Most dentists understand the value of earning a good income. Fewer realize that income alone is not what builds lasting wealth. The real key is tax efficiency.
When you move from being a high earner to being an equity owner, you gain more than control over your business. You also unlock powerful tax advantages that help your money work harder.
Here is how ownership gives dentists a financial edge that employees and associates rarely experience.
- Business Deductions Turn Expenses Into Savings
Associates typically earn a W-2. Every dollar they make is taxed before they ever see it.
Owners, however, pay taxes after business expenses are deducted. That means the cost of running and improving the practice, such as equipment, staff training, continuing education, marketing, insurance, or even part of a car or home office, can all be used to lower taxable income.
Example:
If your practice earns $500,000 and you spend $100,000 on qualified business expenses, you are only taxed on $400,000.
A high-earning associate with the same income pays taxes on the full $500,000.
Over time, this difference compounds into thousands of dollars in annual savings and stronger cash flow to reinvest back into your business or retirement.
- Retirement Contributions Create “Invisible” Savings
Practice owners have the freedom to design custom retirement plans such as 401(k)s with profit sharing or cash balance plans. These options allow for significantly higher pre-tax contributions than standard employee plans.
Every dollar you contribute reduces your taxable income while funding your future.
Example:
A dentist who contributes $60,000 to a profit-sharing plan could save roughly $18,000 to $20,000 in taxes that year. That contribution continues to grow tax-deferred, multiplying its impact long term.
- Depreciation and Section 179 Deductions Accelerate Tax Benefits
Large purchases like dental equipment, technology, and office renovations can be depreciated, meaning their cost is written off over time to reduce taxable income.
Thanks to Section 179 and bonus depreciation, many of these assets can be deducted in full during the year they are purchased.
For growing practices, this can mean immediate tax relief and more capital to reinvest in upgrades, hiring, or marketing that further build equity.
- Multiple Income Streams Create Flexibility and Lower Taxes
High earners typically have one form of income, wages, which are taxed at the highest ordinary rates.
Owners can diversify income into several categories that are often taxed more favorably:
- Salary for clinical work
- Profit distributions as business income
- Rental income if they own their building
- Investment returns from excess cash
This diversification helps reduce overall tax liability and creates flexibility in how and when income is recognized.
- Capital Gains: The Ultimate Owner’s Reward
When an owner eventually sells their practice, the proceeds are typically taxed as long-term capital gains, not as ordinary income.
That difference can be dramatic.
- Ordinary income tax rate: Often 30 to 37 percent for high earners
- Long-term capital gains rate: Usually 15 to 20 percent
Example:
If you sell your practice for $1 million, you might keep around $800,000 after capital gains taxes.
If you earned that same $1 million as wages, you could end up with $650,000 to $700,000 after taxes.
That is a $100,000 to $150,000 difference simply because of how the money is classified.
Capital gains are the reward for years of building an asset that grows in value. It is a tax break designed for people who create and invest, not just earn.
- Equity Ownership Creates Compounding Tax Advantages
Each of these benefits, such as deductions, retirement plans, depreciation, and capital gains, creates savings on its own. When combined, they create a compounding effect.
The money you save in taxes can be reinvested into new equipment, debt reduction, or additional investments that generate even more equity and growth.
Over a career, this layering of efficiency is what separates dentists who simply earn a living from those who build lasting wealth.
The Bottom Line
High earners work for income.
Equity owners build assets that keep paying them even after they stop working.
The tax system rewards that ownership mindset every step of the way.
If you are ready to move from earning income to building wealth, the first step is understanding how to use ownership to your advantage.
How Engage Advisors Helps Dentists Build Tax-Efficient Wealth
At Engage Advisors, we help dentists structure their businesses to take advantage of every available tax strategy. Our team works with practice owners to:
- Maximize deductions and write-offs
- Design custom retirement plans
- Plan equipment purchases for tax savings
- Model sale scenarios to understand future capital gains
We do not just help you save on taxes this year. We help you design a financial strategy that grows wealth for decades.
Ready to understand how ownership can transform your tax strategy?
Schedule a consultation with Engage Advisors to learn how to keep more of what you earn and grow equity faster.