As a dental practice owner, you juggle schedules, supplies and staff. You also want a team that shows up motivated and stays long-term. Profit sharing is a great way to turn a portion of your practice profit into a predictable reward for your team.
Here’s a practical guide written for dentists and practice owners with examples on how to structure profit sharing in your practice and what you need to be aware of.
What Profit Sharing Looks Like for a Dental Practice
Profit sharing is any arrangement where the practice sets aside some of its profits and distributes them to eligible team members. That can look like a year-end cash bonus paid from profits, an employer contribution into each employee’s retirement account, or a partner-style split for associates.
The key point is that the employer decides how much to contribute and when. That flexibility means you can reward staff when the books allow and pause contributions in lean years without creating a permanent payroll obligation. Profit-sharing plans are discretionary by design, giving employers room to match contributions to cash flow — an approach that can also support strategies like the QBI Deduction for Dentists to maximise overall tax efficiency.
Why Profit Sharing Helps Owners and Staff
Profit sharing does three practical things for a dental practice.
First, it helps retention and recruitment. A clearly explained profit-sharing program is a tangible benefit that candidates notice. It keeps hygienists, assistants and front-desk staff thinking long term, rather than shopping for the next hourly bump.
Second, it aligns incentives. When the team sees which behaviours move the needle, like better production and fewer no-shows, those behaviours become shared objectives.
Third, there are tax advantages when you make retirement contributions for your employees. Employer contributions to a dental practice profit-sharing plan are generally deductible for the business, and the employee only pays income tax later when they withdraw the money in retirement.
Ways to Structure Profit-Sharing in Dental Practices
Dental practices we’ve worked with typically pick one of a few models, depending on tax goals and the amount of administrative work required.
The simplest is a cash bonus tied to a selected profit metric. Here, you set aside a fixed percentage of profits each quarter or year and distribute it as a bonus to eligible staff. This is easy to explain and quick to administer.
A second common approach uses a 401(k) with employer profit-sharing contributions, which lets you pay out into retirement accounts, so contributions grow tax-deferred until the employees take the money out in retirement. That approach takes a little more paperwork but delivers tax benefits and is attractive to employees who care about retirement savings.
A third option is an associate or partner split, where long-tenured clinicians or buy-in associates receive a contractual share of profits. This typically requires a written agreement with buy-outs and exit terms.
Each model has tradeoffs, and many practices blend elements to suit their cash flow and culture.
Tax and Compliance Highlights You Must Know
Let’s cover the limits and rules to consider if you’re putting profit sharing into a qualified retirement plan.
Employer contributions to many retirement plans are generally capped at 25% of the eligible employees’ pay. On top of that, there are yearly dollar limits for how much can go into each person’s account. Those limits can change from year to year.
For example, in 2025, the total amount that can go into an individual’s account from both employer and employee contributions increased, and the employee 401(k) deferral limit is $23,500. Older employees can add extra catch-up contributions, and dental practices can also take advantage of dental practice profit-sharing plans to maximise retirement savings for their team.
If you choose cash bonuses instead of retirement contributions through your dental practice profit profit-sharing plan, remember that those bonuses are treated as wages. That means you must withhold income tax and pay payroll taxes on them, so budget for those costs.
Finally, retirement plans must pass nondiscrimination tests so they do not unfairly favour owners over staff. Proper plan design can let owners save more while staying compliant. That’s something you will want a CPA’s advice on. For guidance on reviewing your practice’s finances partway through the year, see our blog on Your Mid-Year Financial Check-In for Dentists (2025).
Common Pitfalls To Avoid
When it comes to profit-sharing, it’s best to be transparent with your employees. Here are a few mistakes we’ve seen that you can easily avoid with some planning.
First, not putting the plan in writing creates confusion. A short, clear document that states the metric, eligibility and timing helps to prevent disputes.
Second, don’t use a metric, like net profit, that changes because of one-off items. This undermines trust. Use an adjusted profit definition and show the math with transparency when you announce results.
Third, promising retirement-based contributions without checking nondiscrimination testing and contribution limits can create unexpected tax problems for you. Make sure your dental practice’s profit-sharing plan is reviewed by your CPA before you announce it to ensure compliance and avoid surprises.
Finally, remember to budget for employer taxes on cash bonuses paid out, which incur payroll taxes. This ensures the payout does not create a cash hit for the practice.
Final Thoughts On Designing A Dental Practice Profit Sharing Plan
One of our pro-tips when advising dental practice owners is that dental practice profit sharing is not a replacement for market-competitive base pay. It should serve as a variable reward linked to performance.
Your employees will value a coherent total compensation strategy that includes a competitive base pay, clear role expectations, and variable pay tied to measurable outcomes.
Need help with modelling profit-sharing scenarios and designing a plan for your practice?
We work with dental practice owners to do just that.
Book a call with us and we’ll talk through the profit-sharing structures that are the best fit for your dental practice.
