Finance32: Dental School’s Missing Curriculum
Finance32: Dental School’s Missing Curriculum
Great clinical skills simply are not enough for dentists to achieve financial success. Let Focus Partners Wealth's Practice Integration Advisors share what else you need to know to realize your lifetime goals and obtain financial peace of mind.
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Year-End Tax Planning for Dental and Medical Practice Owners

Year-End Tax Planning for Dental and Medical Practice Owners

10/22/2026 11:01:00 AM   |   Comments: 0   |   Views: 35
By Director and Practice Integration Advisor Thomas Bodin, CFA, CFP®, TPCP®? 

With the October 15 tax extension deadline past, the fourth quarter is a key time to consider decisions that affect this year’s taxable income.

For a practice owner, tax planning is a year-round activity and many decisions may be implemented before the end of the calendar year. Even when action can wait until the following year, planning ahead helps you manage cash flow and prepare for upcoming liabilities and opportunities. Here is a strategic process for reviewing your financial picture and making thoughtful year-end decisions.

Key Takeaways About Year-End Tax Planning

  • Year-end tax planning starts with understanding your practice profit, household income, deductions, tax payments, and cash flow.

  • Practice owners may manage taxable income through retirement contributions, family compensation, charitable support, and strategic business investments.

  • Tax deductions should be evaluated across multiple years, since maximizing them in one year may reduce their value in future higher-income years.

  • Coordinated tax strategies can help balance current tax savings and cash flow while directing more practice income toward long-term family wealth.

Understand Your Complete Financial Picture

First, clean up your practice’s financial records and project year-end profit. Add your spouse’s earnings, forecast investment income, and include income from other businesses. Next, compare your household’s projected income with prior years and review estimated taxes and withholding already paid.

Good decisions require good data. Knowing what you have earned, how it compares with prior years, and whether your tax payments are keeping pace should inform you of your next steps.

Capture the Deductions You Have Already Earned

Review operating expenses, continuing education, professional dues, technology costs, and mileage and travel records. If applicable, assess home office deductions and availability of the Augusta Rule. Reconcile equipment purchases and identify deductions or losses carried forward from prior years. Avoid paying unnecessary taxes simply because an expense was overlooked or poorly documented.

Understand Where Your Income Falls Within the Tax System

Practice owners can influence the timing and character of their income. Used intentionally, these strategies can produce meaningful lifetime tax savings.

Key thresholds include the qualified business income deduction, the state and local tax (SALT) deduction, and higher marginal tax brackets. Because these provisions interact, reducing income may both lower taxable income and preserve a deduction that would otherwise be reduced or unavailable.

Once you understand your projected household income and practice profitability, you can evaluate additional steps to move taxable income closer to your desired outcome. A successful practice does not provide unlimited control over taxes, but it does create choices: profit can be deferred, shifted across generations, used to support charities and your community, reinvested in the practice, or recognized as taxable income.

Shift Income to the Future

Qualified retirement plans, coordinated W-2 compensation, and employing a spouse who performs legitimate work for the practice can shift taxable income while building wealth.

For 2026, eligible 401(k) participants may defer up to $24,500. Those age 50 or older may qualify for an additional $8,000 catch-up contribution, while participants ages 60 through 63 may qualify for an $11,250 catch-up. Higher earners should also determine whether catch-up contributions must be Roth contributions, which do not reduce current taxable income.

Putting a spouse who works in the practice on payroll may create a second deferral opportunity. The employee deferral limit generally applies per individual, not per plan.

Employer contributions through profit sharing or safe harbor provisions may provide additional savings opportunities. In addition to employee deferrals, a 401(k) may allow up to $47,500 in employer contributions, subject to compensation, plan design, and applicable limits. A coordinated plan and compensation strategy can help owners and their families save efficiently while meeting employee contribution requirements.

For practices with sufficient and consistent profitability, a cash balance plan may create an additional opportunity to defer income beyond what a 401(k) alone allows.

Shift Income Across Generations

If your children perform legitimate work for the practice, paying them reasonable compensation can shift income to a family member in a lower tax bracket. Their responsibilities might include age-appropriate administrative tasks, lawn care, or light janitorial work. Compensation for promotional work should reflect actual services and be appropriately documented.

As an owner, a substantial portion of your income may fall into higher marginal tax brackets. A child with little other income may owe substantially less federal income tax on the same earnings. For 2026, the standard deduction for a single filer is $16,100 of earned income, which may effectively create a 0% tax bracket. Payroll taxes and other requirements still apply.

Earned income can also allow your child to fund a Roth IRA, creating an opportunity to begin saving for the future early in life.

Support Charities and Your Community

New rules affecting personal charitable deductions make coordination with your broader tax plan especially important. Beginning in 2026, they include a floor equal to 0.5% of adjusted gross income for itemized charitable deductions and a limit on their tax benefit for taxpayers in the highest bracket.

Practice owners should consider where their community involvement overlaps with legitimate business promotion. Private medical and dental practices often rely on local awareness and reputation to attract patients. A sponsorship that provides meaningful advertising or promotional benefits may support both a community organization and the practice’s visibility.

When appropriately structured, this can align personal priorities with business goals. The distinction between a charitable gift and a deductible business expense depends on the arrangement, so review the treatment with your tax advisor.

Reinvest in the Practice

Running a dental or medical practice is capital intensive. There are often opportunities to upgrade equipment, refresh operatories, or expand the space. However, those investments should support a larger financial strategy. A tax deduction alone is not a reason to spend money.

