End-of-Year Tax Planning for Dentists

As the year wraps up, it's the perfect time for dentists and practice owners to review tax planning strategies that can help reduce their tax bill and enhance long-term financial success. Below are some of the most impactful strategies to consider before December 31st.

Maximize Retirement Account Contributions

For 2025, the employee contribution limit to 401(k) is $23,500, plus an additional $7,500 catch-up if you're age 50+ by year-end.

Pretax vs. Roth Contributions?

Work with your Financial Planner to determine whether Pretax or Roth contributions are right for you based on your current vs. expected future tax rates, filing status, and long-term goals.

Additional Strategies:

• Backdoor Roth IRAs: Ideal for high-income earners who phase out of Roth IRA eligibility. There are several key steps to execute this strategy correctly. Please work with your Financial Planner to ensure it’s done right.

• SEP IRAs or Solo 401(k)’s: Great for dentists with 1099 income.

• Profit-Sharing 401(k) contributions for dental practice owners. Profit-sharing 401(k)s allow practice owners to contribute a significant amount into their 401(k) each year, which leads to increased tax efficiency. For example:

• • You can contribute up to $23,500 annually to your 401(k) in 2025 (plus an additional $7,500 catch-up contribution if you’re age 50 or older).

• • The total annual limit, including employee contributions, employer match, and profit sharing, is $70,000 (or $77,500 if age 50+).

• Cash Balance Plans: Often underutilized, these can allow six-figure contributions (depending on your age) and are effective for established practice owners with consistent and healthy cash flow seeking to accelerate retirement savings and reduce taxable income during high-income years.

 

Consider Using Tax Loss Harvesting & Direct Indexing in Your Brokerage Account

Tax loss harvesting involves selling investments at a loss to offset capital gains and reduce taxes. This is especially valuable during market downturns or corrections. Short-term and long-term capital losses can be carried forward on your tax return indefinitely.

Why Direct Indexing Can Be Ideal for Dentists

Direct Indexing allows you to own individual stocks from an index (i.e. S&P 500) rather than a single ETF or mutual fund. This gives you:

• More tax loss harvesting opportunities: Even if the overall market is up, some individual stocks may be down each year.

• Customized portfolios: Exclude stocks you’re overexposed to (i.e. Nvidia & Apple).

• Ongoing tax efficiency: Capital losses can offset future gains or be carried forward indefinitely to increase your after-tax return without sacrificing your portfolio’s total return.

• The future sale of your practice could result in the largest tax bill of your life. When you sell your practice, applying capital losses banked from direct indexing and strategic tax loss harvesting can lower your tax bill significantly.

If you have a high income, high cash flow, and own a business, direct indexing is a great strategy to lower your lifetime tax bill.

 

Consider Roth Conversions

A Roth conversion can be a powerful strategy to lower your lifetime tax bill, particularly in years when your income is lower than usual.

What is Roth Conversion?

This involves moving pre-tax funds from a Traditional IRA or 401(k) into a Roth IRA. You’ll pay taxes on the converted amount in the year of the conversion, but future growth and withdrawals from the Roth account can be entirely tax-free.

Why Dentists Should Consider It:

• Tax-free growth and withdrawals in retirement.

• No Required Minimum Distributions (RMDs) during your lifetime.

• Estate planning flexibility. Roth assets are preferable to inherit compared to pretax IRAs and 401(k) assets.

Key Planning Suggestions:

• Roth conversions are beneficial in low-income years or early retirement, when you’re in a lower tax bracket and can convert assets at a reduced tax rate.

• Partial conversions can help manage tax brackets and avoid a big one-time hit.

• Always run a detailed financial plan before a Roth conversion. An unexpected tax bill or tax bracket creep can quickly erase the benefits.

• Coordinate with your Financial Planner and CPA to time the conversion correctly.

 

Coordinate Year-End Strategy Meetings with Your Financial Planner & CPA

 

Optimize SALT Deduction Under the One Big Beautiful Bill ACT (OBBBA)

Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) significantly expanded the State and Local Tax (SALT) deduction, which allows taxpayers to deduct property, sales, or income taxes paid to state and local governments. This deduction is especially valuable for taxpayers in high-income-tax states, where the combined state and local tax burden tends to be highest.

• Up to $40,000 deduction if you itemize.

• Phases out starting at $500,000 modified adjusted gross income (MAGI) and fully phases out at $600,000 MAGI, and reduces the SALT deduction to a statutory floor of $10,000.

Planning Strategy: If your MAGI is around $500,000–$600,000, reducing your MAGI below the threshold may preserve significant tax savings.

Strategies to Implement:

• Defer income.

• Maximize retirement plan contributions.

• Bunch charitable contributions.

Review & Adjust Estimated Tax Payments

Your practice income may have fluctuated this year. Adjust your Q4 estimated tax payment to ensure you’re paying enough taxes through withholding, estimated tax payments, or a combination of the two to avoid underpayment penalties.

Maximize the Qualified Business Income (QBI) Deduction

Dental practices structured as pass-through entities may qualify for the 20% QBI deduction. Planning is essential to:

• Keep income under phaseout limits through proper tax planning.

• Optimize wages paid through your S-Corp.

• Choose the best entity structure for your practice.

CCR can help you connect with a dental-specific CPA to ensure you’re maximizing your tax benefits.

 

Final Thoughts

Year-end tax planning isn't just about deferring taxes; it's about optimizing your financial future. As a dentist, you face a unique mix of high income, practice ownership, and retirement planning challenges. Proactive tax strategies can lead to significant long-term savings, increased retirement security, and greater flexibility in managing your wealth.

Let’s Talk

Financial and tax planning for dentists isn’t one-size-fits-all. Your career stage, goals, and practice dynamics require a tailored approach. If you’re a dentist looking for clarity, strategy, and a long-term plan you can feel confident about, reach out to us today at 508-475-3880.