This Spring, about 6,000 men and women will graduate from dental schools across the country. Most will sign on as associates in dental practices, but in a few years, they’ll face a big decision – whether or not they should buy their own practice. Owning a practice may not be for everyone but there are distinct benefits to ownership.
Contribute More to Retirement Savings
By owning your practice, your ability to save for retirement is greatly enhanced. This may not sound like a big deal to someone who’s starting out their career, but it’s huge. As a business owner, you can contribute to your 401K plan, and then have your business match it. You can also have an elective profit-sharing plan which contributes even more dollars towards retirement. Between those three buckets – 401K employee contribution, business contribution, and profit sharing, the tax-deductible company matching contribution to a retirement fund for someone under 50 is $58,000. For someone 50 and older, it goes up to $64,500. Over the years, that can mean the difference between retiring at the age of 55 instead working until you’re 68.
Reduce Taxes with Business Deductions
The tax incentive for business owners to contribute to retirement is one of many. As practice owners, dentists receive these tax benefits because they provide a valuable service to the community. A reduced tax burden frees up capital which allows them to invest more in growing their business, which, in turn, increases their income. Here are some of the most typical expenses business owners deduct:
- Retirement saving
- Professional dues
- Continuing education fees
- Automobile expenses
- Travel expenses
- Entertainment and meals
- Supplies and inventory
As an owner, you can also use deprecation of assets to reduce your tax obligations, including for property you own. Plus, there are significant tax benefits to hiring family members (read more about that benefit in this blog).
Greater Income Potential
If you consider lifetime earnings, a dental practice owner comes out well ahead of a lifetime associate. Associates often work long hours but the opportunity for them to benefit financially from that is pretty limited. In comparison, as a business owner, when you put in extra hours you know that effort will directly benefit your bottom line. By owning your practice, you’re also building wealth. In addition to your annual income, you’re cultivating an asset you can eventually sell when you choose to retire.
As this year’s crop of dental students prepares to graduate, I wish them great success. Those first few years as an associate are an invaluable opportunity to learn the ins and outs of the dental business and give you time to start thinking about what kind of practice you want to build. When the time comes to move into ownership, our team at Engage Advisors are available to help you start out strong and build a financially secure future. We are ready to take your call anytime.