Tax Services for Healthcare & Dental Practices

Professional services in Los Angeles city limits are subject to the City of Los Angeles Business Tax, which is often called the gross receipts tax, and the rate for professions and occupations (which includes medical and dental practices) is approximately $5.07 per $1,000 of gross receipts as of the most recent rate schedule. This is not a tax on your profit — it is a tax on your total collections before any deductions for expenses, payroll, rent, or anything else. That distinction catches a lot of practice owners off guard because the tax bill can be significant even in years when your net income is relatively modest.

Let me put real numbers on this. Say your dental practice in West Hollywood (which is actually a separate city and has its own business tax, but let us stick with LA city proper for this example) collects $1.8 million per year in patient fees and insurance reimbursements. Your LA business tax would be approximately $1,800 times $5.07, which equals $9,126. That amount is owed regardless of whether your practice nets $500,000 or $50,000 after expenses. If you have a particularly expensive year — maybe you hired two new associates, bought a CBCT scanner, and renovated your operatories — your gross receipts tax stays the same because it is based on collections, not profit.

The LA business tax registration is handled through the City of Los Angeles Office of Finance. Every business operating within LA city limits needs a Business Tax Registration Certificate (often called a business license), and the tax is filed annually. The filing deadline is typically February 28 for the prior calendar year, though the city has occasionally extended deadlines. You can register and pay online through the LA Office of Finance portal. If you are a new practice, you need to register within the first month of beginning operations in the city, and the tax is prorated for your first year.

One important nuance: not all areas that people think of as “Los Angeles”. Are actually within LA city limits for business tax purposes. Santa Monica, Beverly Hills, West Hollywood, Culver City, Pasadena and Burbank are all separate cities with their own business tax rates and registration requirements. If your practice is in Santa Monica, you are subject to Santa Monica’s business license tax, not the LA city tax. The rates and structures vary from city to city. Santa Monica, for example, has a flat annual fee structure for certain professional categories rather than a gross receipts percentage. Beverly Hills has its own business tax ordinance with different rates. If you have multiple practice locations in different cities, you may owe business taxes to multiple jurisdictions based on the gross receipts attributable to each location.

Within the City of Los Angeles, there are also some nuances around the type of business activity. The tax rate for professions and occupations ($5.07 per $1,000) applies to medical professionals, but other categories of business activity have different rates. Retail sales, for instance, have a lower rate. If your practice has a retail component — say you sell toothbrushes, whitening kits, or orthodontic accessories — the gross receipts from those retail sales might be taxable at the lower retail rate rather than the professional services rate. In practice, the retail portion of a dental practice’s revenue is usually so small that it does not materially affect the total tax, but note it if you have a significant retail operation.

The good news is that the LA business tax is deductible as a business expense on both your federal and California state tax returns. So while you are paying $9,126 in LA business tax on $1.8 million in gross receipts, you get to deduct that amount against your practice income, which reduces your federal and state income tax liability. At a combined marginal tax rate of roughly 50% for a high-earning dentist in California (federal plus state), the net cost of the LA business tax is effectively cut in half.

There are limited exemptions and credits available. The city offers a Small Business Tax Credit for businesses with gross receipts below certain thresholds, and there is a new business exemption for the first year or two of operations. Non-profit organizations are generally exempt, but that does not apply to for-profit professional practices. Some creative professionals qualify for reduced rates, but dental and medical professionals are firmly in the professions and occupations category.

For practices considering S-corp versus sole proprietorship structures, the LA business tax applies regardless of entity type. Whether your practice is a sole proprietorship, a PLLC, or a professional corporation with an S-corp election, the gross receipts tax is the same. The entity structure affects your federal and state income taxes, your self-employment tax, and your PTET eligibility, but it does not change your LA city business tax obligation. That said, the savings from S-corp status on the federal and state side typically dwarf the LA business tax, so the city tax should not be a factor in your entity structure decision.

