tax considerations when selling a dental practice
Selling a dental practice has many moving parts, not the least of which is handling taxes. That said, in most practice sales, the majority of the value of the practice lay in goodwill, which is … Here are some helpful tips. 5 Considerations to Keep in Mind. This represents a summary and cannot address all issues under each particular strategy or all the strategies that may be considered. Please feel free to call me on 01844 260111. The buyer wants to accelerate the tax deduction on the assets purchased, while the seller looks to minimize the income tax owed based on the sale price. An example of how allocation of practice income can save taxes, Consider the following adjustments to practice income. It may seem obvious, but many sellers don’t realize they need to divide the sale price heavily towards assets that will produce long-term capital and less toward assets that lead to ordinary income. Common allocation categories are: Equity (common stock) Equipment and supplies These items are valued based on the original purchase price minus the claimed depreciation. Sure, it will take some time and careful planning, but it’s not as complicated as you might think to maximize the value of your practice. Most dentists report income from the sale of their practice during the same year. Stock sales typically result in capital gains for the seller, and for many physicians the capital gains are taxed at a lower overall rate than the ordinary income rate. Ordinary income is defined as any profit made from dental supplies, furniture, fixtures, and equipment. Maneuvering this with a dental CPA will continue to make your transition a smooth one! This article originally appeared in the Principles of Practice Management e-newsletter. In every dental practice transition, the purchase price is allocated among the assets purchased or sold and for future services rendered. By properly reallocating practice income valuation, there’s a $20,751 tax savings. What they don’t always consider are the tax opportunities. One of the most important considerations every dentist should think about before signing on the dotted line is: what are the tax consequences of selling? What are the allocations assigned to the particular assets being sold? Here are several strategies and money-saving insights to help make selling a dental practice a much less taxing process. April 1, 2016 | Category: BPE Newsletter. Each party in the buying process has different priorities. The goodwill of the practice grows in value over time, so it is categorized as a long-term, capital gain. Selling a dental practice comes with various federal and state tax obligations. We are hiring professionals to help support our dental offices. As seen in DentistryIQ.com, August 21, 2017, Real property improvements (book value) $267,308, sold @ $250,000 = ($17,308) (, Equipment (book value) $20,801, sold @ $75,000 = $54,919 (, Assuming 20% capital gains rate and 35% ordinary income tax rate =, Real property improvements sold @ $150,000 = ($117,308) (. Assuming you’re selling the practice $1 million, the price could be broken down as follows: Office equipment/furniture – $150,000; Dental supplies – $30,000 The tax considerations of buying or selling a dental practice are only one part of the transition. Because the IRS has established different depreciation and time factors for each practice asset. Client Resource Centre – COVID 19 .cls-rev-notag-1{fill:#fff;}.cls-rev-notag-2{fill:#cc1a42;}.cls-rev-notag-grey{fill:#808285} Here’s a breakdown of practice asset depreciation and tax accounting: Maximizing the value of your practice requires strategically placing the majority of practice sale income in assets taxed as long-term capital gains. Most dentists report income from the sale of their practice during the same year. When researching how to sell your dental practice, it’s important to consider the tax consequences. No selling dentists want to be caught paying too much in taxes when they sell their practices. Question: I am a probate attorney assisting the widow of a deceased dentist in the sale of his dental practice. US Dental Transitions was founded by a dentist with more than 25 years of experience, so we truly understand the complex, emotional and financial ramifications of perhaps the biggest change in the life of a practitioner. For corporate taxes, there is no difference in rates between ordinary income and capital gains. Here are four key considerations that you as a dental practice owner should be thinking about as you begin to mull a sale of your business: 1. Tax codes require a five to seven year pay-off period. 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. US Dental Transitions requires a signed listing agreement and a completed practice valuation packet, 3-years of tax returns, and production by provider codes. What are some of those crucial considerations? It may be favourable to set up a separate professional corporation to purchase the vendor’s shares and then amalgamate the two corporations. Specifically, you’ll want to investigate how much of the final sale price is allocated towards your practice’s assets. 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. Here are some tax considerations for both parties involved in the sale of a dental 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. When you sell a tangible asset, you will be paying taxes during that tax year on your personal income. Typically, the group of assets that would be sold between the selling party and buying party would include dental supplies, furniture, […] It’s also important to get the most money for the practice, which is likely a dentist’s most valuable asset. Tax Considerations when Buying or Selling a Dental Practice – Part 3. When selling your practice, the extra tax burden a C corporation may face can result in a material reduction in net proceeds. How to Attract New Patients and Grow Your Dental Practice, How to Manage Staff Expectations When Transitioning a Dental Office, Interested in Buying a Dental Practice? Start early. Let’s crunch some numbers. 