What Taxes Does a New Dental Practice Pay? A Complete Guide
Learn the federal, state, and local taxes new dental practices must pay, with realistic 2026 figures and practical steps to stay compliant.
Starting a dental practice brings clinical challenges and a new set of financial obligations. Taxes are a major part of that. New practice owners often underestimate the number and variety of taxes they will face. This guide breaks down the specific taxes you will pay, from payroll to property, with realistic 2026 figures and steps you can take this week to stay ahead.
Federal Income Tax
Your practice’s structure determines how you pay federal income tax. Most new dental practices choose an S-corporation or LLC. An S-corp is popular because it lets you pay yourself a reasonable salary and take the rest as distributions, which are not subject to self-employment tax. An LLC taxed as a sole proprietorship or partnership pays self-employment tax on all net income.
For 2026, the federal corporate tax rate for C-corps is 21%. S-corps and LLCs are pass-through entities, so income is reported on your personal return. The top individual rate is 37%, but most practice owners fall in the 24% to 35% bracket depending on taxable income.
Practical step: Meet with a CPA who specializes in dental practices to choose the right structure before you open. This decision affects every tax you pay.
Self-Employment Tax
If you are a sole proprietor or partner, you pay self-employment tax, which covers Social Security and Medicare. The rate is 15.3% on net earnings up to the Social Security wage base, which is $176,100 in 2026. Above that, you pay only the 2.9% Medicare portion. An S-corp can reduce this by paying you a reasonable salary, but you must pay yourself a fair market wage. The IRS scrutinizes S-corp owners who pay too little salary.
Practical step: If you are an S-corp, work with your CPA to set a defensible salary. A common benchmark is 60% to 70% of net profit, but it varies by region and role.
Payroll Taxes
If you have employees, you must withhold and pay payroll taxes. This includes:
- Federal income tax withholding: based on each employee’s W-4.
- Social Security: 6.2% from employee, 6.2% from employer, up to the wage base.
- Medicare: 1.45% from employee, 1.45% from employer. Additional 0.9% on high earners (over $200,000 single).
- Federal unemployment tax (FUTA): 6% on the first $7,000 of each employee’s wages, but you get a credit for state unemployment tax, often reducing it to 0.6%.
You must deposit these taxes on a schedule, usually semi-weekly or monthly, and file quarterly returns (Form 941). Late deposits can trigger penalties.
Practical step: Use a payroll service like ADP or Gusto. They handle calculations, deposits, and filings. Costs range from $40-$80 per month plus a small per-employee fee.
State and Local Taxes
State taxes vary widely. Most states have a state income tax, ranging from 0% (Texas, Florida) to over 13% (California). Some states have a gross receipts tax, like Washington’s B&O tax, which applies to total revenue, not profit. Your practice may also owe state unemployment tax, which is experience-rated and can be 1% to 6% of wages.
Local taxes can include city or county income taxes, as well as business license fees. For example, New York City has a corporate tax, and many cities require an annual business license that costs $50-$500.
Practical step: Check your state’s department of revenue website for a new business tax guide. Also, ask your CPA about local requirements.
Sales Tax
Dental services are generally exempt from sales tax, but you may owe sales tax on retail items you sell, such as toothbrushes, toothpaste, or over-the-counter products. If you sell these, you must collect and remit sales tax. Rates vary by state and locality, typically 5% to 10%.
Practical step: Register for a sales tax permit if you plan to sell any retail items. Keep records of all sales and remit taxes monthly or quarterly.
Property Tax
If you own your building or equipment, you may owe property tax. Real property tax is assessed by the county and based on the value of the land and building. Personal property tax applies to equipment, furniture, and fixtures. Some states exempt certain types of equipment, but not all. Rates vary, but a typical range is 1% to 3% of assessed value per year.
Practical step: If you lease your space, you likely don’t pay property tax directly, but your lease may pass through a share. Review your lease for property tax clauses.
Estimated Quarterly Taxes
Because taxes are not withheld from your income, you must pay estimated taxes quarterly. This applies to federal income tax, self-employment tax, and often state taxes. The IRS requires you to pay at least 90% of your current year’s liability or 100% of the prior year’s liability (110% if your adjusted gross income is over $150,000). Failure to pay enough can result in penalties.
Practical step: Work with your CPA to estimate your quarterly payments. Set aside 25% to 35% of your net income in a separate bank account to cover these.
Tax Deductions Specific to Dental Practices
You can reduce your taxable income with deductions. Common ones for dental practices include:
- Equipment and supplies: dental chairs, X-ray machines, instruments, and consumables.
- Rent and utilities: if you lease your office.
- Staff wages and benefits: salaries, health insurance, retirement contributions.
- Professional fees: legal, accounting, and consulting.
- Marketing and advertising: website, local ads, patient recall systems.
- Continuing education: courses and conferences.
- Vehicle expenses: if you use a car for business, track mileage.
Section 179 allows you to deduct the full cost of qualifying equipment in the year you purchase it, up to $1,220,000 for 2026. Bonus depreciation is also available for certain assets.
Practical step: Keep detailed records of all business expenses. Use accounting software like QuickBooks to categorize expenses monthly.
FAQ
Do I need to pay taxes if my practice is not profitable yet?
Yes. Even if you have no profit, you may owe payroll taxes, sales tax, and property tax. Also, you must file returns to report your income or loss. A loss can offset other income on your personal return.
Can I deduct the cost of buying a dental practice?
Yes, but not all at once. The purchase price is allocated to assets like equipment and goodwill. Equipment can be depreciated or expensed under Section 179. Goodwill is amortized over 15 years.
What is the difference between an S-corp and an LLC for taxes?
An LLC is a legal entity, but for taxes it can be a sole proprietorship, partnership, or S-corp. An S-corp is a tax election that can save self-employment taxes, but it requires paying yourself a reasonable salary. Many dental practices choose an S-corp election for this reason.
When are quarterly estimated taxes due?
For 2026, the due dates are April 15, June 15, September 15, and January 15, 2027. If a date falls on a weekend or holiday, it moves to the next business day.
The Bottom Line
A new dental practice faces a complex web of taxes: federal income, self-employment, payroll, state, local, sales, and property. The key is to plan ahead. Work with a dental CPA, set up a payroll service, track expenses diligently, and make estimated payments on time. By understanding these obligations from day one, you can avoid surprises and keep your practice financially healthy. Start this week by scheduling a meeting with a CPA and opening a separate tax savings account.