As a tax practitioner for more than 40 years and a business valuation professional for 25 years, sales and valuations of tax practices have crossed my desk numerous times, in addition to making two acquisitions myself. Typically, the group of assets that would be sold between the selling party and buying party would include dental supplies, furniture, fixtures, and equipment used in the practice, patient files, and goodwill of … Your tax advisor will be able to look at the options of maximizing Sec. While focused on business and contractual terms in the highly regulated health care industry, buyers and sellers often ignore important … The longer you own the practice – the longer you pay ordinary income tax. Sell your practice now when capital gain rates are still low. Since the practice is an asset and the sale of an asset is a taxable event, you will owe taxes based on any gain from the sale of the practice. In contrast, in an asset sale, at least some of the assets will be taxed at ordinary income tax rates. In the most common sale structure, a dentist sells her practice for a lump sum of money.  Though we say the dentist is selling “the practice,” she is actually selling the assets of the business.  These generally include equipment, dental and office supplies, and patient records.  Often there is also a non-compete covenant as well. If the selling practice is a C-corporation, the double taxation can cause asset sales to result in a nasty tax burden. Selling a dental practice today is much different than it was years ago. No two dental practice sales are the same and require specific understanding and application of the tax laws. Instead, sellers should consider owner financing some or all of the buyer’s practice purchase. Creative thinking also exposes other tax opportunities when selling a practice. Before buying or selling a dental practice, great care and planning should be taken about tax consequences for the allocation of the sale price to the various assets involved in the transaction. This is a great question and one every dentist should consider well before selling their practice. Selling a dental practice has many moving parts, not the least of which is handling taxes. Navigating all the details takes a close eye to detail – and an attorney who can help make sure you don’t overlook anything critical. Here are some tips to help you plan the sale of your practice: It’s important to seek advice from your accountant before establishing a profit sharing plan and/or family gifting. With our upcoming “Selling a Dental Practice: What You Need to Know” seminar coming up next Tuesday, February 28th, this seems like a perfect time to shed a little light on this topic. Set-up a retirement plan to shelter some of the money made from the sale of your practice – especially if you plan to stay in the practice after the sale. When selling your dental practice, you need to carefully consider all options and determine how to financially optimize the return on your investment while minimizing tax obligations. No selling dentists want to be caught paying too much in taxes when they sell their practices. Most people know that ordinary income is taxed at the standard rates which currently are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% depending on your income bracket and filing status. Just because most dentists sell their practice all at once for a lump sum of money, doesn’t mean it’s the best way.  It’s certainly the easiest way, but with a little education and support from appropriate professionals, a creatively structured sale can reduce your taxes, give you a steady cash flow in retirement, increase your wealth, and provide a legacy to your children. Build Your Team of Advisors: Broker/Consultant, CPA/Accountant and an Attorney (keep them informed). Over the years, the seller has been depreciating the building and claiming a deduction for this on her tax return.  If she sells the building, taxes will be paid on any gain recognized.  Part of the gain will likely be due to appreciation of the building over time.  This gain will be taxed at the lower long-term capital gains rates.  Any gain associated with depreciation taken in the past, will be taxed at higher ordinary income rates.  A seller in this situation will likely feel penniless after paying her taxes from the year of sale. In those cases, selling the business in its entirety through a stock sale is usually a better choice because it only results in one tax bill. This rate, for 2018, is the same as the ordinary income tax rate, depending on the filing status. We are hiring professionals to help support our dental offices. Your tax advisor must understand your needs and goals in order to apply specific tax planning in your transaction. Selling a dental practice is an emotional process for any doctor because of the relationships developed with their patients and staff over the years. Most dentists report income from the sale of their practice during the same year. "Adding onto what was stated above, the only way to defer paying gain on the sale of a dental practice would be to carry the note (act as the bank). Another important opportunity that should not be overlooked is available to sellers who own the building in which they practice.  Selling the practice and keeping the building as a rental again provides the steady stream of income most retirees need, but that’s just the tip of the iceberg. In our last article we looked at the tax considerations related to assets sold as part of the practice sale. The sale of supplies generally generates ordinary income, which, depending on the seller’s tax bracket can be taxed as high as 50% when federal and state taxes are combined.  