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. Many younger dentists have deep student debt , leaving less opportunity to establish or purchase their own firm. Buyers can acknowledge the practice goodwill they are purchasing and accept a 15-year tax write-off. The sale of a dental practice can quickly bump a seller into a steep tax bracket. 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. Letâs look at ordinary income first. 179 Depreciation election or Bonus Depreciation. Here are some tips to help you plan the sale of your practice: Itâs important to seek advice from your accountant before establishing a profit sharing plan and/or family gifting. In most dental practice sales, a majority of the purchase price is allocated to goodwill. Build Your Team of Advisors: Broker/Consultant, CPA/Accountant and an Attorney (keep them informed). 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. One other item that can affect the tax consequences is how the purchase price is paid. Do not go it alone! He will recover (deduct) the cost based upon the type of asset. This is the type of tax most people are familiar with. If the selling practice is a C-corporation, the double taxation can cause asset sales to result in a nasty tax burden. Please feel free to call me on 01844 260111. Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider â the dental services organization or DSO. 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 â ordinary income and long-term capital gains. Itâs important to remember that fair market value to collections, while the most common valuation method, is not the only method to value a practice. No two dental practice sales are the same and require specific understanding and application of the tax laws. 4. I will highlight several tax strategies when selling your dental practice. In most sales, a compromise on the allocation of the purchase/sale price is reached somewhere in the middle, but that doesnât 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. After the sale of your practice â youâll benefit from the long-term capital gain rate â which is about one half of ordinary income tax rates. The longer you own the practice â the longer you pay ordinary income tax. When I tour around the Midwest giving presentations regarding selling a dental office, I without doubt come across dentists who âread an article or two and have a good understanding of the processâ and want to handle the sale on their own to save money. "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). April 1, 2016 | Category: BPE Newsletter. A transaction involving a medical practice is even further complicated by confusing and often impractical health care laws. 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. In contrast, in an asset sale, at least some of the assets will be taxed at ordinary income tax rates. Tax Considerations when Buying or Selling a Dental Practice â Part 3. An alternative finance route when buying / selling a dental practice In essence, the seller replaces the traditional bank as the lender. Sellers also have the option of selling the assets of their practice. Most dentists report income from the sale of their practice during the same year. 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. No selling dentists want to be caught paying too much in taxes when they sell their practices. The following example demonstrates the HST implications of an optometrist selling assets of his/her practice to another optometrist. In our last article we looked at the tax considerations related to assets sold as part of the practice sale. 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. The longer you own the practice â the longer you pay ordinary income tax. Based on this, the assets being sold may realize a capital gain and be subject to capital gains tax. How the Seller Gets Taxed when Buying a Dental Practice. The sale of supplies generally generates ordinary income, which, depending on the sellerâs 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. The buyer of the practice will record on his balance sheet the allocated purchase price of the assets acquired in the transaction. The purchase and sale of any business can be a daunting task. Instead, sellers should consider owner financing some or all of the buyerâs practice purchase. 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. 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. *FREE* shipping on qualifying offers. 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. Sole proprietorships can only be ⦠In the most common sale structure, a dentist sells her practice for a lump sum of money. Though we say the dentist is selling âthe practice,â 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. When researching how to sell your dental practice, itâs important to consider the tax consequences.Specifically, youâll want to investigate how much of the final sale price is allocated towards your practiceâs assets. 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. 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. General Sales and Use Tax Guidelines. By doing so you would pay tax as you receive payments on ⦠Answer : In short, most likely yes. âWhat are the tax consequences when I sell my dental practice?â. 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. 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. Set-up a retirement plan to shelter some of the money made from the sale of your practice â especially if you plan to stay in the practice after the sale. Buyer consequences. The ordinary income tax rates start at 10% and go up to a whopping 39.6%! Selling a dental practice has many moving parts, not the least of which is handling taxes. Establish a profit-sharing plan for your practice. Your tax advisor must understand your needs and goals in order to apply specific tax planning in your transaction. These corporate groups are well-Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider â the dental services organization or DSO. 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 buyerâs 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. 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. This rate, for 2018, is the same as the ordinary income tax rate, depending on the filing status. Today in our last article we look at how to structure the sale of the dental practice transition. 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 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. Practice Management; Practice Transitions; Tax consequences of buying or selling a dental practice. For both buyers and sellers, a dental practice transition is typically the largest financial transaction theyâll enter into. Unlike shares, the LCGE is not available here. Generally, you will pay income tax on any profits you make. 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. 2. Selling a dental practice today is much different than it was years ago. Selling stock creates a taxable event for the seller. While focused on business and contractual terms in the highly regulated health care industry, buyers and sellers often ignore important ⦠Obviously, this varies depending on the amount, age, and type of equipment in the practice. If you thought youâll cash the entire sales proceeds, sorry to disappoint you! We are hiring professionals to help support our dental offices. Letâs crunch some numbers. Filing a sales and use tax return is required for practices that partake in the following transactions: Tax ramifications of selling a dental practice: Sole proprietorship, partnership, or corporation (The Expert series for dentists) Selling. Your tax advisor will be able to look at the options of maximizing Sec. Benefit from reduced expenditures and tax responsibility – new owners are responsible for practice insurance, real estate expenses, taxes and employee compensation/benefits. 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