7 Things to Know Before You Start a New Dental Practice
Starting a dental practice? Learn 7 critical tax and financial facts to avoid costly mistakes and set up for success from day one.
Starting a dental practice is exciting, but the financial and tax side can trip you up if you’re not prepared. Here are 7 things you need to know before you open your doors, with concrete numbers and steps you can take this week.
1. Your Business Structure Affects Your Taxes
The legal structure you choose (LLC, S-Corp, C-Corp, sole proprietorship) determines how you pay taxes. Most new dental practices choose an LLC or S-Corp. An LLC gives you flexibility and pass-through taxation, meaning profits and losses go on your personal return. An S-Corp can save you self-employment taxes, but requires you to pay yourself a reasonable salary. For example, if your practice nets $150,000, an S-Corp might save you $5,000 to $10,000 in self-employment taxes, but you’ll have payroll costs and extra paperwork. Consult a CPA who works with dental practices to decide. This week: schedule a consultation with a dental CPA (fees range $200-$500 for an initial meeting).
2. You Must Pay Estimated Taxes Quarterly
As a practice owner, no one withholds taxes from your income. You must pay estimated taxes quarterly to the IRS and your state. If you don’t, you’ll face penalties and interest. For 2026, the federal corporate tax rate is 21% for C-Corps, but pass-through entities pay at individual rates (10%-37%). A safe rule: set aside 30%-40% of your net income for federal and state taxes. For example, if you expect to net $120,000 in your first year, plan to pay around $36,000 in taxes. This week: open a separate savings account for tax money and transfer 30% of every deposit into it.
3. Startup Costs Are Deductible, But With Limits
You can deduct up to $5,000 in startup costs in your first year, but the deduction phases out dollar-for-dollar once your total startup costs exceed $50,000. Costs include market research, advertising, training, and legal fees. Equipment purchases are depreciated over time, not fully deducted in year one. For example, if you spend $60,000 on startup costs, you can deduct $5,000 in year one, and the remaining $55,000 must be amortized over 180 months (about $306/month). This week: gather all your pre-opening receipts and categorize them as startup costs or equipment.
4. You Can Deduct Equipment Purchases Faster with Section 179
Section 179 allows you to deduct the full purchase price of qualifying equipment (like dental chairs, X-ray machines, and computers) in the year you buy it, up to a limit. For 2026, the Section 179 limit is $1,220,000. This can significantly reduce your taxable income in your first year. For example, if you buy $200,000 of equipment, you can deduct the entire amount, potentially saving $50,000 or more in taxes. This week: talk to your CPA about whether Section 179 is right for you, and get quotes for equipment to plan your purchases.
5. You Must Pay Payroll Taxes for Employees
If you hire staff, you must withhold and pay payroll taxes: Social Security (6.2% each for employer and employee), Medicare (1.45% each), and federal unemployment tax (FUTA, up to $42 per employee per year). You’ll also have state unemployment taxes. For example, if you have two hygienists earning $80,000 each, your employer share of Social Security and Medicare is about $12,240 per year. You must deposit these taxes regularly (monthly or semi-weekly) and file quarterly returns. This week: set up payroll with a service like Gusto or ADP (fees $50-$150/month), and get an EIN if you don’t have one.
6. You Can Deduct Health Insurance Premiums
If you’re self-employed, you can deduct health insurance premiums for yourself, your spouse, and your dependents, as long as you’re not eligible for an employer-sponsored plan. This deduction reduces your adjusted gross income, saving you both income and self-employment taxes. For example, if you pay $1,200/month in premiums, that’s $14,400 a year, which could save you $3,000-$5,000 in taxes. This week: verify your policy qualifies, and keep records of premium payments.
7. You Need a Bookkeeping System from Day One
Accurate books are essential for tax preparation and financial decisions. You can use software like QuickBooks Online (pricing: $30-$200/month) or hire a bookkeeper (fees $200-$500/month). Track every expense, from supplies to utilities, and reconcile your bank accounts monthly. For example, a bookkeeper can save you hours each month and help you avoid missing deductions. This week: choose a bookkeeping software and set up your chart of accounts, or interview a bookkeeper.
FAQ
How much should I set aside for taxes as a new dental practice?
Aim to set aside 30%-40% of your net income. This covers federal and state income taxes plus self-employment taxes. If you’re an S-Corp, your salary will have withholding, but distributions still need estimated payments.
Can I deduct the cost of my dental license and continuing education?
Yes, dental license fees and continuing education courses are deductible as business expenses. Keep receipts and records of the dates and topics.
What is the penalty for not paying estimated taxes?
The IRS penalty is based on the amount you underpaid and the time it was due. It’s roughly the federal short-term rate plus 3%, and it accrues daily. For example, if you underpay by $10,000 for a year, the penalty could be $300-$500.
Should I buy or lease dental equipment for tax purposes?
Both have tax advantages. Buying allows Section 179 deductions, while lease payments are fully deductible as operating expenses. Compare the total cost and cash flow impact. For example, a $100,000 equipment purchase might give you a $25,000 tax deduction, while leasing at $2,000/month gives you $24,000 in deductions over a year.
The Bottom Line
Starting a dental practice is a big financial step, but with the right tax planning, you can minimize surprises. Focus on your business structure, quarterly estimated taxes, and tracking deductions. Work with a dental CPA and set up solid bookkeeping from day one. Take one action this week: schedule a tax planning meeting and set up a separate tax savings account. Your future self will thank you.