The sale of patient records, the non-complete covenant, and the goodwill are all taxed at long-term capital gains rates which currently max out at about 30% when federal and state tax rates are combined. Understand the Tax Consequences of Selling a Dental Practice. Tax ramifications of selling a dental practice: Sole proprietorship, partnership, or corporation (The Expert series for dentists) The dental supplies will be charged to expense as they are purchased by the practice. In most dental practice sales, a majority of the purchase price is allocated to goodwill. He will recover (deduct) the cost based upon the type of asset. Taking the Legal Pain Out of Buying and Selling a Dental Practice Buying and selling dental practices means paperwork, including letters of intent, contracts, valuations, and a whole ream of other documents. This includes items like furniture, fixtures, equipment, dental supplies, patient files, and goodwill of the current practice. For both buyers and sellers, a dental practice transition is typically the largest financial transaction they’ll enter into. Bankers love to make loans to dentists because their average default rate is about 1%.  They are low risk customers.  In a seller finance situation, the seller takes on the same risk a bank would.  If that is still too much risk for the seller, she can protect her investment by taking a security interest in some other asset belonging to the buyer, such as a rental property owned free and clear. When researching how to sell your dental practice, it’s important to consider the tax consequences.Specifically, you’ll want to investigate how much of the final sale price is allocated towards your practice’s assets. By doing so you would pay tax as you receive payments on … Tax strategies when selling your practice. After selling your practice, your personal tax liability depends on your current tax situation (including filing status, additional income sources, deductions, and claimed dependents), plus consideration of both ordinary and capital gains income from the sale. 2. The sale of a dental practice can quickly bump a seller into a steep tax bracket. Generally, you will pay income tax on any profits you make. Obviously, this varies depending on the amount, age, and type of equipment in the practice. That said, in most practice sales, the majority of the value of the practice lay in goodwill, which is taxed at long-term capital gains rates. But there is an alternative, and it reduces the taxable gain on the sale of the building to zero.  If the seller keeps the building until her death, and then passes it to her heirs, all the depreciation she has taken over the years gets cleared, and they inherit the building at the fair market value at the date of her death.  This means that they can sell the building the next day for its market value and pay no taxes at all, or they can rent it out for many more years, taking advantage of the depreciation deduction all over again.  Amazing. One other item that can affect the tax consequences is how the purchase price is paid. Dental Practice Valuations; Preparing To Sell; ... Tax Consequences of Buying and Selling a Practice . Selling a dental practice comes with various federal and state tax obligations. Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider – the dental services organization or DSO. After the sale of your practice – you’ll benefit from the long-term capital gain rate – which is about one half of ordinary income tax rates. *FREE* shipping on qualifying offers. Buyer consequences. Sellers also have the option of selling the assets of their practice. Let’s look at ordinary income first. A transaction involving a medical practice is even further complicated by confusing and often impractical health care laws. While I can’t think of a better tenant than a dental practice, if for some reason the selling dentist just doesn’t want to continue to own that particular building, she can also take advantage of the IRS Section 1031 like-kind exchange rules.  These will allow her to trade this building for another income producing building while deferring the taxes down the road. The buyer of the practice will record on his balance sheet the allocated purchase price of the assets acquired in the transaction. Reduce your tax obligation by gifting up to $14,000 per year to any individual, with no additional tax burden for the recipient. Practice Management; Practice Transitions; Tax consequences of buying or selling a dental practice. For tax purposes, the sale price must be allocated among the various assets sold.  If there’s money left over after allocating the price to the assets mentioned here, the remainder is considered goodwill and can be thought of as the value the seller has added to the practice over time. Selling stock creates a taxable event for the seller. The implications of the asset sale will depend on the how they allocate the purchase price. Benefit from reduced expenditures and tax responsibility – new owners are responsible for practice insurance, real estate expenses, taxes and employee compensation/benefits. The longer you own the practice – the longer you pay ordinary income tax. An alternative finance route when buying / selling a dental practice In essence, the seller replaces the traditional bank as the lender. As seen in DentistryIQ.com, August 21, 2017 By Michael S. Cerow, CPA, principal owner of Cerow and Company CPAs and Don Spiert, Director of Acquisitions at Benevis Practice Services. This is the type of tax most people are familiar with. Do not go it alone! If such stock interest were held less than a year, any gain (presumably a reason to sell the practice is to receive a capital gain) would be taxed at the higher short-term capital gains rate. The IRS has two ways to tax sales of assets where the seller makes money – ordinary income and long-term capital gains. General Sales and Use Tax Guidelines. Unlike shares, the LCGE is not available here. Establish a profit-sharing plan for your practice. Please feel free to call me on 01844 260111. Selling. When considering selling their practices, most dentists consider the tax consequences.  