The Dental Boardroom

Most dentists are brilliant clinicians, but somewhere between $1M and $3M in collections, growth stalls. Not because of skill, not because of ambition, but because every decision still runs through the doctor. In this Executive Session, Wes sits down with practice management consultant Megan Shelton (Shelton Solutions) and marketing strategist Michael Anderson (Wondrous) to break down what it actually takes to build a leadership team that lets you scale, whether you’re going from one practice to three, or from $1.5M to $3M under one roof.What You’ll LearnWhy dentists keep hitting the same ceiling and what’s actually causing itWhat a fractional COO, CFO, and CMO look like in a dental practice contextThe four most dangerous clarity gaps inside a dental officeHow to identify and build your “Janine,” the internal operator who frees the doctorThe financial fingerprint of undefined leadership (and exactly where it bleeds on your P&L)Why DIY isn’t always bad and when it becomes the bottleneckThe difference between training people to execute and training them to thinkHow job descriptions, SOPs, and KPIs connect and why most practices get all three wrongKey TakeawaysYou can only scale what is clear.Role clarity, expectation clarity, decision clarity, and culture clarity; without these four, everything keeps surfacing to the doctor.The fractional model works.A fractional COO, CFO, or CMO gives a $1–5M practice access to executive-level thinking without the $250–500K salary. The doctor still has to engage but they’re no longer doing the day-to-day administration.The financial fingerprint of poor leadership:Payroll creeping past 28% of collections (GP target: 26–28%)Supplies & labs drifting toward 8–9% (target: 5–6%)Doctor distributions quietly shrinking even as W2 stays the sameBuild your “Janine” your internal operator.It doesn’t require an MBA. It requires someone bought into your vision, is hungry to grow, and is willing to hold the line. Promote from within, give them authority in front of the team, and back them publicly.SOPs before AI.You can’t build agentic workflows on top of chaos. Your SOPs are the blueprint. Claude can put them into a pretty format, but garbage in is garbage out.Less is more financially.Retain earnings in the business. That retained capital is what funds the hire that buys back your highest-value hours. A doctor doing $400–600/hr chairside should not be doing $25/hr administrative work.Stop being the hero.If you want everyone to bring decisions to you, keep being the person who has all the answers. If you want scale, train your team to think and celebrate when they do.

The final episode of the cost segregation series. Wes covers the grouping election, the one tax election that determines whether building losses can offset practice income or get suspended indefinitely. Includes the self-rental asymmetry, how to execute the election, five pros, six cons, and when to make it.Key Topics Covered1. The Self-Rental AsymmetryRental income from a building you operate in a non-passive (taxable)Rental losses from that same building are passive (trapped)Result: a $300,000 year-one cost segregation loss cannot reduce your W2 or K-1; it is suspended until the building has future taxable profit2. What the Grouping Election DoesIRC Section 1.469-4(f): elect to treat the building LLC and practice S corp as one economic unitLosses in the building LLC that become non-passive can now offset W2 and K-1 income directlyExample: $400,000 building loss reduces $1M of practice income to $600,000, saving $150,000–$200,000 in taxes in year one3. Qualification and TimingQualifies when: same ownership percentage in building and practice, dentist is the only tenant, same locationMust be elected on the original tax return for the first year of building ownership; it cannot be made retroactivelyCPA must attach a disclosure statement identifying the grouped activities alongside Form 85824. Five Pros of the Grouping ElectionLoss utilization: building losses offset W2 and K-1 in the year they are generatedCost segregation amplification: first-year bonus depreciation becomes immediately usable instead of frozenFixes the asymmetry: losses become non-passive, matching the non-passive character of building incomeSimpler participation: one shared material participation test for both activitiesPredictable: no annual suspended loss ledger to manage5. Six Cons of the Grouping ElectionOne-way door: binding in all future years; can only be undone by a material change in facts (e.g., selling the practice)Partial sale complexity: selling the building without the practice creates complicated suspended loss treatmentForfeits passive shelter: building losses can no longer offset passive income from outside rental propertiesDSO or partner disruption: any equity sale that misaligns building and practice ownership breaks the grouping1031 exchange complications: a grouped building is harder to roll into a like-kind exchangeSemi-retirement trap: when practice income drops, the non-passive characterization no longer helps and can hurt6. Best-Case ScenarioDentist buys practice without building, grows income into the top brackets over 5+ years, then buys the buildingCommissions cost seg study in year one of building ownership, makes the grouping election, and offsets peak practice incomeWorst case: buying practice and building simultaneously at low income — better to wait for a higher-income year7. When to Make and When to Skip the ElectionMake it when:Buying the building with a long-term operating planHigh practice income and a cost seg study ready to deployNo near-term plans to sell, partner, or transition ownershipSkip or defer when:Income is low, preserve deductions for a higher-bracket yearYou own other passive real estate and need building losses to stay passiveA DSO transaction or partnership is within the next few years

