As the calendar year draws to a close, dental practice owners face critical financial decisions that will impact both their immediate tax liability and long-term practice health. While equipment representatives may be knocking on your door promoting Section 179 deductions as the ultimate tax-saving strategy, effective year-end planning requires a more comprehensive approach.
Start with the Foundation: Cash and Profit Projections
Before making any strategic moves, understanding where your practice will land financially by December 31 is essential. Using your most recent financial statements, project your year-end cash position and anticipated profit. This foundation enables informed decision-making across all planning opportunities.
Your projections should account for typical Q4 patient volume, debt payments , and scheduled operational expenses. With this baseline established, you can evaluate which strategies align with both your tax objectives and practice goals.
Rethinking Equipment Purchases: Strategy Over Impulse
Section 179 deductions have become common knowledge in the dental community—yes, you can write off the full cost of qualifying equipment purchases. But the real question isn’t whether you can take the deduction; it’s whether you should.
Consider these strategic factors before making that year-end equipment purchase:
- Timing Analysis: Will the tax savings be more valuable this year or next? If you’re projecting higher income next year due to planned changes or investments, deferring the purchase and the related deduction might provide greater benefit.
- Financing Decisions: Should you pay cash or finance? With interest rates and cash flow considerations, financing might preserve working capital for other opportunities while still capturing the tax benefit.
- Practice Need Assessment: That $100,000 CBCT machine might generate significant tax savings, but if your practice doesn’t genuinely need it, other tax strategies might achieve similar results while better supporting your overall financial position.
Maximizing Retirement Plan Opportunities
Practice retirement plan contributions remain one of the most powerful year-end planning tools for practice owners. Beyond standard matching contributions, consider exploring the profit-sharing component of your existing plan. A well-structured profit-sharing contribution can significantly benefit you as the owner while providing meaningful benefits to your team.
Running an illustration before year-end shows exactly how contributions would be allocated between you and your staff, allowing you to optimize both tax savings and employee retention strategies. This analysis becomes particularly valuable when comparing retirement contributions against other tax-saving alternatives.
Optimizing Compensation Structure
For practices organized as S-corporations, the balance between wage compensation and distributions deserves careful attention during year-end planning. Ensuring your wage compensation meets a reasonable threshold in the eyes of the IRS, in comparison to your distributions, is important.
Staff bonuses also warrant strategic consideration. Timing these payments properly ensures proper deduction in the current year while potentially managing your tax bracket. Additionally, well-timed bonuses can boost team morale during the holiday season while achieving tax objectives.
Debt Repayment Considerations
While debt repayment doesn’t generate tax deductions like equipment purchases or retirement contributions, strategic debt reduction can strengthen your practice’s financial position and improve cash flow heading into the new year. Evaluate whether accelerating certain debt payments aligns with your overall financial strategy and available cash reserves.
Creating Your Action Plan
Effective year-end planning isn’t about implementing every available strategy—it’s about selecting the right combination for your specific situation. Start by scheduling your planning meeting early in Q4 with your CPA to allow adequate time for implementation. Bring your recent financial statements and be prepared to discuss your practice goals for the upcoming year.
Consider creating a priority matrix that weighs each strategy against your immediate tax needs, cash position, and long-term practice objectives. The most aggressive tax-saving approach isn’t always the best financial strategy.
Moving Forward with Confidence
Year-end planning represents an opportunity to align your tax strategy with your broader practice goals. While Section 179 deductions and other tax-saving tactics grab headlines, the most successful practice owners take a holistic approach that considers cash flow, practice growth, team retention, and personal financial objectives.
The key is starting early, understanding your options, and making strategic rather than reactive decisions. Your advisors can help model different scenarios, ensuring your year-end moves support both immediate tax objectives and long-term practice success.
Remember, the goal isn’t just to minimize this year’s tax bill—it’s to position your practice for continued growth and profitability while building personal wealth. Strategic year-end planning achieves both, transforming a potentially stressful season into an opportunity for thoughtful financial optimization.
Lauren Holt, CPA, serves as Principal and Dental Industry Leader at Rea. Since 2014, she’s been helping dental practice owners navigate tax planning, practice acquisitions, and strategic business decisions with a proactive, responsive approach that maximizes tax savings and practice profitability.
