10 Dental Tax Deductions to Know About in 2024
As a dentist, you have a lot to juggle. From taking care of patients to running your practice and keeping up with new dental technologies, you’re always busy. Saving money through tax deductions shouldn’t be another thing to worry about.
Understanding and using tax breaks can make a big difference in your finances. We’ve put together a list of the top 10 most valuable tax deductions for dentists in 2024 to make things easier for you.
These tax deductions can help you reduce the amount you owe to Uncle Sam. Instead of waiting for a big refund check, you can keep more of your money throughout the year.
Let’s go through these ten dental tax deductions and show you how you can save more on your taxes.
Dental Tax Deduction #1: Start-Up Costs
If you’ve just opened your dental practice (or are thinking about it), the expenses can feel overwhelming.
From buying the latest dental equipment to decorating the reception area, every expense needs careful planning.
The good news is that the IRS allows you to deduct up to $5,000 of these start-up costs.
You can also deduct another $5,000 for organizational costs like legal fees, state filing fees, and initial accounting fees.
Keep in mind that these deductions start to decrease if your total start-up or organizational costs go over $50,000. If your expenses are higher, you can still benefit by spreading out the costs over several years, which helps manage your cash flow as your practice grows.
Dental Tax Deduction #2: Student Loan Payment Deduction
If you're still paying off your student loans from dental school, make sure to take advantage of the $2,500 deduction for the interest you pay each year.
This deduction helps lower your taxable income, so you can keep more of your money.
The best part is that you can use this deduction whether you itemize your deductions or take the standard deduction, making it an easy way to get some tax relief.
Dental Tax Deduction #3: Operating Expenses
Running your practice comes with various daily costs, but the good news is that these expenses are fully tax-deductible.
Whether it’s rent, utility bills, or staff salaries, make sure to keep track of all these expenses.
However, you can't include government fines, penalties, or political contributions as deductible expenses. The IRS only accepts costs that are “ordinary and necessary” for your business.
Dental Tax Deduction #4: Insurance
You’re probably paying for several types of insurance, like malpractice, workers’ compensation, and property insurance. Good news—they’re all deductible! And if you're covering your own health insurance, you can deduct those premiums too.
To qualify, the health insurance must cover you, your spouse, and any dependents. Also, you must not be eligible for a health insurance plan through your employer or your spouse’s provider. Plus, the premiums shouldn’t be paid through any pre-tax program.
These premiums are considered an adjustment to income. This means you can deduct them from your gross income without needing to itemize deductions.
Dental Tax Deduction #5: Home Office
If you use certain parts of your home as an office, you might qualify for a home office deduction. This can cover costs like mortgage interest, insurance, utilities, repairs, maintenance, and rent.
The IRS requires that the space must be used exclusively and regularly for business. For example, it could be a dedicated room for administrative tasks.
Additionally, your home must be your principal place of business, or you must do significant administrative or management activities there without having another location for these tasks.
You can determine the value of your deduction using one of two methods: the simplified method or the actual expenses method. If figuring this out seems complicated, a qualified dental accountant can help you decide which method is best for you.
Dental Tax Deduction #6: Education and Professional Development Expenses
Are you taking courses or attending seminars to stay up-to-date with dental advancements? You can deduct these costs, including travel expenses, as long as they are mainly for professional development.
You can also deduct membership fees for dental associations or other professional groups like ADA, AAP, AOS, and others.
Dental Tax Deduction #7: Qualified Business Income Deduction (QBID)
If you’re a dentist running your practice through a pass-through entity like a sole proprietorship, partnership, or S corporation, you can benefit from the IRS's Qualified Business Income Deduction (QBID).
With the QBID, you can deduct up to 20% of your qualified business income from your taxable income.
Even better, if you also have rental properties, you might be able to apply this deduction to those as well. Just ensure your rental activities meet the IRS’s criteria for a trade or business.
Dental Tax Deduction #8: Retirement Planning
Only about 25% of dentists take full advantage of all available retirement account options. We hope you’re already one of them!
If not, it’s never too late to start contributing to retirement plans like a 401(k), IRA, or SEP-IRA. By doing so, you're not only securing your future but also getting extra tax deductions.
Here at Core Advisors, we handle the retirement planning and wealth management for all of our clients, so it’s one less thing you have to worry about.
Dental Tax Deduction #9: Depreciation in Real Estate
Depreciation is a way to account for the wear and tear of property over time. For tax purposes, it lets you deduct a portion of the cost of the property you own each year from your taxable income.
Here’s how it works: Let’s say you bought a building for your dental practice for $200,000. Instead of taking a huge financial hit the year you buy it, you can spread out the cost over time.
The IRS allows you to depreciate the value of the building (not the land) over a specific period, usually 27.5 years for residential property and 39 years for commercial property.
This means that every year, you can deduct a fraction of the building's cost from your taxes, effectively reducing your taxable income.
Dental Tax Deduction #10: Child Tax Credit
If you're a dental professional with a child, the Child Tax Credit (CTC) offers valuable tax benefits to help lower your tax bill.
For the 2024 tax year, you can get up to $2,000 per qualifying child under the age of 17. However, this credit starts to decrease for higher-income taxpayers, beginning at $200,000 for single filers and $400,000 for married couples filing jointly.
Additionally, up to $1,600 of the CTC is refundable, which means you can receive this amount as a refund even if you don't owe any federal income tax.
Avoid Overpaying Your Dental Taxes
Saving money on taxes can be tricky, but it’s worth it. Using these deductions can help you save tens of thousands of dollars each year and improve your dental practice’s cash flow.
However, tax rules can be confusing and always changing. To make sure you’re following the rules and getting the most out of your deductions, it’s important to get expert help.
Here at Core Advisors, we focus on finding the best dental tax strategies to help you save money. We make sure you’re only paying what you owe and taking full advantage of your deductions and credits.
If you're in search of a better dental accountant, we're always here to help. Head over to our Getting Started page and book an introductory call to see how we can assist you.
Until next time!