In this episode of the Dental Boardroom Podcast, host Wes Read, CPA and financial advisor at Practice CFO, delves into the advanced mechanics of cost segregation and how dentists can use it strategically to optimize long-term tax outcomes. He explains the key differences between bonus depreciation and Section 179, explores how state tax rules can impact overall savings, and shares what to look for when selecting a qualified cost segregation firm.Wes also highlights how cost segregation can play a role in building purchase negotiations and why aligning tax strategies with a broader financial plan is critical for sustainable growth.What You’ll LearnHow cost segregation works and why it’s more than just a tax-saving tacticWhy front-loading deductions can create long-term tax problems if not planned properlyHow multi-year tax planning helps optimize savings and avoid future tax spikesThe impact of rising income on tax brackets and the loss of valuable deductionsHow to align tax strategies with actual cash flow to avoid financial mismatchesWhy state tax rules can significantly change the outcome of your tax strategyHow cost segregation can influence building purchase decisions and negotiationsWhy taking a holistic, long-term approach is essential for maximizing financial outcomesKey TakeawaysBonus depreciation allows you to create losses and offset other income, while Section 179 only reduces income to zero and requires election.Cost segregation can accelerate 30–40% of a building’s value into shorter depreciation schedules, increasing early tax deductions.Front-loading deductions without a plan can result in significantly higher taxes in later years.Multi-year tax planning helps smooth income, maintain lower tax brackets, and preserve valuable deductions.Large early deductions may reduce future eligibility for benefits like QBI and child tax credits.Financing equipment while taking full Section 179 deductions can create a mismatch between tax savings and future cash outflows.State tax laws may not follow federal bonus depreciation rules, reducing total expected savings.Choosing the right cost segregation firm is critical look for engineering-based studies, detailed reports, and audit support.Avoid firms that use contingency pricing or promise aggressive results without proper analysis.Conducting a cost segregation study during the purchase process can improve negotiations and reveal true after-tax costs.Allocating more value to shorter-life assets increases depreciation opportunities, while land provides no depreciation benefit.The party who pays for tenant improvements receives the tax benefit, making structuring decisions important.Tax strategies should always be aligned with a broader financial plan to avoid unintended long-term consequences.

In Part 3 of the Cost Segregation series, Wes Read shifts from theory to execution. He walks through the five concrete implementation steps every dentist must follow to set up the strategy correctly, runs a detailed numerical example showing exactly how the money flows between the dental S-Corp and the real estate LLC, covers how to determine the right rent amount without triggering IRS scrutiny, and closes with three options dentists should consider when it comes time to retire and decide what to do with the building.Key Topics Covered1. The 5 Implementation StepsWes lays out the exact sequence for setting up cost segregation correctly:Step 1: Form the LLC first. The LLC must be the purchaser on the deed. Do not buy the building personally and transfer it later.Step 2: Close on the building. The LLC takes out its own mortgage, personally guaranteed by the dentist. This is standard and should not be a deterrent.Step 3: Commission the cost segregation study. Hire a qualified engineering firm (not your general CPA) to do a room-by-room breakdown of all tangible assets into their correct depreciation buckets (5, 7, and 15-year categories vs. the standard 39-year).Step 4: Execute a formal, arms-length lease agreement between the Dental S-Corp and the Real Estate LLC. Get a market rent analysis from a licensed commercial real estate broker to document the rate and protect yourself in the event of an audit.Step 5: Keep clean books. Maintain completely separate bank accounts for the LLC and the S-Corp. A clean Chinese wall between entities is non-negotiable.2. How the Numbers Flow (Real Example)Using a dentist collecting $1.2M per year:Dental S-Corp: $1.2M collections, less $600K clinical expenses, less $170K rent paid to the LLC = $430K net K-1 to the dentist.Real Estate LLC: $170K rent collected, less $80K mortgage interest = $90K taxable income before depreciation.After $200K in cost segregation depreciation, the LLC runs a loss of $110K. The $170K of rent is completely sheltered, with zero taxes owed.If the dentist's spouse qualifies as a real estate professional (750+ hours/year), the $110K loss can be applied directly against the $430K of dental income an additional six-figure deduction.3. Setting the Right Rent AmountThe IRS requires rent to be at fair market value. Inflating rent to absorb 100% of cost segregation depreciation is a red flag and can result in full disallowance of the deduction plus penalties. Wes advises:Hire a licensed commercial real estate broker to provide a market rent analysis in writing.Consider getting two brokers' opinions and taking the higher of the two.Have a real estate attorney memorialize the agreed rate in a formal lease agreement.Optimize within the range 'toe the line, don't cross it.'4. Options When You RetireWhen it's time to hang up the drill, dentists who own their building have three paths:Option 1: Keep the building and collect passive rental income from the successor dentist or a new tenant. Reliable income, but requires ongoing management.Option 2: Sell the building, pay capital gains tax, and invest the proceeds in dividend-paying stocks or other passive assets. Cleanest exit for those who don't want to manage real estate in retirement.Option 3: Execute a 1031 exchange into a larger property, deferring all capital gains taxes. If carried through death, heirs receive a step-up in basis, and the gain disappears entirely one of the most powerful wealth-transfer strategies available.

