December 24, 2025
As a dentist who owns a private dental practice, you probably ask yourself a version of the same question every year: “Am I paying a ‘good’ amount of tax?”
That question is less about the exact dollar amount you send to the IRS and more about whether you have a clear tax strategy that supports your long-term financial goals.
With recent tax law changes, having a tax plan that aligns with your income and net worth is essential. The key is to approach tax planning with the goal of being efficient and compliant, not avoiding tax entirely.
Why Tax Planning Matters for Dentists
Dentists who own a private practice sit at a unique crossroads. Your income is often high, your time is limited, and your tax return is more complicated than a simple W-2 employee’s return.
Effective tax planning for dentists serves three important purposes:
1. It keeps more of your clinical income working for you and your family, rather than being lost to unnecessary tax.
2. It converts taxable income into long-term assets, such as retirement accounts, after-tax investments, and practice equity.
3. It reduces surprises, so your tax payments are predictable parts of your financial plan.
If your practice is profitable and growing, you will pay taxes. The question is whether each dollar of tax leads to a stronger balance sheet and a more secure future, or whether it is simply the result of not having a plan in place.
What Is a “Good” Amount of Tax for a Dental Practice Owner
A 'good' tax outcome isn’t about comparing to others. Instead, examine your tax bill in relation to three key factors:
If your tax rate seems high but you are consistently saving, investing, and building your practice’s value, you are likely in a strong overall position. Taxes alone don’t tell the whole story.
If your tax rate is low, but you’re not saving or building wealth and are facing tax surprises, your strategy may not be working in your favor. Low taxes aren’t always a positive sign.
Key Tax Rules Dentists Need to Know
For 2025, several new rules affect dentists operating as S corporations, partnerships, or sole proprietors.
Qualified Business Income (QBI) Deduction
The Section 199A qualified business income deduction remains a central consideration for pass-through business owners. It can reduce federal tax by allowing up to a 20% deduction on qualified business income, subject to income thresholds and limitations.
Since dentistry is treated as a specified service trade or business, high-income dentists must carefully monitor how their taxable income aligns with these thresholds.
Bonus Depreciation and Section 179 Expensing
Under the One Big Beautiful Bill Act, 100% bonus depreciation has been restored for many qualifying assets placed in service after certain specified effective dates. Section 179 expensing limits have also increased.
For a growing dental practice, this means that investments in equipment and certain improvements may be deducted more quickly, sometimes entirely in the year the asset is placed in service, subject to income limits and phase-outs.
Examples include:
Aligning large deductions with your broader tax plan helps manage cash flow and reduce taxable income. Coordinate purchases for optimal benefit. Never make a purchase soley for the tax benefit, but when making plan purchases, the benefit should be optimized.
Retirement Plan Limits
Retirement plan limits have increased for 2025 and 2026. For many dentists, this remains the most effective and flexible tax tool.
Proven Tax Strategies for Dental Practice Owners
Effective tax strategies for dentists are simple and consistent. Three remain especially valuable: maximizing retirement contributions, paying family members for actual work, and planning major purchases to take advantage of deductions.
1. Maximizing Retirement Plan Contributions
In 2025, a typical 401(k) plan allows you to defer a significant amount of income, $23,500 from your own paycheck. Additionally, your practice can make employer contributions, sometimes combined with a profit-sharing formula or, in some cases, an additional cash balance plan.
For a successful dental practice, it is common for the combined total, which includes your contributions plus the practice's contributions, to reach the annual maximum per participant. When both spouses have access to plans, the total that can be moved into tax-advantaged accounts each year can easily reach six figures.
For dentists, maximizing retirement plan contributions is both a tax-saving strategy and a reliable way to build long-term wealth.
2. Paying Family Members, the Right Way
Hiring your children or other family members for real work inside the practice remains an effective planning strategy in 2025, when it is done correctly.
Key principles include:
A child who has no other income can generally earn up to the standard deduction amount each year without owing federal income tax.