Once an investment makes business sense, its timing and tax treatment become important planning considerations. Capital expenditures may be recovered through depreciation over time or, when eligible, through accelerated deductions such as bonus depreciation or Section 179 expensing.

Taking the largest available deduction immediately may significantly reduce one year’s tax bill. But it also leaves fewer deductions available in future years, when income may again fall into higher tax brackets. The best approach depends on both current and projected profitability.

Plan Across Multiple Years

Practice owners are generally best served by evaluating these decisions over several years. Combining retirement contributions, family compensation, community support, and accelerated depreciation can produce substantial deductions. It can also push income lower than intended in a single year.

Avoiding higher marginal rates over several years may produce greater lifetime savings than reaching an unusually low bracket for one year and returning to much higher brackets thereafter. Preserving access to the qualified business income, plus state and local tax deductions, can further influence the result.

The goal is to coordinate the available strategies so that each deduction delivers meaningful value within the larger financial plan.

Two Owners, Two Approaches

Consider the following hypothetical comparison, modeled using Holistiplan tax planning software. Both owners have practices with $625,000 in operating profit, a spouse, and a child. But their planning decisions differ considerably.

Practice Owner 1 has no qualified retirement plan and makes a $10,000 personal donation to a local charity. The owner receives $75,000 in W-2 compensation and takes the remaining pass-through profit as distributions, with the goal of limiting payroll taxes.

Under the draft model’s assumptions, the owner incurs $5,738 in Federal Insurance Contributions Act (FICA) taxes. Although the charitable gift could generate a $6,875 itemized deduction after applying the 0.5% adjusted gross income floor, the owner uses the standard deduction instead. The model includes a $2,000 charitable deduction for a married couple who does not itemize.

Assuming no other household income, the model projects taxable income of $590,800 and federal income taxes of $144,319. After federal income taxes, charitable giving, and the stated FICA taxes, the family has $464,943 in available earnings.

Practice Owner 2 has both a 401(k) and a cash balance plan. The practice spends $10,000 to sponsor a local charitable gala, receiving naming rights and promotional visibility in return.

The owner receives $250,000 in W-2 compensation as part of the retirement plan funding strategy and defers $24,500 into the 401(k). The spouse provides front-office and administrative support, earns $30,000, and also defers $24,500 into the plan. Their child receives $15,000 for documented services, including lawn maintenance, light janitorial work, and promotional work.

The practice makes employer contributions equal to 6% of each spouse’s W-2 compensation, and the owner receives a $75,000 benefit credit in the cash balance plan. The model also includes $16,200 in retirement plan contributions for staff to satisfy testing requirements.

The draft model projects $443,000 in income before the state and local taxes and qualified business income deductions. It then applies a $40,400 SALT deduction and a $42,400 qualified business income deduction, resulting in taxable income of $360,200 and estimated federal income taxes of $71,914. The draft lists FICA taxes of $17,359 and combined federal income and FICA taxes of $89,273, compared with $150,057 for Practice Owner 1.

The draft comparison reports approximately $60,784 in tax savings, $353,727 in available earnings, and $148,300 directed toward family wealth strategies.

While Practice Owner 1 retains more immediate spendable cash ($464,943 vs. $353,727), Practice Owner 2 redirects approximately $148,300 into retirement and family wealth-building strategies while still reducing total federal income and payroll taxes by roughly $60,784 under the model assumptions.



Conclusion

The broader planning point is that coordinated decisions may allow an owner to direct more practice income toward family wealth while preserving current cash flow. Retirement contributions, compensation, charitable support, and business investment each affect the others. Reviewing them together creates a more useful plan than evaluating each deduction in isolation.

https://www.irs.gov/pub/irs-prior/p505--2026.pdf

https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill

About the author
Thomas provides comprehensive financial advisory services to dental and medical offices, including tax, pension, and retirement planning. He leverages the practical application of his talents into designing wealth-generating and wealth-preservation strategies tailored to his client’s individual needs and goals.

Services are offered through Focus Partners Wealth, LLC (“Focus”), an SEC registered investment adviser with offices throughout the country. Registration with the SEC does not imply a certain level of skill or training and does not imply that the SEC has endorsed or approved the qualifications of Focus or its representatives. Focus has been part of the Focus Financial Partners partnership since 2011. The information in this communication is educational and general in nature and is not intended to be, nor should it be construed as, specific investment, tax, or legal advice. Individuals should seek advice from their wealth advisor or other advisors before undertaking actions in response to the matters discussed. No client or prospective should assume the above information serves as the receipt of, or substitute for, personalized individual advice. This represents the opinions of Focus and presents information that may change. Nothing contained in this content may be relied upon as a guarantee, promise, assurance, or representation as to the future. All tax laws and regulations discussed are subject to change. The scenarios described are hypothetical in nature and are not based on actual client experience. Investing involves risk, including, but not limited to, loss of principal. Focus' opinions may change over time due to market conditions and other factors. Numerous representatives of Focus may provide investment philosophies, strategies, or market opinions that vary. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. This is prepared using third party sources considered to be reliable; however, accuracy or completeness cannot be guaranteed. The information provided will not be updated any time after the date of publication. Please be advised that Focus only shares video and content through our website or other official sources. Services and investment advice are only provided pursuant to an advisory agreement with the client. RO-26-6021459

© 2026 Focus Financial Partners. All rights reserved. 
Category: Financial Planning and Investments, Practice Management, HR and Accounting
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