Your Practice Is Growing. Your Financial Plan Should Grow With It. 3 Tax Planning Considerations for Dentists.
Written By: Ava Clark
You've built a successful dental practice. Your income is growing, your practice is evolving, and you're thinking about what's next, whether that's expanding your practice, building your retirement savings, or eventually stepping away from the business.
But as your income grows, so does the importance of having a tax-aware financial plan.
The goal isn't to avoid paying taxes. It's to make sure you're making informed financial decisions with taxes in mind, and that your overall financial strategy works well with your tax strategy.
For dentists, this can mean looking at questions such as:
Is my retirement plan still appropriate for my practice?
Am I taking advantage of the retirement savings opportunities available to me?
Are there business planning decisions I should be discussing with my CPA?
How might my investment decisions affect my tax situation?
Am I thinking about taxes today while also planning for retirement and eventually transitioning out of my practice?
These aren't questions that should be answered by your financial advisor alone, or your CPA alone. The best planning often happens when your financial and tax professionals are working from the same playbook.
Here are three areas every successful dentist should consider discussing with their financial and tax professionals.
1. Look at Your Retirement Plan as Part of Your Overall Plan
Retirement accounts can help you save for the future. If you ow
n a dental practice, the retirement plan you choose can also affect your business, your employees, and your taxes.
Several types of retirement plans may be available, including 401(k) plans, SIMPLE IRAs, SEP IRAs, profit-sharing plans, and defined benefit plans. The right option may depend on your income, how your practice is set up, and how many employees you have.
Some retirement plans may offer tax benefits. However, each plan has different rules, costs, and requirements.
You may want to ask your financial advisor or CPA:
Does my current retirement plan still fit my practice?
Could another type of plan work better as my practice grows?
How does my retirement plan fit into my larger financial goals?
What is the difference between traditional and Roth contributions?
How could my retirement contributions affect my taxes?
Dentists with higher incomes may also want to learn about defined benefit plans. These plans may allow for larger contributions than some other retirement plans, but they are more complicated and may cost more to set up and manage.
The takeaway: Your retirement plan can help you save for the future, but it can also affect your practice and taxes. Review it from time to time to make sure it still fits your goals, your employees, and your business.
2. Learn How Practice Expenses May Affect Your Taxes
As a dental practice owner, the way your practice expenses are structured and managed can have an important impact on your overall financial picture. Beyond simply identifying deductible expenses, it may be worth considering how practice investments, equipment purchases, employee benefits, and other business expenditures fit into your broader financial and tax strategy. Working alongside your CPA and other professional advisors, your financial advisor can help identify planning opportunities to consider and ensure these decisions are coordinated with your personal financial goals.
The timing and structure of these decisions can be just as important as the expense itself. For example, a major equipment purchase, practice improvement, or investment in your team may have different financial and tax implications depending on when and how it is implemented. Rather than looking at each expense in isolation, coordinating these decisions with your CPA can help ensure that practice spending supports both the long-term health of your business and your broader financial objectives.
Common practice expenses may include:
Employee wages and benefits
Continuing education
Professional services
Business insurance
Practice software and technology
Marketing and advertising
Equipment and supplies
Business travel
Rent and other office expenses
You may also have questions about using a portion of your home for business purposes. In certain circumstances, home office expenses may qualify for a tax deduction, but the IRS has specific requirements that must be met. Because the rules can be nuanced, it’s important to work with your CPA to determine whether the deduction applies to your situation and how it should be properly documented and reported.
It can also be helpful to consider what other business expenses or upcoming investments may warrant a conversation with your planning professionals.
Questions you may want to ask include:
“Are there business expenses I already expect to have that I should discuss with my CPA?”
“Could any upcoming purchases or improvements to my practice affect my taxes?”
Your financial advisor can help you consider how these decisions fit within your broader financial plan, while your CPA can provide guidance on their specific tax treatment.
3. Talk About Taxes Before Tax Season
Tax planning does not have to wait until you give your documents to your CPA in April.
By then, many important financial decisions may have already been made. Talking with your financial advisor and CPA during the year may give you more time to understand your options. It may be especially helpful to talk with them when your income, practice, or personal finances are changing.
Here are some topics you may want to discuss:
Income:
Is your practice earning more or less than you expected?
Retirement contributions:
Should you make any changes to your retirement plan before the end of the year?
Major purchases:
Are you planning to buy new dental equipment, expand your office, or make another large business purchase?
Investments:
Could selling an investment or making a large profit affect your taxes?
Roth conversions:
What should you know before moving money from a traditional retirement account to a Roth IRA?
Business structure:
As your practice grows, does the way your business is set up still make sense?
There is no single answer that works for every dentist. Your financial advisor and CPA can help you understand how these decisions may affect your specific situation.
The goal is not always to eliminate your tax bill. The goal is to consider taxes before making important financial decisions.
The Bigger Picture
Taxes are only one part of your financial life as a dentist.
Your financial decisions may also involve:
Saving for retirement
Managing investments
Running and growing your practice
Managing cash flow
Planning your estate
Preparing to sell or transition your practice
Your needs may change over time. For example, the decisions you make while growing your practice may be different from the decisions you make when preparing to sell it and retire.
That is why it can be helpful to have your financial advisor and CPA communicate with each other. Your financial advisor can help you understand how different decisions fit into your overall plan. Your CPA can explain the possible tax effects.
You may get better results when your financial and tax professionals work together.
If you are unsure whether your current financial plan still fits your practice, your goals, and your future plans, consider scheduling a conversation with your financial advisor and CPA. Reviewing these areas together can help you make more informed decisions before changes in your practice or finances become urgent.
This article is for educational purposes only. It is not intended to provide personal tax, legal, or investment advice. Tax laws and individual situations vary. Please speak with a qualified tax professional about your specific circumstances.
