Why LA Healthcare Practices Need Specialized Tax Help

A dentist pulling $800,000 in collections isn’t in the same tax situation as a tech founder making the same amount. The entity structure matters differently. The depreciation schedules are different. The retirement plan options — a cash balance plan layered on top of a 401(k) — can shelter $200,000+ per year if set up correctly, but most general CPAs don’t bother.

California taxes that income at up to 13.3%. The city of Los Angeles adds a gross receipts tax that hits professional service providers at roughly $5.07 per $1,000 of gross receipts. That’s before federal tax, self-employment tax, and everything else. Small mistakes compound fast at these income levels.

Entity Selection for Medical Professionals

California is one of the few states that doesn’t let licensed professionals form LLCs for their practice. You’re stuck with a sole proprietorship, a professional corporation (PC), or an S-corp election on that PC. Most dentists and physicians earning above $250,000 should be running an S-corp. Period.

The reason is straightforward: an S-corp lets you split income between a W-2 salary (subject to payroll taxes) and distributions (not subject to payroll taxes). Set the salary too low, and the IRS will reclassify your distributions. Set it too high, and you’ve defeated the purpose. We see practices save $25,000 to $60,000 per year just by getting this number right.

Group practices with multiple doctors have it even more complicated. Partnership structures, guaranteed payments, buy-in agreements — all of these have tax implications that affect each partner differently.

Equipment Depreciation and Section 179

Dental chairs. CBCT scanners. Digital impression systems. Autoclaves. A single operatory buildout can run $150,000 to $300,000, and how you depreciate that equipment makes a real difference on your return.

Section 179 lets you deduct the full purchase price of qualifying equipment in the year you buy it, up to $1,220,000 for 2024. Bonus depreciation is still available at 60% for 2024 (it dropped from 80% in 2023 and will drop to 40% in 2025). If you’re planning a big equipment purchase, the timing matters.

Leasehold improvements for your practice space — new flooring, plumbing for operatories, HVAC upgrades — qualify under a different depreciation schedule. Getting this wrong means leaving deductions on the table for years.

Retirement Plans That Actually Save Tax

This is where healthcare professionals have a real advantage. A solo dentist or small-group practice can set up a defined benefit plan (sometimes called a cash balance plan) that allows contributions of $200,000 or more per year, depending on your age. That’s on top of a 401(k) with profit sharing.

A 50-year-old dentist netting $600,000 could shelter over $275,000 annually between a cash balance plan, a 401(k), and profit sharing. At California’s top rate, that’s roughly $90,000 in combined tax savings — every single year.

The catch: these plans require an actuary, they have funding requirements, and they need to be set up before December 31 to count for the current tax year. We work with actuaries who specialize in medical and dental practices to get the numbers right.

LA-Specific Tax Obligations

Los Angeles has its own business tax registration and gross receipts tax. If your practice is physically located in LA city limits, you owe this regardless of where your patients live. The rate for professional services sits around $5.07 per $1,000. On a practice doing $2 million in collections, that’s over $10,000 annually.

There’s also California’s mandatory disability insurance (SDI), employment training tax (ETT), and the various payroll obligations that come with having clinical staff — dental hygienists, assistants, front office. Multi-location practices operating in different LA-area cities face different municipal tax rates in each jurisdiction.