One last thing: make sure your practice is registered and current with the LA Office of Finance. The city does conduct audits and sends out notices to unregistered businesses. If you have been operating without a Business Tax Registration Certificate, you could face back taxes and interest. The penalty for late filing is typically 5% of the tax due per month, up to 100% of the tax. It is not worth the risk — register, file on time, and deduct the payment as a business expense on your tax return.

For practices with mobile or satellite operations — for example, a dentist who also provides services at nursing homes, schools, or employer-sponsored dental days — the gross receipts from those services may or may not be subject to LA business tax depending on where the services are physically performed. If you are performing services at a location outside LA city limits, those receipts might not be subject to the LA tax. This is worth discussing with your accountant, especially if a meaningful portion of your practice revenue comes from off-site services.

Yes, you can generally deduct the full cost of a CBCT scanner or other dental equipment in the year you buy it using Section 179 expensing, and potentially bonus depreciation as well — but there are important differences between how the federal government and California handle these deductions, and getting this right can save you thousands of dollars in unnecessary tax payments.

On the federal side, Section 179 allows you to expense the full purchase price of qualifying business equipment in the year it is placed in service. For 2024, the federal Section 179 limit is $1,220,000, with a phase-out starting at $3,050,000 in total equipment purchases. A CBCT scanner typically costs between $100,000 and $200,000 depending on the manufacturer and features, so you are well within the federal Section 179 limits. A CEREC or CAD/CAM milling system runs $120,000 to $170,000. A dental laser might be $30,000 to $80,000. Operatory chairs, delivery units, and cabinetry can run $50,000 to $120,000 per operatory. Even if you are building out a brand-new practice from scratch with all new equipment, the federal Section 179 limit gives you plenty of room.

The equipment must be placed in service during the tax year to qualify — meaning it needs to be installed and ready for use with patients, not just purchased or ordered. If you order a CBCT scanner in November but the installation and training are not completed until January, the deduction falls into the following tax year. This is a common timing issue with year-end equipment purchases, especially for complex systems that require construction work (dedicated power circuits, plumbing for water-cooled systems, structural reinforcement for heavy equipment) before they can be put into service.

Bonus depreciation is the other federal option, but it has been phasing down since 2023. For 2025, the bonus depreciation rate is 100% (permanently restored by OBBBA), meaning you can deduct 40% of the cost in year one and depreciate the remaining 60% over the asset’s MACRS recovery period (typically 5 or 7 years for dental equipment). For 2026, the rate drops to 20%. After 2026, bonus depreciation goes away entirely unless Congress passes new legislation. Because of this phase-down, Section 179 is usually the better choice for dental equipment purchases — it lets you deduct 100% of the cost in year one without any phase-down schedule.

Here is where California diverges from the federal rules, and this is the part that trips up a lot of practice owners and even some tax preparers. California does not conform to federal bonus depreciation. Period. If you claim 40% bonus depreciation on your federal return for a $200,000 CBCT scanner (deducting $80,000 in year one federally), you cannot claim that same deduction on your California return. You need to add back the entire federal bonus depreciation amount on your California return and instead take regular MACRS depreciation over the asset’s recovery period at the state level. This creates a difference between your federal and California depreciation deductions that has to be tracked and reconciled every year until the asset is fully depreciated at both levels.

California also has its own Section 179 limit, which is much lower than the federal limit. As of recent years, California’s Section 179 limit has been $25,000 — compared to the federal limit of $1,220,000. So while you can deduct a $200,000 scanner in full on your federal return using Section 179, on your California return you can only deduct $25,000 under Section 179 and must depreciate the remaining $175,000 over the asset’s regular recovery period. This means your California taxable income will be higher than your federal taxable income in the year of purchase, and lower in subsequent years as the California depreciation catches up.

