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Guide to Taxes for Cosmetic Dentistry

by
Tristan DeMers
on
6/6/2023
Guide to Taxes for Cosmetic Dentistry

At their core, cosmetic dentistry taxes are just like any other business taxes. You report your revenue. Then, you claim your expenses. The difference is your taxable business profits. However, if you want to optimize cosmetic dental practice taxes, you need to be strategic. Here are some critical elements to consider.

1. Strategic deductions on dental equipment

When you purchase diagnostic equipment, lasers, or even dental chairs, you can opt to deduct the expense slowly over time, or you can use bonus depreciation or a Section 179 deduction to claim the expense all at once.

While making your decision, think about the current year, but also think about the future. Offsetting income with deductions lowers your tax bill now, but if you anticipate having higher earnings in the future, you may want to spread the deduction over time. While doing tax planning cosmetic dentistry professionals need to consider which option keeps more of their money in their pockets in the long run.

Note that this selection doesn't apply to every capital asset. For instance, if you buy a building for your practice, you have to deduct the building slowly over time. You cannot claim a Section 179 on commercial real estate.

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Credit: Getty Images

2. Self-rentals to reduce self-employment tax

If you own your own building, you may want to have one entity own the building and have the dental practice rent the building. Here's how that works. Say that your name is Doctor Dan the Dentist, and you own Pretty Smile LLC. You buy commercial real estate to house your cosmetic dental practice.

Pretty Smile LLC pays $5,000 per month to rent the building from Dr. Dan. This means that Pretty Smile gets to claim a $60,000 deduction for rent. This reduces the total profits, and as long as Pretty Smile is a sole proprietorship or a partnership, it also reduces the self-employment tax on the profits. Dr. Dan, then, reports the $60,000 as rental income, and he gets to deduct building depreciation, mortgage interest, and other applicable expenses. These profits are only subject to income tax. They don't incur self-employment tax. Because self-employment tax is 15.3% as of 2023, these savings can really add up quickly.

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Credit: Getty Images

3. S-corp elections to reduce taxes

A self-rental isn't the only type of tax preparation cosmetic dentistry professionals can use to save money. They may also want to consider electing to be taxed as an S-corp. To make this election, your business must be an LLC first, and you must make the election by the 16th of the third month of the tax year in which you want the election to apply.

Normally, with pass-through entities such as sole props and partnerships, all of the profits are subject to self- employment and income tax. Say you earn $100,000. You will pay about 15.3% of that in self-employment tax, and then, you'll incur income tax based on your situation.

If you elect to be taxed as an S-corp, you could pay yourself $60,000. Then, only that amount would be subject to self-employment taxes, and the remaining $40,000 would only face income tax. Note that this requires you to file several new tax forms, so before taking this step you should consult with a tax professional.

When looking for tax help cosmetic dentistry professionals should look for someone who will help them optimize their situation. You don't want a tax preparer who just puts numbers into software. Instead, you need someone who will look over your situation and help you find the best resolutions for your unique situation.

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Tristan DeMers

Tristan DeMers

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