Buyer consequences. 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. Filing a sales and use tax return is required for practices that partake in the following transactions: Selling a dental practice today is much different than it was years ago. *FREE* shipping on qualifying offers. Selling stock creates a taxable event for the seller. In contrast, in an asset sale, at least some of the assets will be taxed at ordinary income tax rates. Unfortunately, sellers face a substantial income tax on the profits that they make from the sale. I will highlight several tax strategies when selling your dental practice. Most dentists report income from the sale of their practice during the same year. Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider – the dental services organization or DSO. 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. If the selling practice is a C-corporation, the double taxation can cause asset sales to result in a nasty tax burden. 179 Depreciation election or Bonus Depreciation. While focused on business and contractual terms in the highly regulated health care industry, buyers and sellers often ignore important … An alternative finance route when buying / selling a dental practice In essence, the seller replaces the traditional bank as the lender. Do not go it alone! 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. Based on this, the assets being sold may realize a capital gain and be subject to capital gains tax. 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. 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. 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. 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. 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. In our last article we looked at the tax considerations related to assets sold as part of the practice sale. The ordinary income tax rates start at 10% and go up to a whopping 39.6%! The following example demonstrates the HST implications of an optometrist selling assets of his/her practice to another optometrist. This rate, for 2018, is the same as the ordinary income tax rate, depending on the filing status. The purchase and sale of any business can be a daunting task. 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. 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. 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. 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. The longer you own the practice – the longer you pay ordinary income tax. 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. Today in our last article we look at how to structure the sale of the dental practice transition. April 1, 2016 | Category: BPE Newsletter. Dental Practice Valuations; Preparing To Sell; ... Tax Consequences of Buying and Selling a Practice . By doing so you would pay tax as you receive payments on … 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. Answer : In short, most likely yes. Please feel free to call me on 01844 260111. Selling a dental practice is an emotional process for any doctor because of the relationships developed with their patients and staff over the years. The IRS has two ways to tax sales of assets where the seller makes money – ordinary income and long-term capital gains. 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. He will recover (deduct) the cost based upon the type of asset. One of the many important facets of a dental practice sale is taxes. The longer you own the practice – the longer you pay ordinary income tax. 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. Let’s look at ordinary income first. 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. 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. For both buyers and sellers, a dental practice transition is typically the largest financial transaction they’ll enter into. Navigating all the details takes a close eye to detail – and an attorney who can help make sure you don’t overlook anything critical. 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. 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. Obviously, this varies depending on the amount, age, and type of equipment in the practice. Sellers also have the option of selling the assets of their practice. Build Your Team of Advisors: Broker/Consultant, CPA/Accountant and an Attorney (keep them informed). Tax Considerations when Buying or Selling a Dental Practice – Part 3. After the sale of your practice – you’ll benefit from the long-term capital gain rate – which is about. Tax ramifications of selling a dental practice: Sole proprietorship, partnership, or corporation (The Expert series for dentists) [Janes, Patricia E] on Amazon.com. Most entity sales will be taxed at the long-term capital gains rate. One other item that can affect the tax consequences is how the purchase price is paid. Sell your practice now when capital gain rates are still low. 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. What are the tax implications of selling a dental practice? 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. 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. 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. 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. Unlike shares, the LCGE is not available here. We are hiring professionals to help support our dental offices. The sale of different assets produces different types of income so the allocation of the sales price can directly affect the seller’s taxes. 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. 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. “What are the tax consequences when I sell my dental practice?”. In most dental practice sales, a majority of the purchase price is allocated to goodwill. Instead, sellers should consider owner financing some or all of the buyer’s practice purchase. 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. 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. This is a great question and one every dentist should consider well before selling their practice. When selling a practice, the owner is taxed based on the difference between the sale price and the tax basis. Let’s crunch some numbers. Buyers can acknowledge the practice goodwill they are purchasing and accept a 15-year tax write-off. Benefit from reduced expenditures and tax responsibility – new owners are responsible for practice insurance, real estate expenses, taxes and employee compensation/benefits. Optometrist selling assets of his/her practice to another optometrist of view highlight several tax strategies selling. 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