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10 legal tax strategies for dental practice owners in 2026

Jacob Lee · October 4, 2026 · 13 min read

For most successful dental practice owners, taxes are the largest expense that never shows up on the P&L. Between federal income tax, state tax and payroll taxes, a profitable owner can easily give up 40% or more of what the practice earns.

The owners who pay less are not using secret loopholes. They plan during the year, not just at filing time, and they structure the practice so the tax code works in their favor. Most of the savings below require action before December 31, and some require it months earlier.

The strategies are ranked by how much they typically save and how easy they are to put in place. The first few carry the biggest savings for most owners; the last few are smaller, situational wins that still add up.

This guide covers ten legal strategies, with a worked example for each and the catch you need to know before using it. Not every strategy fits every practice. Use the list to start a conversation with your CPA, not to replace one. For the full picture on entity structure, owner pay and exit planning, see our complete tax guide for dental practice owners.

1. Use a SEP IRA or 401(k) to shelter practice profit

A retirement plan is the most reliable deduction a dental practice owner has. Contributions come off the top of practice income, grow tax-deferred, and you control the timing.

A SEP IRA is the simplest option. The practice can contribute up to 25% of your W-2 salary (or roughly 20% of net self-employment income if you are a sole proprietor), capped at $72,000 for 2026. The appeal for dentists is the eligibility rules. You can exclude employees who are under 21, who have not worked for you in at least three of the last five years, or who earned less than $800 in 2026. In a practice with high staff turnover, that can mean the owner is the only eligible participant.

A 401(k) with profit sharing usually wins once you have a stable team. You can defer $24,500 of your own salary in 2026 ($32,500 if you are 50 or older), and the practice adds profit sharing on top, up to the same $72,000 total. Because of the salary deferral, you reach the cap at a much lower W-2 salary than with a SEP.

Example. You run an S corporation and pay yourself a $150,000 salary. Through a SEP, the practice can contribute $37,500. At a combined 40% federal and state rate, that is about $15,000 in tax you do not pay this year.

The catch. SEP contributions must be the same percentage of pay for every eligible employee, so the exclusion rules stop helping once your staff stays three years. SEP contributions can be made up to your business return's due date, including extensions, which makes them a useful last-minute lever.

2. Elect S corporation status and set a defensible salary

If your practice is a sole proprietorship or a default LLC, all of your profit is subject to self-employment tax. As an S corporation, you pay yourself a reasonable W-2 salary, which carries payroll tax, and take the rest of the profit as distributions, which do not.

Example. Your practice earns $300,000 of profit. As a sole proprietor, self-employment tax runs to roughly $31,000. As an S corporation paying you a $150,000 salary, payroll tax on that salary is about $23,000. The difference, around $8,000 a year, usually more than covers the cost of payroll and a separate corporate return.

The catch. The salary has to be reasonable for the work you do. A dentist producing $1 million a year cannot pay themselves $40,000. Benchmark your salary against what you would pay an associate for the same clinical and management work, and document how you set it. Salary also drives other strategies: a higher salary raises your retirement contribution limit but reduces your QBI deduction. Our tax guide walks through how to balance them.

3. Add a cash balance plan on top of your 401(k)

A cash balance plan is a type of pension that lets older, high-earning owners contribute far more than a 401(k) allows. Contribution limits are based on age. An owner in their 50s can often deduct $150,000 to $300,000 a year, on top of the $72,000 401(k) and profit sharing maximum.

This is the strategy for owners in their late 40s or older who started saving late, who earn well above what they spend, or who plan to sell within five to ten years.

Example. A 55-year-old owner with $700,000 of practice profit adds a cash balance plan with a $200,000 annual contribution. At a 45% combined federal and state rate, that defers roughly $90,000 of tax a year. It can also pull taxable income back into the SALT and QBI ranges covered in strategies 4 and 6.

The catch. You must cover eligible staff, typically at around 5% to 7.5% of their pay, so run the numbers with your team's ages and salaries. The plan needs an actuary and annual administration, costing a few thousand dollars a year. Contributions are a commitment, and the IRS expects the plan to run for several years, so it works best when your income is consistently high.

4. Use your state's pass-through entity tax (PTET) election

The federal deduction for state and local taxes (SALT) is capped. For 2026, the cap is $40,400, and it phases back down to $10,000 once modified adjusted gross income passes $505,000, reaching the floor at $606,333. Most successful practice owners in income-tax states lose much of their state tax deduction as a result.

Most states with an income tax now let S corporations and partnerships elect to pay state income tax at the entity level. The practice deducts that tax as a business expense, so it never runs into the personal SALT cap. You then receive a credit on your personal state return.

Example. You own an S corporation in a state with a 6% income tax and earn $650,000. Your $39,000 state tax bill is deductible at the entity level under a PTET election, instead of being capped at $10,000 on your personal return. At a 37% federal rate, that saves about $10,700.

