How Much Should a New Dental Practice Set Aside for Taxes?
Learn how much new dental practices should set aside for taxes, with realistic figures, steps, and tips for 2026.
Starting a dental practice brings many financial questions, and taxes are among the most critical. The short answer: new dental practice owners should set aside 30% to 40% of net income for federal and state taxes. This range accounts for income tax, self-employment tax, and state obligations. But the exact amount depends on your entity structure, location, and revenue. Here is a breakdown to help you plan.
Why 30% to 40% Is the Right Starting Point
Most new dental practices operate as LLCs, S-corps, or sole proprietorships. Each has different tax treatment, but the combined federal and state burden lands in a similar range.
- Sole proprietorship or single-member LLC: You pay self-employment tax (15.3%) plus federal income tax (10% to 37%) and state tax (0% to 13.3%). A 30% to 35% set-aside is common.
- S-corp: You must pay yourself a reasonable salary, subject to payroll taxes. The remaining profits flow to your personal return. Total effective rate often falls between 30% and 40%.
- C-corp: Rare for new practices, but corporate tax rates are 21% federal, plus state. Dividends are taxed again. Not recommended for most startups.
Your effective rate also depends on taxable income. For 2026, the federal brackets are:
| Taxable Income (Single) | Tax Rate |
|---|---|
| $0 to $11,925 | 10% |
| $11,925 to $48,475 | 12% |
| $48,475 to $103,350 | 22% |
| $103,350 to $197,300 | 24% |
| $197,300 to $250,525 | 32% |
| $250,525 to $626,350 | 35% |
| Over $626,350 | 37% |
For married filing jointly, the brackets are roughly double. Most new practice owners fall into the 22% to 24% federal bracket, plus self-employment tax, pushing the total to 30% to 40%.
How to Calculate Your Set-Aside Percentage
Follow these steps to find your personal number:
- Estimate net income: Subtract all business expenses (rent, supplies, payroll, equipment) from revenue. This is your profit before taxes.
- Add self-employment tax: Multiply net income by 15.3% (Social Security and Medicare).
- Add federal income tax: Use the brackets above on your taxable income (after deductions).
- Add state tax: Check your state’s rate. For example, California tops out at 13.3%, while Texas has no state income tax.
- Divide by net income: The sum of taxes divided by net income gives your effective percentage.
For a practice with $150,000 net income in a state with 5% income tax:
- Self-employment tax: $22,950
- Federal income tax (24% bracket): $36,000
- State tax: $7,500
- Total: $66,450, or 44.3% of net income. That’s higher than the 30% to 40% range because of the state tax. Adjust accordingly.
Practical Steps to Set Aside Money This Week
Don’t wait until April. Here’s what to do now:
- Open a separate savings account: Use a high-yield business savings account. Transfer a percentage of every deposit immediately. Aim for 30% to 40% of each payment.
- Use accounting software: QuickBooks or Xero can track income and expenses, and many have tax-estimate features. Set up automatic transfers.
- Make quarterly estimated payments: The IRS requires quarterly payments if you expect to owe more than $1,000. Deadlines are April 15, June 15, September 15, and January 15. Use Form 1040-ES. Missing these can trigger penalties.
- Work with a CPA: A dental-specific CPA can help you optimize deductions and avoid surprises. Expect to pay $300 to $500 per hour or a flat fee of $1,500 to $3,000 for annual tax preparation.
Common Tax Deductions for New Dental Practices
Reduce your taxable income with these deductions:
- Equipment and supplies: The Section 179 deduction allows you to deduct the full cost of equipment (up to $1,160,000 in 2026) in the year you purchase it.
- Rent and utilities: Deduct a portion if you work from home, or the full amount if you lease a space.
- Staff salaries and benefits: Wages, health insurance, and retirement contributions are deductible.
- Marketing and advertising: Website, Google Ads, and local promotions are deductible.
- Professional fees: Legal, accounting, and consulting services.
- Continuing education: Courses and conferences related to dentistry.
- Vehicle expenses: Use the standard mileage rate (67 cents per mile in 2026) or actual expenses.
Keep meticulous records. Save receipts and categorize expenses monthly.
What If You Set Aside Too Much or Too Little?
- Too much: You’ll get a refund after filing. That’s not ideal because you could have used the cash, but it’s better than owing. Adjust your percentage down after your first year.
- Too little: You’ll owe more in April, plus potential penalties. If you realize this mid-year, increase your set-aside immediately and consider making a larger estimated payment.
FAQ
Q: Should I pay myself a salary as an S-corp owner? A: Yes, if you elect S-corp status. You must pay yourself a reasonable salary (typically $80,000 to $120,000 for a dentist) and pay payroll taxes on it. The remaining profit is distributed as dividends, which are not subject to self-employment tax, saving you money.
Q: Can I deduct health insurance premiums for myself and my family? A: Yes, if you are self-employed and your practice is profitable. The deduction reduces your adjusted gross income, and you can deduct premiums for yourself, your spouse, and dependents.
Q: What happens if I miss a quarterly estimated payment? A: You may face an underpayment penalty, which is calculated based on the amount you owe and the time it was late. The IRS also charges interest. To avoid this, pay at least 90% of your current year’s tax liability or 100% of last year’s liability (110% if your income is over $150,000).
Q: Should I set aside money for sales tax? A: Dental services are generally exempt from sales tax, but you may owe sales tax on retail items like toothbrushes or over-the-counter products sold in your office. Check your state’s rules.
The Bottom Line
Set aside 30% to 40% of net income for taxes, but calculate your specific rate based on your entity type, income, and state. Open a separate savings account, automate transfers, make quarterly estimated payments, and work with a CPA. Track deductions carefully to lower your taxable income. By planning ahead, you avoid surprises and keep your practice financially healthy.