A dental practice is a professional business with a retail-style cash cycle, a heavy equipment base, and a revenue stream that passes through insurance companies before it reaches the bank. Each of those features creates a place for bookkeeping to go wrong. This guide covers what a dentist should expect from accounting support.
Production vs collections
Production is the gross value of treatment you provide. Collections are what you actually receive from patients and insurers after contractual adjustments and write-offs. Your practice management system reports both, and your books should reflect collections, net of refunds, as revenue. Recording gross production as revenue overstates income. The bookkeeping job is to reconcile deposits to the practice management system's collections report each month.
Insurance, adjustments, and patient credits
- Insurance payments often arrive in batches by claim, not by patient visit. Deposits need to be matched to the batch.
- Contractual adjustments reduce production but are not an expense of the practice.
- Patient credits and refunds are liabilities until earned or returned.
- Third-party financing and card processor fees are expenses and should be recorded separately from the deposit.
- Aging accounts receivable by payer shows where claims are stuck.
Payroll for a clinical team
Dentists, hygienists, assistants, and front-office staff may be employees, contractors, or a mix. Associate dentists are often paid a percentage of collections, and whether they are employees or contractors depends on the actual relationship. See W-2 vs 1099 classification and small business payroll services. Staff continuing education, licensing fees, and uniforms have their own tax treatment.
Owner compensation
Many practices are organized as an S corporation or a professional entity, depending on state law. An S corporation owner who works as the dentist must receive reasonable wages before distributions, and the practice's own production data can support that number. See S-corp reasonable salary and LLC taxed as S corp. Some states restrict who may own a professional practice, so confirm your state's entity rules with an attorney.
Equipment and technology
Chairs, imaging systems, scanners, and software are significant purchases. How you finance and place them in service affects depreciation, interest, and cash flow. Federal depreciation and expensing rules have changed recently, so confirm current limits before a purchase. Keep invoices, financing documents, and in-service dates. See small business year-end tax planning.
Buying or selling a practice
A practice acquisition requires allocating the purchase price among equipment, supplies, patient records, goodwill, and any non-compete. That allocation changes how quickly you can deduct the cost: acquired intangibles such as goodwill are generally amortized over 15 years, while equipment can be depreciated faster. Sellers face the mirror-image tax consequences. Work through the allocation with a tax adviser before signing the purchase agreement, not after.
Retirement and benefits
- A practice retirement plan can reduce current tax while building the owner's savings, but plans covering employees have testing and contribution rules.
- Owner health insurance has special rules in an S corporation.
- Staff benefits and bonuses should flow through payroll.
Privacy and security
If your accountant or bookkeeper sees patient information, health privacy rules may require a business associate agreement. Limit the data they need to what is necessary, often only financial summaries, and confirm security practices before sharing reports.
A monthly reporting package
- 1Profit and loss compared with the prior period.
- 2Collections reconciled to the practice management report and the bank.
- 3Overhead as a percentage of collections.
- 4Payroll as a percentage of collections.
- 5Accounts receivable aging by payer and patient.
- 6Cash position and debt service coverage.
Our bookkeeping service and tax planning service support dental practices. To schedule a business tax planning consultation, tell us your entity type, number of providers, and any planned equipment purchases or acquisitions.
