Every December the same conversation happens in dental, chiropractic and physician practices across Rhode Island. The owner looks at a P&L that says the year went better than expected, has four seconds of satisfaction, then a colder thought lands: what is this going to cost me in April? Somebody mentions a new chair, or a scanner. By the second week of December the practice has spent $60,000 of cash to avoid $21,000 of tax, and everyone feels like they won.
The short version: year-end tax planning is not a shopping list. It is a timing exercise, and the moves that actually help a practice owner are the ones that shift money from the tax bill into something you keep — a retirement account, a deduction you were going to earn anyway — instead of sending it out the door to a vendor. For a practice in Rhode Island or eastern Massachusetts, four levers do most of the work: the retirement plan contribution, the timing of collections and expenses on a cash-basis return, the owner’s last payroll of the year, and the handful of Rhode Island rules that do not follow the federal ones. Work them in November, because by the last week of December most of them are already closed.
Why most year-end tax planning fails
It fails because it starts at the wrong end: with a purchase, worked backward to a justification. The only honest starting point is a number — what is my projected taxable income, and what is my marginal rate on the last dollar of it?
The arithmetic that gets skipped is simple. If your combined federal and Rhode Island marginal rate is 35%, a $60,000 deductible purchase saves $21,000 of tax and costs $60,000 of cash. You are down $39,000. Fine if you needed the equipment, terrible if you bought it to feel clever in December. So: never spend a dollar to save 35 cents unless you wanted the thing anyway. Every legitimate move either pulls forward a purchase you needed, puts money in an account you still own, or shifts income between years at no cash cost. Anything else is a vendor’s pitch wearing a tax argument.
A quieter failure mode: a practice can post a strong taxable profit and still be short on cash, for six reasons that never touch the P&L. Planning that ignores the cash side buys a lower tax bill and a January liquidity problem.
Start with your number, not with a purchase
Four figures, one page. An afternoon if your books are current, two weeks if they are not — which is its own argument for bookkeeping built for healthcare practices.
- Projected taxable income. Books closed through October plus a realistic November and December — not last year’s number, and not what your practice software calls production.
- Your marginal rate, federal and state combined. The rate on the next dollar. Every decision below is measured against it.
- Cash actually available. Bank balance minus sixty days of payroll and payables minus the Q4 estimate. Owners get this wrong most often, because receivables drifted: if much of your A/R is past ninety days, the cash you think is there in December is not, and your accounts receivable aging report shows that in ten minutes.
- What you have already paid in. Estimates plus withholding from your own W-2 if you are an S corporation. This says whether you are planning a deduction or a payment.
The 2026 federal numbers that actually matter
Section 179 and bonus depreciation
For 2026 the Section 179 expensing limit is $2,560,000, phasing down above $4,090,000 of qualifying property placed in service (Rev. Proc. 2025-32), and bonus depreciation is back at 100% for qualifying property acquired and placed in service after January 19, 2025. Neither ceiling binds a practice this size. Cash is the constraint, not the deduction limit. The rule that does bite: the asset must be placed in service by December 31, not merely ordered or paid for. A scanner in a crate on December 30 is a 2027 deduction. The framework for a large purchase is in the CBCT ROI analysis for dental practices.
Retirement plan limits
Per the IRS for 2026: the 401(k) elective deferral limit is $24,500, with an $8,000 catch-up at age 50 and up and $11,250 for ages 60 through 63. Per Notice 2025-67, total annual additions under section 415(c) cap at $72,000 and the annual compensation limit is $360,000.
The qualified business income threshold
This is the one almost nobody explains to practice owners, and it is worth more than every equipment decision combined. For 2026 the Section 199A threshold is $403,500 for joint filers and $201,750 for everyone else, with phase-in ranges topping out at $553,500 and $276,750 (Rev. Proc. 2025-32).
A medical, dental or chiropractic practice is a specified service trade or business — health is named in the statute. So the 20% deduction does not merely shrink as income rises through the range; it disappears entirely above the top of it. Cross $553,500 filing jointly and your deduction is zero. That cliff is why the next section is the highest-leverage move on the list.
The biggest lever: what a retirement contribution is really worth
An illustrative composite, not a client — the figures are constructed to show the mechanics.
