Tax Planning for Medical and Dental Practices: Entity Structure, Equipment, and Retirement Strategies

Medical and dental practices operate in a tax environment where the numbers are large and the planning opportunities are proportionally significant. A practice grossing $1 million with $400,000 in net income faces a combined federal, state, and self-employment tax burden that can exceed $180,000, but proper structuring can reduce that by $50,000 or more. The three highest-impact decisions are entity structure (S-Corp election to reduce self-employment tax), retirement plan design (defined benefit + Solo 401(k) combination to defer $150,000-$200,000+ per year), and equipment depreciation (Section 179 and bonus depreciation on dental chairs, imaging systems, and practice buildout). Medical and dental professionals are classified as specified service trades or businesses (SSTBs) under IRC 199A, which means the 20% QBI deduction is available only when taxable income is below the threshold ($266,950 single / $533,900 MFJ for 2025). Above those thresholds, the QBI deduction phases out completely, making it critical to manage taxable income around these levels when possible.

How do you structure a practice to minimize taxes?

What smaller practice costs can doctors and dentists deduct?

Instruments, handpieces and other small items costing $2,500 or less per item or invoice can be deducted in the year you buy them under the de minimis safe harbor. You have to elect it each year on a timely filed return, and your books must already expense items like these under procedures in place at the start of the year.

State license renewals and other regulatory fees are deductible, and so is malpractice insurance, though a multi-year policy paid upfront is deducted one year at a time. Medical and dental association dues aren’t treated as club dues, so they’re generally deductible. Country club dues aren’t, even if your referral sources belong.

How do medical practice equipment purchases affect taxes?

Medical equipment (imaging machines, dental chairs, surgical instruments) is depreciable property. Most equipment falls into the 5-year or 7-year MACRS recovery period. Section 179 allows immediate expensing up to $2,500,000 for 2025 ($2,560,000 for 2026), limited to taxable income from your active trades or businesses, and bonus depreciation (100% for property acquired after January 19, 2025) applies to any remaining cost and can create a loss. Leasing versus purchasing has different tax treatment: operating lease payments are fully deductible as rent expense, while a capital lease is treated as a purchase for depreciation purposes. For high-value equipment financed through loans, the interest is deductible separately from the depreciation on the equipment itself.

What are the tax advantages of a Health Savings Account for medical practice owners?

HSA contributions are tax-deductible (or pre-tax through payroll), grow tax-free through investments, and withdrawals for qualified medical expenses are tax-free, creating a triple tax advantage unavailable with any other account type. For 2025, self-only HSA contribution limits are $4,300 and family limits are $8,550, with an additional $1,000 catch-up contribution for those 55 and older. You must be enrolled in a high-deductible health plan (HDHP) with a minimum deductible of $1,650 for self-only or $3,300 for family coverage in 2025 to contribute to an HSA. Medical practice owners can offer HSAs alongside a group HDHP, making employer contributions that are deductible as a business expense and excluded from employees’ taxable income, while also funding their own HSA for personal tax savings.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.