Top Dentist Tax Deductions Your Office Should Know

Dental professionals provide essential healthcare services, but must also function as viable businesses; that's why knowing the relevant dentist tax deductions is so crucial in dental practices. 

Fortunately for dentists, many expenses like equipment and dental supplies are tax-deductible. With the help of a tax professional, dentists can improve their business’s financial situation by planning strategically and paying only as much tax as they should.

Top Tax Deductible Expenses for Dentists

Dentists looking to make savings on their tax bill may not be aware of all the potential tax deductions available to them. Consulting an accountant is the easiest and most effective way to make the most of your tax return. However, knowing the potential tax deductions your business can take advantage of is a great place to start.

The following tax deductions may apply to your dentistry business this tax season:

1. Start-up Costs

If you have a new practice in Jacksonville, Florida, or any other part of the US, you likely incurred significant startup expenses when launching your business. Potentially tax-deductible startup costs can include the hiring and training of employees, advertising and marketing expenses, and legal and accounting fees.

Your new business can write off up to $5,000 of qualified start-up costs and up to $5,000 of organizational costs if you spent $50,000 or less on startup expenses. For businesses that invested more than $50,000, the remaining cost must be amortized.

Please note: Tax deductions for start-up costs are only applicable if you open the business yourself; dentists who work for someone else won't qualify for this deduction.

2. Dental Equipment

US taxpayers are allowed to deduct the cost of equipment purchased for business use. In the case of dentists, this may cover essential equipment like dental chairs, specialist medical equipment like X-ray machines, and other equipment used in your dental surgery like lights and air conditioning.

Though these assets can be counted as business expenses and written off, they must be used by the business at least 50% of the time to qualify. For the 2022 tax year, up to $1,080,000 can be written off with a purchase limit of up to $2.7 million; with the deduction amount decreasing dollar-for-dollar by the amount over $2.7 million.

3. Salaries

For a new or growing business, hiring new employees is one of the most common business expenses. Fortunately, salaries paid to employees are eligible for a write-off. Ask your accountant about accounting for dentists to find out how much you could deduct.

4. Office Supplies

Dental surgeries, just like any other business, need office supplies like paper, ink cartridges, and stationery. These expenses are 100% deductible if the supplies were bought in the current tax year.

Most modern businesses also rely on technology and software for the everyday running of the business. Items that can be claimed as a tax deduction include computers, printers, and any software used for business purposes. Dentists can also claim depreciation on office equipment that is expected to last for more than one year.

5. Retirement Plan

Employees' retirement plans incur a significant cost to businesses, but you may be able to claim some of these costs back. New dental practices may qualify for the Retirement Plans Startup Costs Tax Credit that allows you to write off a certain portion of the expenses connected with setting up a SEP, Simple IRA, or 401(k) plan for the first three years.

If you match or contribute to your employees' retirement savings plans, you may also qualify for a deduction. Doing this potentially reduces your taxable income.

6. Rent

Rental expenses for dental offices are an important tax write-off. Rent eligible for a write-off can include the office space itself and any medical equipment you rent.

Dentists who set up their practice in their homes also qualify for tax deductions. They can usually claim the applicable portion of rent and utility bills as home-office expenses to reduce their adjusted gross income.

7. Business Insurance

Dental practices often need a range of different insurance plans, including dental malpractice insurance. Business-related insurance premiums can usually be taken as deductions by dentists, just as they are frequently taken as tax deductions for physicians.

8. Business Meals

Some aspects of business are conducted outside of the office. If you meet the requirements set by the IRS for business meals, you could deduct up to 50% of the cost of the meal. To qualify for a tax deduction, the following requirements must be met:

• The person claiming the deduction must be present throughout the meal and talk about business during the meal.

• The meal must be with somebody connected to the business such as a patient, consultant, or employee.

• Social meals where no business was discussed aren't tax deductible.

9. Business Clothing

Dentists and their employees may require specialized clothing or uniforms, which can be claimed as business expenses. Dentists with their own businesses can deduct the cost of specialized clothing if they provide it to their employees or provide employees with funds to purchase their own.

10. Legal and Professional Fees

Dentists often need to turn to other professionals to help with the everyday running of their business. Tax-deductible expenses can include legal fees and accounting services.

11. Professional Dues

All businesses in the medical profession are required to pay professional dues and licensing fees. This includes things like medical license renewal and ADA membership fees. You can also deduct qualified expenses associated with continuing education, such as training courses and subscriptions to relevant professional publications.

Consult a Tax Professional to Optimize Your Tax Return 

Understanding how deductions can work for your business is a great start. However, getting the help of a tax professional to optimize your tax return is the best way to ensure your dental practice pays the right amount of tax (and no more).

After graduating from dental school or forming your own dental practice, you’ll want to focus on your patients and on providing the best possible care. A tax professional can advise you on strategic tax planning ahead of technical details like equipment and uniform purchases so you can rest assured that you’re getting the full benefit of the deductions that are available to you.