. This means insurance reimbursements collected in January for December procedures are taxable in the new year, creating legitimate year-end planning opportunities. We reconcile production, collection, and adjustment records to ensure accurate income reporting.

Practice Valuation for Buy/Sell Planning

Whether you are buying into a partnership, selling to a DSO, or planning your retirement exit, practice valuation is the foundation of the transaction. Dental practice values are typically expressed as a multiple of EBITDA or as a percentage of annual collections. We work with your practice broker or independently to review financial statements, normalize earnings for owner-specific adjustments (your compensation above a market rate, personal expenses run through the practice), and provide a tax-optimized sale structure that minimizes ordinary income and maximizes capital gain treatment.

Frequently Asked Questions

Should I be a sole proprietor or S-Corp as a dentist?

For most dentists with net self-employment income above $80,000–$100,000, an S-Corp election provides meaningful savings by splitting income into W-2 wages (subject to payroll tax) and distributions (not subject to payroll tax). The tradeoff is added complexity — payroll filings, a separate corporate tax return (Form 1120-S), and the discipline of paying yourself a reasonable salary. For a dentist producing $400,000 in collections and netting $200,000 after expenses, the annual S-Corp savings commonly range from $8,000 to $15,000 depending on the reasonable compensation benchmark. We model the numbers before recommending the structure.

How do I deduct dental equipment like chairs and imaging systems?

Dental equipment — chairs, X-ray systems, CBCT scanners, intraoral cameras, sterilization units, CAD/CAM milling equipment — qualifies for Section 179 expensing. The limit was raised to $2,500,000 by Public Law 119-21 in July 2025 and is indexed annually from there, and you can expense the full cost in the year the equipment is placed in service. Bonus depreciation (100% under IRC §168(k) for property acquired after January 19, 2025) applies to any remaining cost. Most dental equipment has a 5-year MACRS depreciable life under the default rules, so if you do not take Section 179 or bonus, you recover the cost over 6 tax years under the half-year convention. Timing new equipment purchases to maximize your current-year deduction is a key year-end planning strategy.

What happens with taxes when I buy or sell a dental practice?

Practice acquisitions trigger complex tax questions on both sides. For the buyer, the purchase price must be allocated among assets using Form 8594. Goodwill (often 60–70% of a dental practice sale price) is amortized over 15 years under Section 197. Equipment gets depreciated (or Section 179 expensed). For the seller, the character of gain — ordinary income versus capital gain — depends entirely on how the purchase price is allocated. Asset sales produce a mix of ordinary income (equipment, supplies, covenant not to compete) and capital gain (goodwill). Stock sales produce capital gain but are less common in dental practices because most are structured as professional corporations or LLCs.

Can I deduct CE courses, conferences, and dental licenses?

Yes — continuing education required to maintain your professional skills is deductible as a business expense under IRC Section 162. This includes dental CE courses, state dental association conferences, CEREC or implant training courses, and journal subscriptions. Your state dental license renewal fee and DEA registration are also deductible. If you travel to attend CE — including the ADA Annual Meeting — you can deduct transportation, lodging, and 50% of meals. The key requirement is that the education must maintain or improve skills in your current profession, not qualify you for a new one.