It’s Not What You Make. It’s What You Keep.

What Private Practice Professionals Actually Pay in Taxes

The conversation about physician and dental practice taxation usually gets oversimplified. The headline federal rate is 32–37% for most practice owners, but that number understates the real burden once you add state income tax, self-employment tax on pass-through income, and the additional 0.9% Medicare surtax that kicks in above $200,000. For a self-employed dentist or physician earning $250,000–$400,000, the combined tax burden typically lands between 35% and 42% depending on state of practice and business structure.

To put concrete numbers on it: a single physician with $200,000 in taxable income owes approximately $41,063 in federal income tax alone — before state income tax or self-employment obligations are factored in. A dental practice owner averaging $414,000 annually could easily face a combined annual tax liability exceeding $150,000, depending on how the practice is structured and where it operates.

Average Income by Specialty (2024–2025 Data)

State Income Tax: The Hidden Variable

Federal taxes get most of the attention, but state income tax represents a substantial and often underplanned portion of the total burden for private practice owners. At the income levels most established physicians and dental specialists earn, state income taxes on top of federal obligations create a combined marginal rate that in some states approaches or exceeds 50 cents on every additional dollar earned. California tops the list at 13.3% on income above $1 million and 9.3% on income above $65,000. New York and New Jersey are not far behind. At the other end, Florida, Texas, Washington, and several other states impose no income tax at all — a factor that makes entity structure and practice location planning genuinely consequential decisions.

What Changed: The One Big Beautiful Bill Act

The One Big Beautiful Bill Act, signed into law in 2025, made several changes that are directly relevant to private practice physicians and dental professionals investing in technology and equipment. The two most significant are the permanent restoration of 100% Bonus Depreciation and the increase of the Section 179 deduction cap to $2.5 million.

What Section 179 Actually Means in Dollars

Section 179 of the Internal Revenue Code allows a business to elect to deduct the full purchase price of qualifying equipment and software in the year it is placed in service, rather than depreciating it gradually. The OBBB raised the annual deduction limit to $2.5 million for tax years beginning after December 31, 2024, with the phase-out threshold starting at $4 million in total qualifying purchases.

Critically, Section 179 applies to financed purchases as well as cash purchases. If a practice finances 80% of a qualifying technology package and places it in service during the tax year, the practice can still deduct 100% of the purchase price in year one — not just the down payment. The deduction cannot exceed the practice’s taxable income for the year, but any disallowed amount carries forward to subsequent years.

Qualifying property under Section 179 includes off-the-shelf computer software (subject to a non-exclusive license and not substantially modified), tangible personal property used more than 50% for business, and hardware components of technology packages. AI-driven CRM software and integrated practice management technology platforms that meet the IRS definition of off-the-shelf software qualify under these criteria.

What Qualifies and What Does Not

Not every technology purchase qualifies for Section 179 treatment, and understanding the boundaries matters. The software must be available to the general public for purchase, subject to a non-exclusive license, and not substantially modified for the buyer. Custom-developed software typically does not qualify. The property must be used more than 50% for business purposes in the year it is placed in service, and if business use drops below that threshold in a subsequent year, recapture rules apply. The purchase also must be a genuine sale rather than a disguised lease or conditional sale arrangement.

Eligible property under the current rules includes computers, servers, and networking hardware; off-the-shelf software including AI and CRM platforms; office equipment; and certain building improvements. Leased equipment generally does not qualify unless structured as a capital lease treated as a purchase for tax purposes.

100% Bonus Depreciation: What the Restoration Means

Bonus Depreciation and Section 179 are related but distinct tools. Section 179 is elective and subject to an income cap — you cannot use it to generate a net operating loss. Bonus Depreciation has no income limitation, meaning it can create or increase a business loss that may be carried forward. For most private practices with consistent positive income, Section 179 is the more straightforward tool, but the permanent restoration of 100% Bonus Depreciation under the OBBB significantly expands planning options for practices investing heavily in equipment or technology in a given year.

For dental practice owners investing in cone beam CT scanners, digital workflow systems, or integrated AI-driven practice management platforms — all of which routinely run $150,000 to $500,000 or more — the ability to deduct the full cost in year one rather than over 5–7 years can meaningfully change the net cash position of the practice in the year of purchase.