How to Categorize Dental Supply Expenses for Tax Time

Proper expense management for dental practice

Dental practices can deduct various supplies as current operating expenses.

• Small dental practices with average annual gross receipts of $30 million or less can treat supplies as non-incidental materials and supplies under the small business inventory exception.
• The remainder is amortized over 180 months. This is phased out if total startup costs exceed $50,000.

Inventory and Supply Tracking

As a small dental practice business, accurately tracking your inventory and supplies is crucial for tax purposes.

When tracking your inventory, consider the following:

• Keep detailed records of all supply purchases, including receipts and invoices.
• Track the quantity and cost of each item, as well as any inventory that is damaged or expired.
• Use a system to account for supplies that are used in the course of treatment, such as gloves, syringes, and anesthetics.
• Regularly update your inventory levels to ensure accuracy.

It's also essential to understand the concept of "first-in, first-out" (FIFO) accounting, which means that the oldest supplies are sold or used first. This will help you accurately track the cost of your supplies and ensure that you are deducting the correct amount.

Capital Expenditures and Depreciation

Equipment such as chairs, imaging systems, CAD/CAM mills, and sterilization equipment are considered capital property and are subject to depreciation rules, not immediate expensing as supplies. To depreciate these assets, you'll need to determine their cost, useful life, and depreciation method. The cost of these assets is typically the purchase price, including any sales tax or delivery fees.

The useful life for dental chairs is typically 5-7 years, while imaging systems may have a useful life of 7-10 years. You can use the Modified Accelerated Cost Recovery System (MACRS) to depreciate these assets.