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. Your practice is not taxed as one entity One of the most important aspects of selling your dental practice —when it comes to taxes—is that your practice will not be taxed as a single entity. Final considerations. It will take fifteen years for the goodwill to be repaid. CPAs, a dental specific CPA, who specializes in dental practice transitions. If your practice was set up as a regular partnership (often a limited liability company or limited liability partnership), S Corporation, or sole proprietorship, the sale has both ordinary and capital gains income taxes that are paid by the owners on their personal income tax returns. Health Care attorney, Daniel Schulte, answers questions related to the sale of a dental practice. The following are a few tax considerations when selling a dental practice: Schedule the Sale. Answer : In short, most likely yes. I will highlight several tax strategies when selling your dental practice. Why? Contact us at 678-482-7305 or info@goUSDT.com. An asset deal is when the dentist (or his/her dentistry professional corporation “DPC”) buys the assets of the Seller’s practice whereas a share deal is when the dentist or his/her DPC purchases the shares of the Seller’s DPC. No two dental practice sales are alike, so refer to the experts. How the practice was originally established plays a significant role in determining the tax liability related to the sale of your practice. It’s always best to consult a tax professional and attorney with experience in practice sales to help answer any questions based upon your personal finances and practice deal structure to determine all tax implications. In episode 13 of the Tax Section Odyssey weekly video series, Raleigh Cutrer, CPA/PFS/ABV, Shareholder at Matthews, Cutrer and Lindsay, P.A., talks about five key areas to consider when in the process of selling Any information we share will be kept in the utmost confidence. You can also visit us at goUSDT.com for more information. Finally, long-term gains from the goodwill of your practice maintain a flat rate at 15%, and your income will never change that. It’s a process that typically takes years and often hinges on firming up the financial plan of the owners. 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. The goodwill of the purchased practice requires a different path to write off. The non-corporate federal tax rates on the profits from the sale will fluctuate based on the seller’s annual income. For example, if your practice was set up as a regular C Corporation (C Corporation profits are taxed separately from the owner), all income from the sale is taxed at the corporate level. By Michael S. Cerow, CPA, principal owner of Cerow and Company CPAs and Don Spiert, Director of Acquisitions at Benevis Practice Services. Whether you’re selling a dental practice or investing in a surgery, it’s important to get the right professional advice. What are the specific legal considerations I should keep in mind when selling a dental practice? Selling or purchasing a dental practice is both an exciting and stressful period. The buyer should keep a detailed record of which assets from the sale are included in the final sale price. Therefore, when initiating the purchase, the buyer should allocate a majority of the purchase to the items that depreciate quicker and less to the goodwill. But, whether you happen to be the buyer or the seller of a dental practice, taxes are a key factor to consider in any transaction. Any decisions you make about the allocation of the sale price to the various assets that are involved in the purchase must be reflected in the final purchase contract. 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. Seek an adviser who understands tax laws and how to structure the best deal with these kinds of questions in mind: What are the tax considerations in your asset sale? Today in our last article we look at how to structure the sale of the dental practice … Once we receive this information, it will take approximately 10-days to complete the core components of the practice valuation. The recent U.S. Supreme Court decision, Wayfair v. South Dakota, put the spotlight on who can charge sales tax for online transactions.The Tax Cuts and Jobs Act of 2017 made significant changes to the U.S. tax code. Determining how to structure the deal is often dependent on several factors. Have you ever thought about SELLING YOUR DENTAL PRACTICE? Each item acquired within the practice comes with a different cost and depreciation value. When you sell can be just as critical (if not more so) than how or why you sell your dental 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. Whilst trading in any business can be complicated, there are specific considerations which need to be addressed when dealing with specialised organisations, such as dental … If you intend to continue your legacy by selling to a dentist who will honor your desire to care for your patients and staff, we’re confident we can connect you with a buyer that can meet your selling criteria. In contrast, in an asset sale, at least some of the assets will be taxed at ordinary income tax rates. In our last article we looked at the tax considerations related to assets sold as part of the practice sale. For example: furniture, light fixtures, and dental equipment depreciate over time. The seller will face a hefty income tax on the profits from the sale. Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider – the dental services organization or DSO. We reached out to John Urrutia from M.U.N. Selling your dental practice is an exciting, but challenging process that requires expert knowledge. No one wants to be surprised by post-sale financial responsibilities, especially taxes. How Long Does It Take to Sell a Dental Practice. When considering selling their practices, most dentists consider the tax consequences. Selling a dental practice doesn’t happen overnight. Here are some important tax considerations for selling your dental practice. 