For a practical example, say you buy a $180,000 CBCT scanner in 2025 and elect federal Section 179 for the full amount. On your federal return, you deduct $180,000 in 2025. On your California return, you deduct $25,000 under California Section 179 and then take regular MACRS depreciation on the remaining $155,000 — which, for 5-year property, works out to about $31,000 in the first year using the half-year convention. So your total California deduction in year one is roughly $56,000, compared to $180,000 federally. The difference of $124,000 gets picked up in subsequent years through California depreciation, but it means your California tax bill in the purchase year is significantly higher than it would be if California conformed to the federal rules.

This federal-California divergence also affects your quarterly estimated tax payments. If you make a large equipment purchase and claim the full deduction federally, your federal estimated tax payments for the year might drop significantly, but your California estimated payments should not drop as much because the California deduction is smaller. A lot of practice owners get this wrong and end up owing penalties for underpayment of California estimated taxes.

For leasehold improvements — operatory renovations, reception area upgrades, plumbing, electrical work, HVAC systems — the same rules apply. Qualified improvement property is eligible for Section 179 and bonus depreciation federally, but California’s lower Section 179 limit and non-conformity with bonus depreciation mean the state-level treatment will be different.

The bottom line for LA-area dental practices: you can absolutely deduct your equipment purchases in year one for federal purposes, and you should take advantage of Section 179 while it remains at its current generous limits. But make sure your tax preparer handles the California adjustments correctly — the depreciation differences between your federal and state returns need to be tracked accurately, and your estimated tax payments need to reflect both levels of taxation. We see mistakes in this area frequently, and they can result in either overpayment of taxes (if the preparer forgets to claim the California depreciation in later years) or underpayment penalties (if the preparer fails to account for the smaller California deduction in the purchase year).

If you are planning a major equipment purchase in the coming year, talk to your tax advisor before signing the purchase agreement — the timing, financing structure, and depreciation election can all be improved to give you the best combined federal and California tax outcome.

Cash balance plans are one of the most powerful tax-deferral tools available to dental practice owners in California, and the contribution limits are significantly higher than what you can put into a 401(k) alone. For a dentist in the right income bracket and age range, a cash balance plan can shelter $100,000 to $350,000 or more per year in tax-deductible retirement contributions — on top of what you are already contributing to a 401(k). The exact amount depends on your age, your compensation, and how the plan’s actuary designs the benefit formula.

Here is how cash balance plans work at a high level. A cash balance plan is a type of defined benefit plan — it promises each participant a specific account balance at retirement, funded by employer contributions. Unlike a 401(k) where contribution limits are fixed by the IRS (for 2024, the employee deferral limit is $23,000, or $30,500 if you are over 50), cash balance plan contributions are determined by an actuary based on what is needed to fund the promised benefit. Because the promised benefit is tied to the participant’s age and compensation, older participants can contribute more — the plan needs to accumulate a larger balance in fewer years.

For a 45-year-old dentist earning $300,000, the annual cash balance plan contribution might be $80,000 to $120,000. For a 55-year-old dentist earning the same amount, the contribution could be $150,000 to $250,000. For a 60-year-old dentist, contributions can exceed $300,000 per year in some plan designs. These are rough ranges — the exact amount is determined by the plan actuary based on the interest crediting rate, the projected retirement age, and the IRS Section 415 limits on defined benefit plan payouts (which is $275,000 per year for 2024, payable as a life annuity starting at age 65).

Now, you can layer a cash balance plan on top of a 401(k) plan. A typical dental practice owner might contribute $23,000 as an employee deferral to the 401(k), plus an employer profit-sharing contribution of up to 25% of W-2 wages (say $55,000 on a $220,000 salary), plus $150,000 to a cash balance plan. That is $228,000 in total retirement contributions in a single year — all tax-deductible by the practice as a business expense, and all growing tax-deferred until withdrawal.

