When you imagined what it would be like to own a dental practice and finally work for yourself, you probably didn’t picture thinking about legal entities and tax classifications.
It’s not exactly the exciting side of ownership, but it’s one of the most important. The structure you choose determines how your income is taxed, how your assets are protected, and how your practice operates behind the scenes.
Whether you’re opening your first practice or have been an owner for years, your business structure isn’t something to “set and forget.” As your practice grows, your entity type might need to evolve with it.
Here’s a breakdown of the most common options and how to know when it’s time to make a change.
Common Business Entities for Dental Practices
Sole Proprietorship
Description: One person owns and controls the business. All income, expenses, and liabilities flow directly to the owner’s personal tax return (Schedule C).
Pros: Simple to set up; no separate tax return.
Cons: No liability protection, the owner is personally responsible for all debts and lawsuits.
Partnership
Description: Two or more people share ownership and control. Each partner reports their share of profits or losses on their own tax return.
Pros: Allows income and expenses to pass through to partners and provides flexibility in allocations.
Cons: Unless structured as a Limited Liability Partnership (LLP), partners share unlimited personal liability. State laws differ, so it’s crucial to have a written agreement.
Limited Liability Company (LLC)
Description: An LLC offers legal protection for personal assets while maintaining flexible tax treatment. Owners can choose to be taxed as a sole proprietor, partnership, or corporation.
Pros: Personal asset protection and flexible taxation.
Cons: Members are considered self-employed unless they elect S-Corp or C-Corp status, meaning they pay self-employment taxes on earnings.
C Corporation (C-Corp)
Description: Once common, now rare in dentistry. C-Corps pay corporate income tax, and owners pay tax again on dividends — “double taxation.”
Pros: Strong liability protection; unlimited shareholders.
Cons: Requires complex record-keeping and leads to double taxation.
S Corporation (S-Corp)
Description: The most common choice among dentists. S-Corps avoid corporate income tax by passing income directly to owners’ personal returns.
Pros: Pass-through taxation means income is taxed once, not twice. Owners can pay themselves a reasonable salary and take remaining profits as distributions, often reducing self-employment tax.
Cons: Limited to 100 shareholders and requires consistent documentation and payroll management.
When to Reconsider Your Entity Structure
Your first entity choice might have been right when you started, but circumstances change. Here are signs it may be time to revisit your setup:
- You’ve grown. What worked for a single-chair start-up may no longer fit a $2 million multi-doctor practice.
- You added partners or new locations. Ownership changes can affect how income and liability should be structured.
- You’re paying more in taxes than expected. The right entity can reduce payroll and self-employment taxes significantly.
- You’re planning to sell or transition. The wrong structure can complicate a sale or create unnecessary tax burden.
- Tax laws have changed. Periodic updates to federal and state codes can make other classifications more favorable.
The good news? Your business entity isn’t set in stone. You can change it as your practice evolves — and doing so at the right time can save thousands in taxes and strengthen liability protection.
How Engage Advisors Helps Dentists Decide
Most dentists today operate as S-Corps, which often strikes the best balance between tax efficiency and liability protection.
However, the right choice depends on your income level, long-term goals, and whether you own real estate through your practice.
At Engage Advisors, we regularly help dentists evaluate their structure using real numbers — not one-size-fits-all templates.
We analyze:
- Current and projected income
- Payroll and owner compensation
- Real estate ownership
- Partnership or associate relationships
- State dental board requirements
From there, we help implement a structure that’s tax-efficient, compliant, and aligned with your growth plan.
The Bottom Line
Choosing or changing your business entity might not feel exciting, but it’s one of the most powerful financial decisions you’ll make as a practice owner.
The right structure protects your personal assets, minimizes your tax burden, and sets your practice up for long-term success.
If your current setup hasn’t been reviewed in a few years, it’s worth taking another look.
Engage Advisors helps dentists understand when it’s time to re-evaluate their business structure — and how to make changes that actually benefit the bottom line.