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. Share 0. This includes items like furniture, fixtures, equipment, dental supplies, patient files, and goodwill of the current practice. As with most, if not all, tax practice acquisitions, the buyer and seller have very different points of view. 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. The more common approach to dental practice sales is to structure the transaction as an asset and personal goodwill sale. The sale of a dental practice can quickly bump a seller into a steep tax bracket. Selling a dental practice can be daunting and many owners may not be aware of the relevant considerations when preparing for and carrying out such a sale. by scceu December 16, 2020 0 0. In most sales, the value of the practice is largely comprised of the goodwill of the practice, which can help reduce the amount of taxes owed after the sale of the practice. According to Bank of America, “Lenders usually look for the practice and doctor’s personal income to cash flow at a ratio of a 1.20%, which means the practice is expected to generate a $1.20 in revenue — or collections — for every $1 spent between the practice … 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. That said, some practice sale income might be deferred based on the date of sales agreement and timing of payout. A major consideration early on is the ownership structure of your practice; specifically, consider the number and type of shares owned by individuals. The selling dentist is taxed on the difference between the sale price and the tax basis. Most entity sales will be taxed at the long-term capital gains rate. However, the seller is at an advantage by having the power to allocate his assets how he sees fit. This field is for validation purposes and should be left unchanged. 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. Mr. Cerow can be reached at (321) 242-2511 and mcerow@cerowandcompany.com, and Mr. Spiert can be reached at (844) 879-0087 and dspiert@benevis.com. Items that fall under ordinary income will face a tax rate somewhere between 10-35%. As seen in DentistryIQ.com, August 21, 2017 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. By properly reallocating practice income valuation, there’s a $20,751 tax savings. It may seem obvious, but many sellers don’t realize they need to divide the sale price heavily towards assets that will produce long-term capital and less toward assets that lead to ordinary income. The selling dentist is taxed on the difference between the sale price and the tax basis. After this documentation, he’ll need to deduct the cost of each asset accordingly. The federal corporate tax rate is currently 34%, or 35% with income greater than $335,000. When buying or selling a dental practice, a portion of the profit or cost will be taxed. A simple inventory spreadsheet does the trick. However, the seller is at an advantage by having the power to allocate his assets how he sees fit. A dental practice contains several different kinds of assets—equipment, supplies, real property, goodwill—and each asset requires separate accounting and tax rules. Here’s what’s important to understand when selling your practice—the practice is not taxed as one entity. 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 the … Generally, you will pay income tax on any profits you make. View Dental Practices For SaleLooking to Sell Your Practice? With this structure, the seller typically achieves long-term capital gain treatment (currently 15%) on the goodwill sale, but typically pays ordinary … 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. Tax Considerations – Ideally, you will want to reap all possible tax benefits from the transaction. The Q&A can be found in the Journal of The Michigan Dental Association (April 2020). Michael S. Cerow, CPA, is principal owner of Cerow and Company CPAs, PA, in Melbourne, Florida, and Don Spiert is Director of Acquisitions at Benevis Practice Services, an Atlanta-based DSO. If your dental practice is structured correctly, you may be able to minimize the tax payable on a sale significantly so that you keep the vast majority of your sale proceeds. 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. Selling a dental practice can be a daunting task at the best of times, and many owners may not be aware of the relevant considerations when preparing for and carrying out such a 10 Considerations For Selling Your Dental Practice – Strategy. Southeast Transitions is now US Dental Transitions. 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. An asset sale, at least some of the practice comes with various federal and state tax.. 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Who specializes in dental practice comes with a dental CPA will continue make..., some practice sale income might be deferred based on the profits from sale! Corporation may face can result in a surgery, it ’ s important to get the most money for practice... In determining the tax basis information, it ’ s shares and then the... It take to sell a practice in today 's marketplace have a new buyer entity to consider – dental! Much in taxes when they sell their practices, most likely yes be paying taxes during that tax on! Following are a few tax considerations when selling your dental practice sales is to structure the is. Or why you sell your dental practice time factors for each practice asset practice valuation seller ’ s tax considerations when selling a dental practice... Last article we looked at the tax basis dental practice contains several different kinds of,! Practice sales is to structure the transaction as an asset and personal goodwill sale of your practice how!
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