The catch. Rules differ by state, including deadlines, estimated payment requirements and whether the election is annual. It does nothing in states with no income tax, such as Texas or Florida. It also affects owners differently in a practice with several partners, so check the effect on each one before electing.

5. Time equipment and build-outs to the year you need the deduction

Equipment for a new location, an extra operatory or a technology upgrade can be written off in the year it is placed in service, not spread over five to seven years. The One Big Beautiful Bill Act made 100% bonus depreciation permanent for property acquired after January 19, 2025, and the 2026 Section 179 limit is $2,560,000.

The key word is placed in service. Equipment ordered in November but installed and ready to use on December 28 qualifies for this year. Equipment sitting in a crate on January 2 does not. A full year's deduction is available even if the asset arrives in the last week of December.

Example. Your practice expects $600,000 of profit this year, and you plan to open a second location. If $350,000 of chairs, imaging and IT is installed and ready by December, you can deduct most of it this year. At a 40% combined rate, that defers about $140,000 of tax, cash that can help fund the new office.

The catch. This is a deferral, not a permanent saving. You will have less depreciation in future years, and you may face recapture if you sell. Many states, including California, do not follow federal bonus depreciation. Startup costs for a brand new business are also handled differently: only $5,000 is deductible right away, with the rest amortized over 15 years. Large deductions also lower reported profit, which matters if you plan to sell soon. See our guide to financing a practice expansion for how to fund the project.

6. Get under the QBI threshold

The qualified business income (QBI) deduction lets owners of pass-through businesses (S corporations, partnerships, LLCs and sole proprietorships) deduct up to 20% of their business income. The One Big Beautiful Bill Act made it permanent in 2025.

Dentistry is a "specified service" business, which means the deduction shrinks as your income rises and disappears completely above a ceiling. For 2026, married couples get the full deduction with taxable income up to $403,500, a partial deduction up to $553,500, and nothing above that. For single filers the range is $201,750 to $276,750.

Example. You and your spouse have $480,000 of taxable income, with $250,000 of QBI from the practice. You are halfway through the phase-out. A $100,000 contribution to a cash balance plan (strategy 3) funded by the practice brings taxable income to $380,000 and QBI to about $150,000. You now qualify for the full 20% deduction, worth about $30,000, on top of the $100,000 contribution itself.

The catch. QBI excludes the W-2 salary an S corporation pays you, so your salary level affects both your payroll tax and your QBI. The math interacts with almost every other strategy here, so model it before year-end, not after.

7. Hire your children

Paying your children a reasonable wage for real work moves income from your top tax bracket into theirs, which is often zero. In 2026, a child with no other income can earn up to the standard deduction (about $16,100) without owing federal income tax.

Age-appropriate jobs include filing, scanning, cleaning, social media, marketing content, data entry and front desk support for older teens.

Example. Your 16-year-old works part-time year-round and earns $15,000. The practice deducts the wages, saving you roughly $5,500 at a 37% bracket. Your child owes no income tax and can put up to $7,500 of those earnings into a Roth IRA.

The catch. The payroll tax exemption that makes this most attractive only applies to children under 18 working for a sole proprietorship or a partnership owned only by their parents. If your practice is an S corporation, your child's wages are subject to Social Security and Medicare taxes like anyone else's, which reduces but does not eliminate the savings. The work must be real, the pay must match what you would pay a stranger, and you need timesheets, a job description and normal payroll. State child labor laws still apply.

8. Build business purpose into your travel

You cannot deduct a family vacation. You can deduct a trip whose main purpose is business, such as a CE course, a dental conference or a visit to a lab or equipment vendor, and still enjoy a few personal days on the side.

The rules depend on where you go:

  • Domestic trips. If most of the days are business days, your airfare is fully deductible. Lodging and meals are deductible for the business days only, and meals are 50% deductible. Travel days count as business days.
  • International trips. If the trip lasts seven days or fewer (not counting the departure day), airfare is fully deductible even if much of the trip is personal. On longer trips, you keep the full airfare deduction if personal days make up less than 25% of the total.

Example. You fly to a three-day CE course and stay two extra days. Airfare is fully deductible, along with three nights of hotel, the course fee and half of your business-day meals. On a typical trip, that is several thousand dollars of deductions for travel you were taking anyway.

The catch. Your spouse's and children's costs are not deductible unless they are employees with their own business reason to be there. Keep the course agenda, proof of attendance and receipts. Leisure days stay personal.

9. Deduct your vehicle the right way

If you use a vehicle for practice business, such as driving between offices, to the bank, to vendors or to study clubs, you can deduct that use in one of two ways:

  • Standard mileage rate. For 2026, the IRS rate is 72.5 cents per business mile from January through June, and 76 cents from July 1 after a mid-year increase.
  • Actual expenses. Fuel, insurance, repairs and depreciation, multiplied by your business-use percentage. If business use is over 50%, you can accelerate depreciation using Section 179 or bonus depreciation. Heavy SUVs and trucks over 6,000 pounds get more generous treatment than passenger cars.

