Money Matters in Dentistry: Making Cents of the Future
Dr. Brian M. Schwab
In dental school we are taught to think scientifically, critically and in the best interests of our patients. Our professors engender in us the skills required to be both competent and ethical dentists. As a general rule, one thing we learn very little of in school is the business of dentistry. Ultimately, we are business people in every sense of the word. Has a professor ever really talked to you about what you might earn? Mine did not. The purpose of this article is to address and answer some financial questions you might have pertaining to your future salary, and also to address additional financial matters.
The American Dental Association (ADA) reported that in 2007, the average general dentist earned around $198,000 per year. This amount is deceiving to some degree because this includes monies that a dentist earned from any source related to the practice of dentistry, such as a hospital affiliation or a teaching position. A recent graduate will generally earn less than this average and the peak age for earning potential is between the ages of 40 and 45. The average associate dentist in the first year after dental school will earn $112,000. According to the ADA, specialists will earn an average of more than $300,000 per year.
Is it that cut and dry? No! Keep reading!
So what are some perks? Since the rule is that the higher the income, the higher the taxes, most dentists in private practice are employees of a corporation that they own. The dentist collects a salary and the corporation pays some expenses in tax-free dollars. The corporation can own and pay for automobiles, insurance policies, entertainment and travel and other business related expenses, such as dry cleaning and clothing expenses. This can be a double-edged sword, because although it saves the owner dentist the personal taxes on some of these goods and services, a corporate profit is taxed at a rate much higher than personal income regardless of income bracket. An accountant is required to maintain the proper balance to avoid mistakes that could cost thousands of dollars in unnecessary taxes.
Can I make more than ADA’s published average? Yes, you really have the power to make as much money as you’d like to. Most dentists work less than 40 hours a week but some work more than 50 hours per week. Generally speaking, the more you work, the higher your salary will be. You can choose to be a fee-for-service practice in which you do not participate with insurances and thus do not accept a discounted fee for your work. Participation can be a good thing because insurance companies provide you with a steady flow of new patients in exchange for a predetermined discount on your services. The types of services you choose to offer can also impact your bottom line. If you can place your own implants or remove impacted 3rd molars, you will minimize referrals to other providers and increase your production.
So what is production? Your production is the value in dollars of the services you provide in your practice. Generally speaking, you never collect the whole value of all the services you provide, so another term is employed to describe the fiduciary value of the work you did - collections. To be completely frank, this is the term that really matters, since this is the income your practice receives as compensation for your time and talents. Most accountants will use this number to determine your salary since your collections and your salary have a directly proportional relationship.
If you decide to enter into an associateship, your compensation will often be a percentage of your collections minus, in some cases, a portion or all of your laboratory costs. Having a knowledgeable office manager will be of great importance to you so that your services are billed appropriately. ADA has created a unified system of codes so that a service can be quantitatively described and billed. Every procedure has a code, which is assigned to a fee that you determine. The more procedures you perform during a visit, the higher your collections will most likely be.
How do I know what my potential income will be if I choose to be an associate or if I choose to buy a practice? Before you travel the road of buying a practice, establishing the value of a practice or engaging in an associateship, you must hire a consultant. Determining a salary is a very detailed process, which involves multiple formulas with many variables. Always have a contract that states the exact specifics of your personal situation with clear and concise wording that represents your best interests. Even if you are buying a practice from someone you would consider a friend, your best interests need to be represented in writing, in case any difficulty would arise. Consultants’ fees can mount into thousands of dollars, but the peace of mind is well worth the investment. Click here for more information about associateships.
Will my student loan interest be tax deductible? Yes, but probably not for long. You can deduct only up to $2,500 in eligible interest paid on student loans only if you earn less than $70,000 if filing alone, or $145,000 if filing a joint return. If you earn more than these amounts, you will not be able to deduct any of the interest paid on your student loans. Realistically, you probably will not be able to deduct much of your interest unless you incorporate your student loans into a home equity loan. Home equity loan interest is deductible, but since the interest rates are often higher, it may not be worthwhile to explore this option.
How can I protect my future earning power? There are several ways, but the most important would be to join PDA. Your dues are a business expense and your dues dollars will help keep the voice of dentists strong in Washington and Harrisburg. PDA will protect your practice and protect you from legislation that could really hurt your business. From environmental issues to public safety issues, organized dentistry will fight for and protect the integrity of your profession, whether it be upholding the safety of dental amalgam, protecting us from insurance company monopolies or keeping us abreast of federal issues related to HIPAA, OSHA or anything else that affects the manner in which we practice. Without organized dentistry, we as small business owners would have to spend a lot more money on things that are provided to us by our dental societies at no charge.
In closing, you will make more than enough money. Some dentists are millionaires, some are not, and with every variation in-between, we are all in total charge of our earning power. Your career will be a rewarding one, both financially and personally. The title of doctor, which you will earn on graduation day, will stick with you forever, even after you no longer practice dentistry. Your colleagues are the best source of comparative information available. PDA and the New Dentist Committee are committed to obtaining and disseminating information on your behalf. If you ever have any question related to the practice of dentistry, please visit PDA’s website for more information.