A solo internal medicine practice in Lincoln, an S corporation, collecting about $1,350,000. The owner takes a W-2 salary of $195,000; after that and operating expenses, roughly $265,000 flows to the K-1. With spousal income and the standard deduction, projected taxable income on the joint return is about $438,000 — $34,500 above the $403,500 threshold, or 23% into the $150,000-wide phase-in range. So 77% of the qualified business income counts:
- Includible QBI: 77% × $265,000 = $204,050; deduction at 20% = $40,810
- Taxable income after the deduction: $438,000 − $40,810 = $397,190
Now the practice makes an employer profit-sharing contribution for the owner, capped at 25% of W-2 compensation: 25% × $195,000 = $48,750. That is deductible to the practice, so K-1 income falls to $216,250 and taxable income to $389,250 — below the threshold, so nothing phases out:
- Deduction at 20% of $216,250 = $43,250
- Taxable income after the deduction: $389,250 − $43,250 = $346,000
Taxable income fell from $397,190 to $346,000 — a drop of $51,190 on a contribution of $48,750. The contribution did $2,440 more work than its face value, because it restored the full qualified business income deduction on the way down. At an assumed 35% combined marginal rate that is roughly $17,900 of tax deferred. And unlike the scanner, the $48,750 is still yours.
Two caveats an honest CFO puts beside that. The deduction is also limited by W-2 wages inside the phase-in range; owner salary plus staff payroll clears that test here, but it binds in a practice with very low payroll. And 35% is a planning assumption, not a bracket lookup. Run it on your own numbers with whoever handles your tax preparation and planning.
What Rhode Island does differently
This is where generic advice stops being useful, and where practices in Providence, Cranston and Lincoln get surprised.
Rhode Island does not automatically follow the federal expensing rules. The state has decoupled from several provisions of federal P.L. 119-21, including the increased Section 179 dollar limitations, requiring an add-back on the state return (280-RICR-20-25-16). A deduction you take federally may not flow through to your Rhode Island return, so a December equipment decision modeled on the federal benefit alone overstates what you save.
The pass-through entity election changed, and nobody announced it. Under R.I. Gen. Laws § 44-11-2.3 a pass-through entity may elect to pay Rhode Island tax at the entity level at 5.99%, converting a personally limited state tax deduction into a fully deductible business expense. But for tax years beginning on or after January 1, 2025, the credit passed through to owners was cut from 100% to 90% of the entity-level tax paid. Often still worth making — it is just no longer free, and the 10% haircut has to be modeled rather than assumed away.
The routine items:
- The $400 annual LLC charge is owed by every Rhode Island LLC however it is taxed, formation and dissolution years included — see the RI LLC $400 annual tax guide.
- Entity due dates: Form RI-1065 and RI-1120S on March 15, RI-1120C on April 15 — our Rhode Island tax deadline calendar has the full year.
- 2026 state brackets: 3.75% to $82,050, 4.75% to $186,450, 5.99% above, with a $22,400 joint standard deduction and a $5,250 exemption that phase out between $261,000 and $290,800. Most practice owners sit at 5.99% on the marginal dollar.
- Massachusetts owners: the 4% surtax applies above $1,107,750 of taxable income for 2026, up from $1,083,150. Out of reach in a normal year — until you sell.
What changes in 2027, and why it matters this December
Rhode Island enacted a personal income tax surtax on high earners in the FY2027 budget. It begins in tax year 2027 at 1% on income above $1 million, rises to 2% in 2028 and 3% in 2029 and after, with the threshold indexed for inflation. The state’s summary of the legislation also lets electing pass-through entities pay the surtax at the entity level.
In a normal year a practice owner in the $500,000 to $5 million range never touches $1 million of personal income. The abnormal year does. Selling the practice, selling the building, a large recapture on equipment expensed years ago, or a one-time buyout can push a single year over the line. If any of those sit on your 2027 horizon, the timing question is live now — and the answer is not automatically “accelerate into 2026,” because pulling income forward has its own cost and 1% is smaller than most alternatives. It is a decision to model a year out rather than discover in the closing statement, and that is standard work in a CFO advisory engagement.