Those wages are a deductible expense to your practice and can be used to:
For sole proprietors and some single-member LLCs, there may also be payroll tax advantages to employing children under a certain age, provided the structure meets IRS requirements.
When this strategy is followed correctly, you reduce taxes, keep more money in the family, and help build lasting assets for your children.
3. Strategic Equipment and Build-Out Investments
Dentists intuitively understand that investing in technology and facilities can increase production and enhance the patient experience. These same investments can also result in significant deductions through a combination of Section 179 expensing and 100% bonus depreciation.
Instead of letting equipment purchases happen randomly, it helps to map out a multi-year capital plan.
For example, you might:
The primary objective is to align your plans for practice growth with a well-timed, tax-aware investment schedule to maximize benefits.
Example: Hiring Your Kids in the Dental Practice
Consider a dentist who employs two children in the practice from the ages of ten through nineteen. Each child has a clear job description and completes age-appropriate tasks, such as filing, scanning, organizing supplies, helping with marketing projects, or assisting with digital content.
If each child earns an average of $10,000 per year for ten years, that is $100,000 per child, totaling $200,000. Those wages are deductible to the practice. If the dentist’s combined marginal tax rate is about 35%, the tax reduction over that decade could be roughly $70,000, before considering payroll tax costs.
If some of those earnings are directed into Roth IRAs for each child, then part of what would have been paid in tax is converted into long-term, tax-free retirement savings for them, that can also be used to pay for college.
Repeating straightforward strategies annually can yield major long-term benefits for dental practice owners. Consistency is key.
How to Understand Your Real Income as a Dentist
Your tax return shows a number called adjusted gross income, which encompasses wages, pass-through business income, interest, dividends, and certain other income sources. For a dental practice owner, that number does not tell the whole story.
You also have a category of what might be called discretionary business deductions. These are fully legitimate deductions, but they are partly elective in nature.
Examples include:
By adding those discretionary deductions back to adjusted gross income, you see the true economic benefit your practice provides each year and a clearer view of your real income.
Examining your finances in this way helps in two ways. First, it prevents you from understating your success just because taxable income looks lower after deductions. Second, it helps you decide whether your total tax bill is reasonable relative to the full value you are receiving from your dental practice.
Turning Your Tax Return Into a Planning Tool
Most dentists view the tax return as a receipt for what happened the previous year. In 2025, it is more useful to treat it as a planning report.
A practical review typically begins with three key questions.
1. How much of my income did I intentionally allocate to long-term strategies, such as retirement accounts, family savings, and smart tax planning?
2. How did current rules around QBI, bonus depreciation, and Section 179 expensing actually affect my tax bill this year?
3. If I continue this pattern for the next three to five years, where will it place my net worth, tax picture, and progress toward financial independence?
When you view your return through that lens, line items stop being random numbers. They become levers you can adjust over time.
Building a Three to Five Year Tax Strategy for Your Dental Practice
Dentists who feel calm and confident about taxes tend to think in multi-year blocks rather than one year at a time.
A simple three to five-year tax strategy for a private practice owner often includes:
Every year, you compare actual numbers to the plan. Every few years, you step back and ask how much tax has been saved in total, how much has accumulated in retirement and after-tax savings, and whether your effective tax rate still looks “good” when compared to your true economic income.
Final Thoughts: What “Good” Tax Looks Like for Dentists
For dentists who own a private dental practice, a “good” tax outcome has three characteristics:
If you are unsure whether you are paying the right amount of tax, the first step is measurement. Clarify your real income, your effective tax rate, and how much of your tax bill comes from intentional strategy versus last-minute reaction. From there, you can adjust one lever at a time until your tax return and your financial goals are working together.
Not sure where to start? Contact us today!
References
Fidelity Investments. (2025). 401(k) contribution limits for 2024, 2025, and 2026. Fidelity Smart Money.
Internal Revenue Service. (2024). Tax guide for small business (Publication 334). U.S. Department of the Treasury.
Internal Revenue Service. (2025). Family employees. U.S. Department of the Treasury.
Kiplinger. (2025). Tax benefits of hiring your kids plus IRS rules to follow.