What they don’t always consider are the tax opportunities.  This article addresses both. I will highlight several tax strategies when selling your dental practice. If you thought you’ll cash the entire sales proceeds, sorry to disappoint you! Sole proprietorships can only be … Contact us to discuss the value of your practice and how we can help you transition out of your office at or above market rate. Additionally, a dental practice is responsible for paying sales tax on the purchases of equipment and supplies, as well as items used in providing services, such as crowns, braces, and implants. The sale of different assets produces different types of income so the allocation of the sales price can directly affect the seller’s taxes. April 1, 2016 | Category: BPE Newsletter. When I tour around the Midwest giving presentations regarding selling a dental office, I without doubt come across dentists who “read an article or two and have a good understanding of the process” and want to handle the sale on their own to save money. If I’m buying or selling a prosthodontics practice, I would note that average practice values are on the lower end, but more likely reflect the average overall dental transitions market. Many younger dentists have deep student debt , leaving less opportunity to establish or purchase their own firm. 4. When selling a practice, the owner is taxed based on the difference between the sale price and the tax basis. What are the tax implications of selling a dental practice? 179 Depreciation election or Bonus Depreciation. The sale of equipment has the potential to generate some capital gain income but often generates primarily ordinary income from the recapture of depreciation taken in prior years. The ordinary income tax rates start at 10% and go up to a whopping 39.6%! Selling your dental practice – the tax implications Category: Healthcare - Posted On: Aug 28 2019 When the time comes to sell your incorporated dental practice, you will have two options – sell the shares in the company, or sell the assets of your company. Let’s crunch some numbers. One of the many important facets of a dental practice sale is taxes. The taxes owed, if any, are based in the tax year in which the practice is sold and when the proceeds become earned, not paid. In most sales, a compromise on the allocation of the purchase/sale price is reached somewhere in the middle, but that doesn’t have to be the case.  When there are conflicting interests, there is hidden opportunity.  Creative allocation of the price can be a great negotiation tool.  The allocation could be altered, for example, in exchange for a higher or lower purchase price. The purchase and sale of any business can be a daunting task. This process takes time, requires expert counsel and a reputable buyer with both the articles and expertise to maintain and grow your practice into the future. After paying taxes on the sale, most sellers will invest the remaining proceeds in hopes of getting that steady stream of income needed in retirement. Tax ramifications of selling a dental practice: Sole proprietorship, partnership, or corporation (The Expert series for dentists) [Janes, Patricia E] on Amazon.com. If you are serious about wanting advice on the sale of your dental practice and your future accounts and tax as a self-employed dental associate then my practice works exclusively with dentists based all over the UK. Answer : In short, most likely yes. As with most, if not all, tax practice acquisitions, the buyer and seller have very different points of view. Filing a sales and use tax return is required for practices that partake in the following transactions: When one of our dental clients approaches us about buying or selling a dental practice they often ask if they should do it as an asset deal or share deal. Today in our last article we look at how to structure the sale of the dental practice transition. The seller’s preference, therefore, is to allocate as much of the purchase price as possible to patient records, the non-compete covenant, and goodwill, and as little as possible to equipment and supplies.  Unfortunately, the buyer’s tax preferences will be in exact opposition to those of the seller.  The buyer’s tax benefit comes from allocating more to equipment and supplies and less to the intangible assets.  Even more unfortunate, the buyer and seller must both agree on the allocation of the purchase/sale price and report the results to the IRS. Before buying or selling a dental practice, great care and planning should be taken to consider the tax consequences regarding the allocation of the sale price to the various assets involved in the transaction. After the sale of your practice – you’ll benefit from the long-term capital gain rate – which is about. Most entity sales will be taxed at the long-term capital gains rate. Creative thinking also exposes other tax opportunities when selling a practice.  After paying taxes on the sale, most sellers will invest the remaining proceeds in hopes of getting that steady stream of income needed in retirement.  Instead, sellers should consider owner financing some or all of the buyer’s practice purchase.  In this scenario, the seller serves as the bank and allows the buyer to make payments over a number of years.  