Here are some important tax considerations for selling your dental 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. How Long Does It Take to Sell a Dental Practice. 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. Selling a dental practice comes with various federal and state tax obligations. Here are some helpful tips. The more common approach to dental practice sales is to structure the transaction as an asset and personal goodwill sale. 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. 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. Most dentists report income from the sale of their practice during the same year. by scceu December 16, 2020 0 0. 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. 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) (. For example: furniture, light fixtures, and dental equipment depreciate over time. The Q&A can be found in the Journal of The Michigan Dental Association (April 2020). A dental practice contains several different kinds of assets—equipment, supplies, real property, goodwill—and each asset requires separate accounting and tax rules. 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. That said, some practice sale income might be deferred based on the date of sales agreement and timing of payout. 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 selling dentist is taxed on the difference between the sale price and the tax basis. By properly reallocating practice income valuation, there’s a $20,751 tax savings. Selling a dental practice has many moving parts, not the least of which is handling taxes. The goodwill of the practice grows in value over time, so it is categorized as a long-term, capital gain. What are some of those crucial considerations? 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 … 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. You can also visit us at goUSDT.com for more information. Typically, the group of assets that would be sold between the selling party and buying party would include dental supplies, furniture, […] 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. Finally, long-term gains from the goodwill of your practice maintain a flat rate at 15%, and your income will never change that. With this structure, the seller typically achieves long-term capital gain treatment (currently 15%) on the goodwill sale, but typically pays ordinary … That said, in most practice sales, the majority of the value of the practice lay in goodwill, which is … 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. 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. 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. An example of how allocation of practice income can save taxes, Consider the following adjustments to practice income. 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. 10 Considerations For Selling Your Dental Practice – Strategy. Southeast Transitions is now US Dental Transitions. Let’s crunch some numbers. 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. When you sell can be just as critical (if not more so) than how or why you sell your dental practice. Here are some tax considerations for both parties involved in the sale of a dental practice. Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider – the dental services organization or 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. The goodwill of the purchased practice requires a different path to write off. Whether you’re selling a dental practice or investing in a surgery, it’s important to get the right professional advice. 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. 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. Start early. 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. Maneuvering this with a dental CPA will continue to make your transition a smooth one! Selling or purchasing a dental practice is both an exciting and stressful period. The tax considerations of buying or selling a dental practice are only one part of the transition. 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. 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. However, the seller is at an advantage by having the power to allocate his assets how he sees fit. The buyer should keep a detailed record of which assets from the sale are included in the final sale price. In our last article we looked at the tax considerations related to assets sold as part of the practice sale. After this documentation, he’ll need to deduct the cost of each asset accordingly. Selling your dental practice is an exciting, but challenging process that requires expert knowledge. 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 When you sell a tangible asset, you will be paying taxes during that tax year on your personal income. These items are valued based on the original purchase price minus the claimed depreciation. 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 … 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. 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. Once we receive this information, it will take approximately 10-days to complete the core components of the practice valuation. 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