At California’s top income tax rate of 13.3%, plus the federal top rate of 37%, plus the 3.8% Net Investment Income Tax on investment income, the marginal tax rate for a high-earning dentist in LA can exceed 50%. Sheltering $228,000 from current taxation at a 50% marginal rate saves you roughly $114,000 in taxes in the year of contribution. That is a massive reduction in your current tax bill.

There are costs and requirements you need to be aware of. Cash balance plans require annual actuarial certifications, which typically cost $2,000 to $5,000 per year. The plan needs to be formally established with a plan document, a trust, and annual Form 5500 filings. And the contributions are generally mandatory once the plan is set up — if you have a bad year and cannot afford the full contribution, you may need to make up the difference through an excise tax or a plan amendment, both of which have costs and complications.

If you have employees, the cash balance plan must also cover them, and you will need to make contributions on their behalf. The amount you contribute for employees depends on the plan formula, their ages, and their compensation. For a practice with 5 to 10 employees, the employee contributions typically run 5% to 8% of their total payroll. This is a real cost, but for most practice owners, the tax savings on their own contributions more than offset the cost of employee contributions. We help our clients model this out before they commit to a plan, so they know exactly what the total cost will be.

There is also the question of when to start a cash balance plan. The biggest contributions are available to older participants, so the math gets better as you age. A 40-year-old dentist might save $80,000 in taxes through a cash balance plan. A 55-year-old dentist might save $150,000 or more. If you are in your late 40s or older and earning above $400,000, you should seriously consider whether a cash balance plan makes sense for your practice.

The setup process takes about 4 to 8 weeks and needs to be completed before the end of the tax year for which you want the deduction. You cannot retroactively set up a cash balance plan after December 31 and claim the deduction for the prior year. The plan must be established and the contributions made by the tax filing deadline (including extensions) for the contributions to be deductible.

For California-specific considerations, the cash balance plan contributions are deductible on both your federal and California state returns, so you get the tax benefit at both levels. The plan assets grow tax-deferred in both jurisdictions. When you eventually take distributions in retirement, they are taxable as ordinary income — but if you retire to a state with no income tax (Florida, Texas, Nevada, etc.), you avoid California’s 13.3% rate on the withdrawals entirely. This is a planning strategy that a lot of California dentists use as they approach retirement.

Our firm works with several actuarial firms that specialize in cash balance plans for professional practices. We can model the expected contributions, the employee costs, and the tax savings based on your specific practice demographics and financial situation. If you are interested in exploring this, the best time to start the conversation is early in the year — that gives us enough time to design the plan, get the actuarial work done, and have everything in place before year-end.

It is also worth noting that cash balance plan assets are protected from creditors in California under ERISA, which adds an asset protection benefit on top of the tax savings. For dentists concerned about malpractice liability or business risk, this additional layer of protection makes cash balance plans even more attractive as a wealth-building tool.

Los Angeles-based dental practices have access to the same federal deductions as dentists anywhere in the country, but there are several California-specific and LA-specific factors that change how those deductions work and how much they actually save you. Here are the most valuable deductions for LA dentists, in rough order of impact.

Equipment and technology purchases are usually the biggest single-year deduction opportunity. Under federal Section 179, you can deduct up to $1,220,000 in qualifying equipment purchases in the year the equipment is placed in service. For a dental practice, this includes CBCT scanners ($100,000 to $200,000), CAD/CAM systems ($120,000 to $170,000), dental lasers ($30,000 to $80,000), digital impression scanners ($25,000 to $45,000), operatory chairs and delivery units ($8,000 to $25,000 each), autoclaves, compressors, vacuum systems, and pretty much any other equipment used in your practice. The key caveat for California is that the state Section 179 limit is only $25,000, so the rest of your equipment cost gets depreciated over 5 to 7 years at the state level. Your federal deduction is immediate. Your California deduction is spread out over years.