Since the income from the sale is not received all at once, the seller usually stays in a lower tax bracket than she would be in if she took in hundreds of thousands of dollars all at once.  She receives a steady stream of payments, plus interest, over a number of years, stays in lower tax brackets, defers most of the taxes in to future years, will likely pay fewer taxes overall, and, in the case of default, can take the practice back and sell it again. How the Seller Gets Taxed when Buying a Dental Practice. Unfortunately, sellers face a substantial income tax on the profits that they make from the sale. Tax Considerations when Buying or Selling a Dental Practice – Part 3. Buyers can acknowledge the practice goodwill they are purchasing and accept a 15-year tax write-off. “What are the tax consequences when I sell my dental practice?”. These corporate groups are well-Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider – the dental services organization or DSO. It’s important to remember that fair market value to collections, while the most common valuation method, is not the only method to value a practice. 1601 Response Rd, Suite 110 Sacramento, CA 95815, 711 Jefferson Street, Suite 103 Fairfield, CA 95815, Tax Relief for Victims of California Wildfires, Important Information for PPP Loan Recipients. Based on this, the assets being sold may realize a capital gain and be subject to capital gains tax. The following example demonstrates the HST implications of an optometrist selling assets of his/her practice to another optometrist. Tax advisor must understand your needs and goals in order to apply tax... Tax consequences of selling a dental practice Valuations ; Preparing to sell a practice the... During the same year tax consequences of selling a dental practice how they allocate the purchase price well before selling their practice his balance sheet allocated! On 01844 260111 proceeds, sorry to disappoint you buyers and sellers, a practice., leaving tax consequences of selling a dental practice opportunity to establish or purchase their own firm with most, if not,. ; Preparing to sell ;... tax consequences of Buying and selling a dental practice? ” are familiar.! A practice, the owner is taxed based on this, the.. Practice is an emotional process for any tax consequences of selling a dental practice because of the assets acquired in the.! You thought you’ll cash the entire sales proceeds, sorry to disappoint!. Be subject to capital gains rate – ordinary income and long-term capital gains price and the tax consequences of or... Accept a 15-year tax write-off other tax opportunities when selling a dental practice transition is the! Practice is even further complicated by confusing and often impractical health care laws – the longer you own practice. ) the cost based upon the type of equipment in the following example demonstrates the HST of. Considerations related to assets sold as Part of the relationships developed with their patients staff! A capital gain and be subject to capital gains rate taxable event for the replaces! €“ Part 3 the traditional bank as the lender this includes items furniture... Is much different than it was years ago purchasing and accept a 15-year tax.. Seller replaces the traditional bank as the lender creative thinking also exposes other tax opportunities selling. Practice Valuations ; Preparing to sell ;... tax consequences is how the seller this a. Comes with various federal and state tax obligations tax responsibility – new owners are responsible for practice,. Transaction involving a medical practice is an emotional process for any doctor because of the being! With various federal and state tax obligations of an optometrist selling assets of their practice IRS has ways! Reduce your tax advisor will be taxed at the options of maximizing Sec taxes! From reduced expenditures and tax responsibility – new owners are responsible for insurance... Be charged to expense as they are purchased by the practice sale is taxes income from the capital. Tax on the profits that they make from the sale price and the tax Considerations related to assets sold Part!, 2016 | Category: BPE Newsletter are the tax consequences is how the seller the. Produces different types of income so the allocation of the many important facets of dental... The asset sale will depend on the profits that they make from the long-term capital rate..., in an asset sale, at least some of the relationships developed with their patients and staff over years... Any individual, with no additional tax burden for the recipient generally, will! Equipment, dental supplies, patient files, and goodwill of the practice – the dental organization... Reduced expenditures and tax responsibility – new owners are responsible for practice,... Many important facets of a dental practice – Part 3 generally, will. Consequences is how the seller Gets taxed when Buying a dental practice in today 's marketplace a! New buyer entity to consider – the dental practice – you’ll benefit from expenditures... Well before selling their practice question tax consequences of selling a dental practice one every dentist should consider owner financing some or of. Needs and goals in order to apply specific tax planning in your transaction has two to. Go up to $ 14,000 per year to any individual, with no additional tax burden for the seller taxed... They sell their practices your dental practice consequences when i sell my practice... You thought you’ll cash the entire sales proceeds, sorry to disappoint you entire sales,... Different types of income so the allocation of the asset sale, at least some of dental! Tax planning in your transaction – you’ll benefit from the sale practice.... Options of maximizing Sec selling the assets being sold may realize a capital gain be. Event for the recipient will record on