For S corporation owners, the cleanest approach is an accountable plan. You keep a mileage log, submit it to the practice, and the practice reimburses you. The practice deducts the reimbursement and you receive it tax-free.

Example. You split time between two offices and drive 8,000 business miles a year. At roughly 74 cents a mile, the practice reimburses you about $5,900 tax-free.

The catch. Driving from home to your main office is commuting, and commuting is never deductible. Some advisors argue a home administrative office turns that drive into business travel, but that only holds up if the home office is truly your principal place of business. For most dentists, the practice itself is. Keep a contemporaneous mileage log, because auditors reject logs rebuilt after the fact.

10. Rent your home to your practice under the Augusta rule

Section 280A(g) of the tax code, nicknamed the Augusta rule, lets you rent out your home for 14 days or fewer a year without reporting the rental income. If your practice rents your home for legitimate business meetings, the practice deducts the rent and you receive it tax-free.

This works for genuine events: quarterly planning sessions, team training days, partner meetings or a staff holiday party. It does not work for a monthly "board meeting" of one owner at the kitchen table.

Example. Your practice holds four planning meetings and two team training days at your home. Comparable local event space costs $1,500 a day, so the practice pays you $9,000. At a 40% combined rate, that saves about $3,600.

The catch. The Tax Court has disallowed aggressive versions of this strategy, including a 2023 case where the rent was not supported by real comparables or meeting records. Price the rent against meeting or event venues, not nightly vacation rentals. Keep an agenda, attendee list, minutes and an invoice for each day, and pay by check from the practice.

All 10 strategies at a glance

Strategy Example savings Best fit Deadline to act Main risk
1. SEP IRA or 401(k) About $15,000 a year Every owner 401(k) set up by year-end; SEP by return due date Must include eligible staff
2. S corp with reasonable salary About $8,000 a year Sole proprietors and default LLCs Election deadline, usually March 15 Salary set too low
3. Cash balance plan About $90,000 a year (deferred) Owners 45+ with high, stable income Plan adopted by return due date Staff cost and multi-year commitment
4. PTET election About $10,700 a year S corps and partnerships in income-tax states Varies by state State rules and partner effects
5. Equipment timing About $140,000 (one-time deferral) Practices buying equipment or expanding Placed in service by December 31 Deferral only; lowers reported profit
6. QBI threshold planning About $10,500 a year Taxable income near $403,500 to $553,500 (joint) December 31 Interacts with salary and other strategies
7. Hiring your kids About $5,500 per child Owners with children who can do real work Ongoing payroll Payroll tax applies in S corps
8. Business travel A few thousand dollars Owners attending CE and conferences Before booking Personal days and family costs
9. Vehicle deduction About $2,200 a year Multi-office owners Ongoing mileage log Commuting is never deductible
10. Augusta rule About $3,600 a year Owners who host real team events Each meeting date Inflated rent, thin records

Frequently asked questions

What is the best tax strategy for a dental practice owner?

For most owners, a properly designed retirement plan delivers the largest, safest deduction. A SEP IRA or 401(k) fits almost everyone, and older owners with high income can add a cash balance plan. The right mix depends on your age, staff and income.

Should my dental practice be an S corporation?

Often, yes, once profit is well above what a reasonable salary would be. The savings come from avoiding self-employment tax on distributions. Below roughly $100,000 of profit, the added payroll and filing costs can outweigh the benefit.

Can dentists take the QBI deduction?

Yes, but dentistry is a specified service business, so the deduction phases out at higher incomes. For 2026, married couples get the full deduction with taxable income up to $403,500 and lose it entirely above $553,500. Retirement contributions and depreciation can bring income back into range.

Yes, Section 280A(g) is part of the tax code. The IRS and Tax Court challenge it when the rent is inflated or the meetings are not real. Use fair market rent based on local event space, and keep agendas, minutes and invoices for every day.

When should I start tax planning for my practice?

Ideally in the third quarter, and no later than November. Many of these strategies, including equipment purchases, retirement plan setup and payroll for your children, have to be in place before December 31.

Plan before December, not in April

None of these strategies is exotic. What separates owners who use them from owners who don't is timing. By the time your CPA prepares your return, the year is over and most of the levers are gone.

The best results come from looking at your profit, salary, retirement plan and equipment plans together in the fall, then deciding what to do before year-end. Chairside Advisors works alongside your CPA to build that plan for dental practices, so tax savings and profit growth pull in the same direction.

This article is for general education and is not tax, legal or financial advice. Tax rules change and depend on your specific situation. Talk to a qualified CPA or tax advisor before acting on any strategy described here.

Most of these have to happen before December 31

Retirement plans, salary, equipment timing and QBI all interact, and most of the window closes at year-end. We model them against your own numbers, alongside your CPA, while there is still time to act.

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