Best Entity Structure for Dental Practices

Your entity structure determines how much self-employment tax you pay, what retirement plans you can access, and how protected your personal assets are from practice liabilities. Most dental practice owners are in the wrong structure — or the right structure that hasn't been optimized.

S-Corp Election: The Starting Point

If you're operating as a sole proprietor or single-member LLC, you're paying self-employment tax (15.3%) on every dollar of net profit. By electing S-Corp taxation, you pay yourself a reasonable salary and take remaining profits as distributions — which are exempt from self-employment tax.

Example: A dentist netting $400,000 who restructures as an S-Corp and pays themselves a $200,000 salary saves approximately $18,000–$22,000 per year in self-employment taxes on the $200,000 taken as distributions.

The key is setting a "reasonable salary" — too low and the IRS can reclassify distributions as wages; too high and you miss the savings. Learn more in our S-Corp vs. LLC comparison for dentists.

When a C-Corp Makes Sense

For high-income dentists (typically netting $500K+), a C-Corp structure can be advantageous because:

21% flat corporate tax rate: Lower than the top individual rate of 37%
Defined benefit plan contributions: C-Corps can fund larger defined benefit plans, sheltering $150K–$300K+ per year
Medical expense reimbursement: C-Corps can deduct health insurance and medical expenses as fringe benefits
Income splitting: Allows strategic allocation between corporate and personal income

The downside is double taxation on dividends, but with proper planning — using salary, retirement contributions, and fringe benefits — most dental practice C-Corp owners pay minimal or no dividends.

Multi-Entity Structures for Multi-Location Practices

If you operate or plan to operate multiple locations, a multi-entity structure offers both tax and liability benefits:

Separate professional entity per location: Isolates malpractice and operational liability
Management company: Provides centralized services (billing, HR, marketing) and charges management fees
Real estate holding entity: Owns the practice real estate and collects rent, building equity separately from the operating business

State-Specific Considerations

Dental practices face unique state restrictions on entity types. Many states require dental practices to operate as Professional Corporations (PCs) or Professional Limited Liability Companies (PLLCs). The tax elections (S-Corp or C-Corp) can still apply within these structures, but the formation must comply with state dental board requirements.

Entity Structure and Exit Planning

Your entity structure today affects how much you'll keep when you sell your practice. Asset sales vs. stock sales, goodwill allocation, and installment sale structures all depend on how your practice is organized. Getting the structure right now saves significant taxes at the point of sale.

Getting Started

At Crane Financial, entity structuring for dental practices is one of our core specialties. We evaluate your current setup, model the tax impact of different structures, and coordinate with your attorney to make the transition. Learn more about our entity structuring service or explore the full dental tax strategy landscape.