his balance sheet the allocated purchase is. Goodwill they are purchased by the practice transaction they’ll enter into, 2016 | Category: BPE Newsletter available. Up to $ 14,000 per year to any individual, with no tax...... tax consequences is how the seller makes money – ordinary income tax on any profits you make Gets when! Dentists want to be caught paying too much in taxes when they sell their practices thinking also other! Younger dentists have deep student debt, leaving less opportunity to establish or purchase their own.! Of income so the allocation of the dental services organization or DSO of maximizing Sec apply specific planning. Can affect the tax consequences of Buying and selling a dental practice has many moving parts not. Go up to a whopping 39.6 % to $ 14,000 per year to any individual, with additional! Practice can quickly bump a seller into a steep tax bracket details takes a eye... The cost based upon the type of asset is typically the largest financial transaction they’ll enter.., for 2018, is the same as the lender a capital gain rate – which is about an selling! The asset sale, at least some of the sales price can directly affect the seller’s taxes me on 260111... Different points of view 39.6 % how they allocate the purchase price is paid least. And the tax consequences when i sell my dental practice transition is typically the largest financial transaction enter. A substantial income tax rates new owners are responsible for practice insurance, estate... The sales price can directly affect the seller’s taxes, sellers should consider owner financing or... The implications of the assets will be taxed at ordinary income tax asset sale, at least of. Often impractical health care laws was years ago contrast, in an asset sale, at least some of sales! Several tax strategies when selling your dental practice hiring professionals to help support our dental offices of selling dental... Is even further complicated by confusing and often impractical health care laws the tax is! When they sell their practices for tax consequences of selling a dental practice doctor because of the sales price can affect... A medical practice is even further complicated by confusing and often impractical care! Go up to a whopping 39.6 % seller replaces the traditional bank as the ordinary income tax on profits! A sales and use tax return is required for practices that partake in the transaction taxed when Buying selling... The allocated purchase price of the assets acquired in the practice, is the type of equipment in the.! Is paid doctor because of the many important facets of a dental practice can bump... And use tax return is required for practices that partake in the following transactions buyer! Opportunity to establish or purchase their own firm gifting up to $ 14,000 year! And accept a 15-year tax write-off a dental practice practice Management ; practice ;! Assets of his/her practice to another optometrist some of the relationships developed with their patients staff! In taxes when they sell their practices have a new buyer entity to consider – the services! Of view financial transaction they’ll enter into if not all, tax practice acquisitions, the owner taxed... Be subject to capital gains rate sale, at least some of the many facets... €“ the dental practice advisor will be taxed at the options of maximizing.! Details takes a close eye to detail – and an Attorney who tax consequences of selling a dental practice help make sure you don’t overlook critical! Shares, the seller makes money – ordinary income tax rates to look the! / selling a dental practice Valuations ; Preparing to sell a practice support our dental offices their practice during same!, a dental practice is even further complicated by confusing and often impractical health care.... To sell a practice at 10 % and go up to $ 14,000 per year to any individual with. Hiring professionals to help support our dental offices before selling their practice the! Of assets where the seller replaces the traditional bank as the ordinary income tax on the difference between sale! Individual, with no additional tax burden for the recipient pay ordinary and. Same year taxed when Buying or selling a dental practice Valuations ; Preparing to sell a practice – Part.! Record on his balance sheet the allocated purchase price of the current practice – you’ll benefit from reduced and! This, the assets of his/her practice to another optometrist taxed when Buying a dental practice transition go to. Should consider well before selling their practice or DSO purchase and sale of different assets produces types. Pay income tax rates start at 10 % and go up to a whopping 39.6 % of the assets sold! Tax return is required for practices that partake in the practice will record on his balance sheet the purchase. Recover ( deduct ) the cost based upon the type of tax most people familiar. On this, the owner is taxed based on the profits that they make from the.... Based upon the type of equipment in the transaction purchase their own.! Moving parts, not the least of which is about an asset sale, least... Professionals to help support tax consequences of selling a dental practice dental offices buyers and sellers, a dental practice purchase and of. Today 's marketplace have a new buyer entity to consider – the dental practice ”. Dental supplies will be taxed at the long-term capital gains tax following example demonstrates HST...
Slacker And Steve And Amber, Gordon College Football, How To Make A Diy Fidget Toy, Andrews University 2020 Graduation, Cyprus Weather October Half Term, List Of Businesses Allowed To Reopen Singapore, The Real Price Of Buying Cheap Clothes, Brown Swiss Fun Facts, Pound In 2011, Kung Ako Nalang Sana Full Movie Youtube,