Tax Planning for Dental Practices: Equipment Depreciation, Retirement Plans, SSTB Considerations, and Entity Structure

Dental practices are among the most capital-intensive professional service businesses, and the combination of expensive equipment, high income, and the SSTB classification creates a tax planning environment where the difference between a proactive plan and no plan can exceed $100,000 per year. Under IRC 199A(d)(2), healthcare (including dentistry) is explicitly listed as a specified service trade or business, which means the 20% QBI deduction is unavailable to most established dentists with income above the phase-out thresholds. This makes S-Corp salary optimization and retirement plan contributions the two most important strategies, because they directly reduce the taxable income that the QBI deduction cannot touch. The equipment depreciation opportunity is particularly significant for dentists who are acquiring or building a practice: a $1 million equipment package deducted in Year 1 creates $370,000 in tax savings at the 37% bracket, and for an individual owner the resulting loss can offset other income only up to the excess business loss threshold ($313,000, or $626,000 joint, for 2025; $256,000 / $512,000 for 2026). Any loss that can’t be used this year carries forward as a net operating loss (NOL) that can offset up to 80% of taxable income in future years.

How do dental practices minimize taxes?

Which startup costs can a new dental practice deduct?

Before a new practice opens, costs such as staff training, marketing and planning that would be deductible in an operating business are startup costs. You can deduct up to $5,000 of them in the year the practice opens, but that $5,000 shrinks dollar for dollar once startup costs pass $50,000. The rest is spread over 180 months.

Once startup costs reach $55,000, there’s no first-year $5,000 at all, and everything goes on the 180-month schedule. Equipment and buildout are capital costs handled through depreciation instead. For smaller items, the de minimis safe harbor lets you expense instruments and small equipment costing $2,500 or less per item or invoice, if you make the annual election and your books expense them.

Should a dental practice spread equipment costs over MACRS?

Sometimes, mostly in a big buildout year. A $940,000 first-year write-off can create a loss the owner can’t fully use: for 2026, an individual’s business loss above $256,000 ($512,000 joint) becomes an NOL, and NOLs offset only 80% of taxable income in later years. Spreading some of the cost keeps deductions for later years when income is high.

Getting to regular MACRS means skipping Section 179 and electing out of bonus, and the election out covers a whole class for the year, such as all 5-year property. Computers and high technology medical equipment are 5-year property (20% in year one under the half-year convention), and office furniture is 7-year. Section 179 is the finer tool, since it’s chosen asset by asset, but in an S corp its limits apply at the practice and again for each owner. See also Tax Planning for Medical and Dental Practice Owners.

• Tax Planning for Medical and Dental Practice Owners: Entity Structure, Retirement Plans, and Physician-Specific Strategies

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