5 Financial Decisions That Can Make or Break a Dentist's Wealth

If you want to build millions over your career as a dental practice owner, it is not just about being a great dentist. It is about getting five big financial decisions right. Most dentists have the skills to produce good money, but they leave too much on the table because the deal, entity, pay structure, accounting and tax plan are not optimized.

1. Am I buying the right practice at the right price with the right terms?

A practice purchase is not a clinical decision. It is a cash flow and risk decision. You do not need to become an accountant, but you do need to know enough to ask the right questions and not get sold a story.

1. 01Know your personal number. How much do you need to take home after taxes to live comfortably, pay student loans and still build wealth?
2. 02Ask for the right documents early: three years of tax returns, profit and loss, balance sheet, last 12 months of production and collections by provider, payer mix, payroll report, lease and key agreements.
3. 03Normalize the profit. Adjust for owner's pay, rent, staffing, marketing and one-time items to see true cash flow to owner.
4. 04Calculate your real take-home. Subtract debt payments, realistic equipment spending and taxes to see what actually funds your life.
5. 05Focus on terms, not just price. Lease terms, seller transition support, seller notes and earnouts affect your cash flow and risk more than the headline price.

2. What entity structure should I use?

Entity setup is the foundation of tax savings and asset protection. Your LLC, PLLC or PC is the legal entity. An S corporation is not a separate legal entity; it is a tax election you can make on top of your LLC, PLLC or PC.

• Most dentists should use an LLC or PLLC taxed as an S corp for the practice entity.
• Hire a dental-specific CPA who is aggressive but legal with tax strategy, not reckless and not overly conservative.
• If you buy the building, put it in a separate LLC for liability separation and asset protection.
• Keep rent reasonable and defensible between the practice and the real estate entity.
• Never put real estate inside an S corp. A simple LLC is the right container for real estate.

3. How much should I pay myself?

As an S corporation owner, you have two main ways to take money out: W2 wages and owner's distributions. W2 wages are subject to payroll taxes. Distributions are not subject to the additional 15.3% self-employment tax. That is the game.

Most practice owners fall in the $100,000 to $150,000 range for W2 pay, but reasonable compensation depends on your profitability and role. Do not skip it, but do not overpay payroll taxes either. The rest of your pay can come out as distributions when it makes sense.

S corp timing

If you close early in the year and expect strong profits, electing S corp status in year one may make sense. If you close in Q4, year one may show a loss because of interest, depreciation and startup expenses. In that case, staying a default LLC for year one and electing S corp effective January 1 of year two is often smarter.

4. What does a clean accounting system look like?

Dentists deserve plain English and clear numbers. A clean accounting system means you understand your practice every month, not once a year at tax time.

1. 01Give your accountant third-party access to business bank accounts, credit cards and accounting software.
2. 02Receive a monthly profit and loss, balance sheet and key KPIs.
3. 03Track overhead percentages: facility, dental supplies, lab and staff salaries.
4. 04Use one dedicated business bank account and one business credit card for business expenses.
5. 05Connect everything to QuickBooks Online and use a real payroll system like Gusto or ADP.

“If you are not looking at your numbers monthly, you are driving with your eyes closed.”

5. What is my tax strategy?

This is where most dentists leave money on the table. Your tax plan should be proactive, aggressive and legal. Here are five areas every practice owner should explore.

1. 01S corp strategy with the right owner pay. Pay yourself the right W2 amount and take the rest as distributions.
2. 02Family on payroll. A working spouse or kids doing real work can shift income and unlock retirement contributions.
3. 03Retirement plan strategy. Use 401k, profit sharing and other plans to move taxable income into wealth-building accounts.
4. 04The Augusta rule. Rent your home to your practice for up to 14 days per year, creating a practice deduction and tax-free personal income when done correctly.
5. 05Depreciation strategy. Allocate the purchase price toward tangible assets that can be accelerated with Section 179 or bonus depreciation.

Goodwill is typically written off over 15 years, which is slower. Tangible assets like equipment, technology and buildout can often be accelerated. That is why your CPA should be involved before you close, not after.

The five-question recap

• Am I buying the right practice at the right price with the right terms?
• What entity structure should I use for my practice and real estate?
• How much should I pay myself and should I pay my spouse on payroll?
• What does a clean accounting system look like so I understand my numbers monthly?
• What is my tax strategy so I pay as little as legally possible?