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There is a concept that runs through every episode of The Dental Boardroom's cost segregation series — and it is one that most CPAs never make explicit. The goal of cost segregation, bonus depreciation, and the grouping election is not simply to reduce your taxes. It is to control when you pay them. In Episode 153, Wes Read closes out the series by grounding all of it in one principle: the time value of money applied to tax deductions.
Cost segregation does not create new tax deductions. It accelerates them. The deductions you would have taken over 39 years on a commercial building are instead taken in year one, year two, or year three. The total amount you deduct over the life of the building is the same — what changes is when you claim it.
Why does timing matter? Because a dollar you keep today can be invested. If your tax savings from a year-one cost segregation deduction are $150,000, and you invest that $150,000 at a 10 percent annual return, in 10 years that money becomes approximately $390,000. The IRS will eventually recapture some of that benefit — when the building sells or when the accelerated deductions run out and taxable income rises — but by then, the original $150,000 has compounded substantially. You paid the IRS a dollar later and kept a dollar that grew into two.
The general principle — deduct now, pay later — has one important exception. If your income is low today and will be significantly higher in the future, accelerating deductions into a low-tax year is suboptimal. You are taking a deduction worth 22 cents on the dollar today that would have been worth 37 cents on the dollar in five years.
Wes gives a concrete example: a dentist who has just bought their practice and is in the early years of lower income. Their S corporation income is modest, they already have depreciation built into the practice assets, and their marginal tax rate may be in the 22 or 24 percent bracket. Commissioning a cost segregation study and making the grouping election in that environment produces a fraction of the benefit it would produce five years later, when the same dentist is taking home $800,000 a year in a combined 40-plus percent federal and state bracket.
The right move in that scenario: buy the building, make a note of when it is optimal to commission the cost segregation, and wait. The depreciation deductions are not going anywhere. They will be there when the income is high enough to make them worth taking.
The grouping election — electing to treat the building LLC and the practice S corporation as one economic unit — is the mechanism that makes the timing strategy work. Without grouping, early-year building losses are passive and cannot offset active practice income. They accumulate in a suspended loss account and release gradually as the building generates income in future years. The time value benefit is diminished because the losses are being used in years where they are worth less or where they were not needed.
With grouping, the losses flow directly to the year they are generated — the year of the cost segregation study — which in the ideal scenario is also the year the dentist's income is at its peak. The timing aligns. The deduction lands in the highest-rate year. The tax savings are maximized. The compounding begins immediately.
Most CPAs think in single-year terms. They look at the current year return, identify the largest deductions available, and apply them. Multi-year optimization — modeling what the tax impact looks like across years one through ten under different depreciation strategies, and identifying the year in which a particular deduction produces the most after-tax value — requires a different kind of planning.
Wes's point throughout the cost segregation series is that this kind of planning is the CPA's job, but it often does not get done unless the dentist asks for it explicitly. If your CPA presents you with a cost segregation study and tells you to front-load all the bonus depreciation in year one without running a multi-year model, ask why. Ask them to show you the after-tax outcome under two or three different depreciation rates across a 10-year horizon. The answer may not change — year one may still be the right time — but you should see the analysis before you decide.
Cost segregation, bonus depreciation, and the grouping election are not three separate strategies. They are one strategy: accelerate tax deductions into the highest-rate years, use the time value of money to grow the savings, and manage the long-term trajectory so that no single year produces an outsized, unexpected tax bill. The dentist who understands this — and has a CPA who plans for it — has a meaningful structural advantage over the dentist who is simply trying to minimize this year's return.
Listen to Episode 153 of The Dental Boardroom Podcast: https://podcasts.apple.com/us/podcast/153-cost-segregation-tax-strategy-for-dentists-part-5/id1518344747?i=1000762915692
Wes knows what's best for dental practices. He's been doing this for a long time and he sees lots of practices. He can tell me how our practice is doing, and what we can do to increase our productivity. With past CPA's, there were no ideas. It was all coming from me, saying "I think I can do better, but I don't know how." I come in to meet with Wes and he says "You CAN do better, and I know how."
PracticeCFO is in hundreds of dental offices around the country. They know what numbers should look like. They know what percentages of payroll, rent and supplies should be, and they will hold you accountable to those numbers, which will really help you stick to your plan and your path of growth and savings. That is invaluable
Whenever something comes up, whether it's building or practice related and we weren't sure where the numbers would go, PracticeCFO has been instrumental in helping us figure that out. I can't say enough of how important that is - that it goes beyond that initial partnership. They make sure this business marriage works.
When I go home from work, I don't spend a whole lot of time stressing about what my books look like, or how much I owe in taxes. By using PracticeCFO, the burden of keeping track of a lot of the big financial numbers and metrics are taken off my plate.
PracticeCFO helped me develop a plan for the future. I have colleagues that work with other accountants that don't have a plan - they just look at the numbers of the practice and that's it. There's no plan for 10, 20 years from now. But with PracticeCFO, you get that. PracticeCFO makes you feel like you're they're only client.
(In reference to his practice sale) What could've been super stressful, wasn't! When picking John and Wes, it was from word of mouth recommendations and other people's experiences from the past that really did it for me. And it turns out that those recommendations were right on the line.
Wes knows the business side of dentistry. His comprehensive plan will organize your personal and professional finances so you can focus on taking care of patients. Massive ROI.
I can’t say enough good things about everyone at PracticeCFO. Everyone on the team is professional, organized, knowledgeable, helpful and kind. They also respond to emails and phone calls immediately and are always happy to help. They have helped me navigate year-to-year as a business owner. PracticeCFO gives me peace of mind that my business is in good hands.
I love Practice CFO! They have helped me obtain a practice and maintain a practice. They are incredible people who are on top of everything and make owning and running the business portion of a practice easy. They couldn’t be better for my business and my sanity. They have every detail of the business and taxes taken care of where all I have to do is show up and follow their easy steps to success!
Practice CFO has the best tools I’ve seen for personal tax and financial planning in addition to top-tier corporate tax and accounting services. I have been very pleased with the level of quality service. They manage my monthly bookkeeping and accounts payable. It is a great system and saves me a ton of time, and it allows us to have monthly financial statements within a week of month end.
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