Retirement plan contributions are the next major category, and for many LA dentists this is the largest ongoing deduction year after year. A solo 401(k) allows employee deferrals of $23,000 ($30,500 if over 50) plus employer profit-sharing contributions of up to 25% of W-2 wages. Add a cash balance defined benefit plan and you can shelter $150,000 to $350,000 or more per year, depending on your age. Every dollar contributed reduces your taxable income at both the federal and California level. At a combined marginal rate above 50% for high earners, the tax savings are substantial. See our page on solo 401(k) plans for more details on contribution limits and strategies.

Rent and office space costs are a major deduction category for LA practices. Commercial dental office space in Los Angeles runs anywhere from $3 to $8 per square foot per month depending on the neighborhood — West LA, Beverly Hills-adjacent areas, and Santa Monica tend to be at the high end, while locations in the Valley or outer suburbs might be more moderate. A 2,000-square-foot practice paying $6 per square foot is spending $144,000 per year on rent alone. That entire amount is deductible as a business expense. If you own the building through a separate LLC and lease it to your practice, the rent is still deductible by the practice, and the LLC reports the rental income (which can be offset by building depreciation, property taxes, and mortgage interest).

Staff payroll and benefits represent the largest expense category for most practices and are fully deductible. This includes wages, payroll taxes (the employer share of FICA, FUTA, California SUI, and ETT), health insurance premiums for employees, workers compensation insurance, and any other employee benefits you provide. For an S-corp owner, your own reasonable salary is deductible by the corporation, and your health insurance premiums are reported on your W-2 and deducted on your personal return (Form 1040, line 16).

Continuing education and professional development are fully deductible, including course fees, travel costs and meals (at 50% for meals). This covers CE courses required to maintain your California dental license, specialty certifications, practice management training, and conferences. The California Dental Board requires a minimum of 25 CE units every two years, but most dentists take far more than the minimum, and all of it is deductible.

The LA business tax itself is deductible on both your federal and California returns. While it feels like a cost, the deduction effectively reduces its impact by about half at top marginal rates.

Professional fees — including your tax preparer, bookkeeper, practice management consultant and insurance broker — are all deductible business expenses. Marketing costs (website, SEO, Google Ads, social media, mailers, signage) are fully deductible. Professional liability (malpractice) insurance is deductible. Dental lab fees are deductible. Supplies — everything from gloves and masks to composites, impression materials, and anesthetic — are deductible as cost of goods or supplies expense.

Vehicle expenses can be deducted if you use your car for business purposes — driving between practice locations, to the bank, to CE courses, to meet with your accountant or attorney. You can use the standard mileage rate (70 cents per mile for 2024) or actual expenses. For LA dentists who might commute long distances (common in the sprawl of Los Angeles County), the vehicle deduction can add up to $5,000 to $10,000 per year if you track your mileage carefully.

One deduction that many LA dentists overlook is the home office deduction, which is available if you use a portion of your home regularly and exclusively for administrative work related to your practice — billing, insurance claims, bookkeeping, treatment planning, patient correspondence. The simplified method allows a deduction of $5 per square foot up to 300 square feet ($1,500 maximum). The actual expense method can yield a larger deduction if your home costs are high (and in LA, they usually are).

Finally, do not forget about the Qualified Business Income (QBI) deduction under Section 199A, which allows eligible business owners to deduct up to 20% of their qualified business income. However, dental practices are classified as specified service trades or businesses (SSTBs), which means the QBI deduction phases out above $191,950 for single filers and $383,900 for joint filers (2024 thresholds). Most LA dentists earning above $400,000 will be fully phased out of the QBI deduction, but if your income is in the phase-out range, proper tax planning can help you stay below the threshold in some years.

The key to getting the most from your your deductions is good record-keeping throughout the year — not a scramble in March when your tax preparer asks for receipts. We recommend that all of our LA dental practice clients use cloud-based accounting software that syncs with their bank accounts and credit cards, categorizes expenses automatically, and generates the reports we need at tax time. When your books are clean and current, we can identify every deduction you are entitled to and make sure nothing falls through the cracks.