Running a dental practice means you’re juggling a lot: patients, staff, operations, and keeping that chair full every day. But there’s one part of your business that can quietly shape your entire financial future: your business entity structure.
It’s not the most glamorous part of owning a practice, but the truth is this: the way your business is set up legally and for tax purposes can make a big difference in how much you keep after the IRS gets its share.
In this article, we’ll walk through why your entity structure matters, how to evaluate what you currently have, how to make a switch if needed, and what to do to keep everything running smoothly once you do.
Why Entity Structure Matters for Dentists
For many dentists, taxes are one of the biggest expenses they’ll ever face; right after payroll and overhead. But what most practice owners don’t realize is that their entity type (whether it’s a sole proprietorship, LLC, or S-Corp) directly impacts how much tax they pay and how they pay it.
Here’s the short version:
- A sole proprietorship or a standard LLC taxed as a Schedule C means you’re paying self-employment tax on your entire net income — and missing out on potential tax strategies available to other structures.
- A properly structured S-Corp, on the other hand, can help split your income between salary and distributions, potentially reducing your overall tax burden while maintaining IRS compliance.
- Choosing the right structure also opens the door to better deductions, improved retirement options, and stronger protection for your assets.
The bottom line? Your entity structure is the foundation of your tax strategy — and if it’s not set up right, you might be working harder than you need to for the same financial outcome.
How to Evaluate Your Current Entity — What Questions to Ask
Think of this as a quick “check-up” for your business structure. Ask yourself:
- What’s my current business entity type? (S-Corp, C-Corp, LLC, or sole proprietor?)
- How am I paying myself? Is it through payroll, owner draws, or a mix of both?
- Has my accountant ever reviewed or updated my entity setup? If it’s been more than two or three years, it might be time for a refresh.
- Am I taking advantage of dental-specific deductions — like CE courses, clinical equipment, and office improvements?
- Is my entity aligned with my long-term goals? For example, expansion, new partners, or additional locations.
If you answered “no” or “I’m not sure” to most of these, there’s a good chance your structure isn’t optimized — and that means your tax plan might not be either.
Steps to Converting Your Dental Practice Structure
Making changes to your entity might sound complicated, but with the right guidance, it’s a straightforward process. Here’s how it usually works:
Step 1: Consult a dental tax specialist
Have an expert review your past returns and business setup. A specialist understands the nuances of dental practice revenue, equipment expenses, and staff payroll — things a general accountant might overlook.
Step 2: Form or convert your entity
If a new entity type is recommended, your specialist can help register it properly and file the necessary paperwork (for instance, electing S-Corp status with the IRS).
Step 3: Adjust payroll and compensation
Once your structure is in place, it’s important to balance your salary and distributions properly. This not only keeps you compliant but also maximizes the available tax benefits.
Step 4: Apply tax-saving tactics
Your entity is just the start. You’ll also want to implement smart tax planning: like using equipment deductions under Section 179, optimizing retirement contributions, and timing practice expenses strategically throughout the year.
Step 5: Maintain and review regularly
Your entity should evolve with your practice. Schedule annual reviews to ensure you’re still getting the best financial outcome as your revenue and goals change.
Ongoing Maintenance — Don’t Revert Into the Old Trap
After you’ve made the switch or optimized your current setup, it’s crucial to maintain it properly.
That means:
- Paying yourself a reasonable salary if you’re an S-Corp owner: not too high, not too low.
- Keeping business and personal finances completely separate.
- Staying up to date on tax law changes that could affect deductions or eligibility (for example, bonus depreciation and QBI rules).
- Reviewing your setup annually with your accountant or advisor to make sure it’s still the best fit.
Remember, entity structure isn’t a “set it and forget it” decision: it’s a living part of your financial plan that should adapt as your practice grows.
FAQ Section
Q: Can I switch to an S-Corp mid-year?
Yes, you can, but timing matters. Your accountant or advisor will help you determine when and how to file so it takes effect in the current tax year.
Q: What’s the cost and benefit of restructuring?
Every practice is different, but many find that once the setup is done properly, the ongoing benefits from optimized deductions to reduced self-employment taxes: far outweigh the administrative costs.
Q: Does every dental practice need to be an S-Corp?
Not always. Some smaller or part-time practices may not benefit from the added complexity. That’s why it’s important to talk to a specialist who understands the dental business model.
Ready to see if your entity structure is working for or against you?
Let’s find out together.
Book your Free Tax Strategy Call today and discover how a smarter structure can help you keep more of what you earn.
https://lesstaxfordentists.com/
