The Most Overlooked Tax Mistake in Dentistry: Excess Distributions

The Most Overlooked Tax Mistake in Dentistry: Excess Distributions

1/6/2026 5:08:50 AM   |   Comments: 0   |   Views: 91

The Most Overlooked Tax Mistake in Dentistry

View More Episodes: https://podcasts.apple.com/us/podcast/the-dental-boardroom/id1518344747

In this episode, Wes Read CPA, CFP breaks down several key financial concepts that every dental practice owner should understand. He explains the importance of choosing the right entity structure—whether it's an S Corporation, LLC, or sole proprietorship—and how each can impact your tax obligations. Wes also dives into the concept of "excess distributions" and how they can trigger costly penalty taxes if not carefully managed. 

You'll learn how dental partners often use S Corporations to structure their ownership, and why understanding your "basis" is essential for making informed financial decisions. Wes outlines the three primary methods dentists use to extract money from their businesses, along with the risks each approach carries. Most importantly, he shares practical tips for avoiding excess distributions through smarter planning.

This episode is especially valuable for practice owners who have recently acquired a practice, are in the middle of a buildout, are purchasing major equipment, or simply want a clearer understanding of how cash flow differs from taxable income.

Key Points:
1. Excess distributions occur when more money is taken out of an S Corporation than the owner's stock basis allows.
2. These excess amounts are taxed as capital gains and can invite IRS scrutiny.
3. Stock basis is affected by contributions, retained earnings, distributions, and shareholder loans.
4. Three ways money exits the business: through payroll (W-2), direct distributions, and personal expenses charged to the business.
5. S Corporations are preferred for dentists due to pass-through taxation, avoiding the double taxation of C Corps.
6. LLCs can be taxed as S Corps, depending on the state and filing election.
7. Planning ahead with your CPA is critical to avoid costly surprises.

Want more podcasts from The Dental Boardroom? - https://podcasts.apple.com/us/podcast/the-dental-boardroom/id1518344747
Want more podcasts from The Dental Sales? - https://podcasts.apple.com/us/podcast/the-dental-practice-sale/id1677648235

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