Your year-end tax planning calendar
The most common mistake is not picking the wrong move. It is picking the right move in the last week of December, after its real deadline has passed.
| The move | What it actually does | Cash cost | The real deadline |
|---|---|---|---|
| Employer retirement contribution | Deduction plus, potentially, a restored QBI deduction | Full amount, but you keep it | Return due date with extensions — if the plan already exists |
| Owner 401(k) deferral | Reduces W-2 taxable wages | Full amount, but you keep it | Your last 2026 payroll run, not December 31 |
| Establish a new 401(k) | Opens the deferral option for the year | Setup and admin fees | December 31 for deferrals; a SEP can be adopted later |
| Equipment purchase | Section 179 or bonus federally; check the RI add-back | Full price, out the door | Placed in service by December 31, not ordered |
| Prepay January expenses | Pulls a deduction into 2026 on a cash-basis return | Full amount | Paid, not accrued, by December 31 |
| Slow December collections | Pushes income into 2027 at zero cash cost | None — but it delays the cash | December 31 |
| Owner reasonable-comp true-up | Corrects the salary-to-distribution split | Payroll taxes on the adjustment | Final 2026 payroll |
| Q4 estimated payment | Avoids underpayment penalties | Full payment | January 15, 2027 |
November is the month that matters. Close the books through October, build a two-month projection, and compute projected taxable income and your marginal rate. Check whether a retirement contribution can pull you under the QBI threshold; if it can, that is your best move. Confirm the plan exists and can accept the contribution, and review the salary-to-distribution split before the last payroll — the RI LLC versus S corp comparison covers how that choice drives the calculation.
December is execution only. Run the final payroll with any deferral or compensation adjustment in it. Place needed equipment in service — delivered, installed, operable. Prepay only what you were going to spend anyway. And if you are pushing late-December collections into January, model what that does to your 13-week cash flow forecast first. A lower tax bill bought with a February cash squeeze is not a win.
January is for confirming, not discovering. Fourth-quarter estimates by January 15, federal and Rhode Island. W-2 and 1099 filings run on the payroll data you just adjusted — Rhode Island payroll basics covers the state side. Then tell your preparer what you did and why, in writing, in January. Not March.
Frequently asked questions
What is the single best year-end tax move for a practice owner?
An employer retirement plan contribution. It is the only major lever where the money stays yours, and for a medical, dental or chiropractic practice it can do double duty by pulling taxable income under the Section 199A threshold and restoring a deduction that was phasing out.
Should I buy equipment in December just to lower my tax bill?
Only if you were going to buy it in the first half of 2027 anyway, in which case you are pulling the timing forward and that is a fair trade. Buying what you did not need costs full price to save your marginal rate — roughly 35 cents on the dollar here. It also has to be placed in service by December 31, not merely ordered.
When does Rhode Island’s new high-income surtax start, and will it affect me?
It begins with tax year 2027 at 1% on personal income above $1 million, rising to 2% for 2028 and 3% for 2029 and later, with the threshold indexed for inflation. Normal earnings in this revenue range will not reach it. The year you sell the practice or the building is a different matter, and that is worth modeling now rather than at closing.
Can I still set up a retirement plan for 2026 after December 31?
Partly. A SEP can generally be adopted and funded as late as the extended due date of the return, which makes it the usual February rescue. A 401(k) is different: deferrals from your own S corporation W-2 run through payroll, so the practical deadline is your last 2026 payroll. Employer contributions to an existing plan have more room, but the plan has to exist.
Does the qualified business income deduction apply to a medical or dental practice?
Yes, but with a ceiling other businesses do not face. Health services are a specified service trade or business under Section 199A, so the deduction disappears entirely above the top of the range — $553,500 of taxable income for 2026 filing jointly, $276,750 otherwise. Below $403,500 or $201,750 you get the full 20%.
Bottom line
Year-end tax planning done well is boring. A number computed in early November, a short list of moves that each survive the “would I have done this anyway” test, and a calendar that respects the deadline actually governing each one. The practices that keep the most money are not the ones buying the most equipment — they are the ones who knew their projected taxable income before Thanksgiving.
The trouble is that this competes for the resource a practice owner has least of. Done properly it means closing the books early, building a projection, modeling two or three scenarios against both federal and Rhode Island rules, then executing on a schedule — in the same eight weeks that hold your busiest clinical stretch and the holidays. That is the gap a fractional CFO or CFO advisor exists to close, and reading your P&L like a CFO is the same habit applied twelve times a year instead of once.
If 2026 ran better than you expected and you are not sure what to do about it, book a free consultation and bring your October numbers. We work with practices across Rhode Island and eastern Massachusetts — from Providence and Cranston to Lincoln — and we would rather have the conversation in November than explain the bill in April. See how an engagement works on the CFO advisor for Rhode Island small businesses page, or start with bookkeeping that keeps the numbers current.
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