In Part 2 of this series, Wes Read builds on the cost segregation foundation from Part 1 to cover the critical structural decisions every building-owning dentist must get right. He opens with a firm warning against holding your building inside your S-Corporation, walks through the correct two-entity structure, and then dives into passive activity rules — including the often-asked question about qualifying a spouse as a real estate professional.Key Topics Covered1. Critical Warning: Never Hold Your Building in Your S-CorpWes outlines four major reasons why placing your building inside your dental S-Corporation is one of the most costly mistakes a dentist can make:Extraction is a tax nightmare. Pulling real estate out later triggers a taxable distribution at fair market value, potentially creating a $200K-$250K tax billLiability exposure: the building is exposed to malpractice claims and employment disputes inside the operating entityFinancing complications, lenders underwrite commercial real estate separately; mixing it with operating assets creates problems for refinancing and equity linesState licensing compliance in many states, non-dentists cannot own a dental professional corporation; a separate LLC keeps ownership clean2. The Right Structure: Two-Entity StrategyThe correct setup involves three layers:You (the dentist) file a personal 1040 tax returnDental S-Corporation owns the practice, generates clinical revenue, and pays rent to the building LLCReal Estate LLC (disregarded, single-member) owns the building, collects rent, deducts mortgage interest and building expenses, and applies cost segregation depreciationThe dental S-Corp pays rent to the real estate LLC. This reduces K-1 taxable income from the dental practice. The rental income in the LLC is then offset by expenses, including mortgage interest, maintenance, and most importantly, cost segregation depreciation.3. Disregarded LLC ExplainedA disregarded LLC provides state-level liability protection but does not exist as a separate entity for federal tax purposes. It files directly on Schedule E, Page 1 of your personal 1040, the lowest-cost, simplest filing structure.If married, spouses can often be treated as a single member (check your state). If a non-spouse partner is involved, the LLC must file as a partnership — a separate tax return.4. Passive Activity RulesRental income and losses in your building LLC are classified as passive. Key points:Passive losses can offset passive income (rent collected) dollar-for-dollar — potentially making rental income tax-free in early yearsPassive losses generally cannot offset W-2 or K-1 income from your dental practiceException: if your AGI is under $100,000, up to $25,000 of passive losses can offset active incomeFor owner-operated buildings (you are both tenant and landlord), limitations are stricter5. The Real Estate Professional ExceptionIf you or your spouse qualifies as a real estate professional (750+ hours per year, more than any other professional activity), all passive losses from the building LLC can offset any income, including dental W-2 and K-1. This can create a $400K-$500K year-one deduction that nets against dental income.For most practicing dentists, this is not achievable. However, for dentists with a stay-at-home or non-working spouse, having the spouse obtain a real estate license, manage properties, and log 750+ hours is a legitimate and powerful strategy. This must be well-documented and is audit-sensitive.