Please feel free to call me on 01844 260111. In contrast, in an asset sale, at least some of the assets will be taxed at ordinary income tax rates. The purchase and sale of any business can be a daunting task. Unlike shares, the LCGE is not available here. Sell your practice now when capital gain rates are still low. Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider – the dental services organization or DSO. One other item that can affect the tax consequences is how the purchase price is paid. 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. If the selling practice is a C-corporation, the double taxation can cause asset sales to result in a nasty tax burden. 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. For both buyers and sellers, a dental practice transition is typically the largest financial transaction they’ll enter into. 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. How the Seller Gets Taxed when Buying a Dental Practice. When selling a practice, the owner is taxed based on the difference between the sale price and the tax basis. An alternative finance route when buying / selling a dental practice In essence, the seller replaces the traditional bank as the lender. Buyer consequences. The buyer of the practice will record on his balance sheet the allocated purchase price of the assets acquired in the transaction. I will highlight several tax strategies when selling your dental practice. The following example demonstrates the HST implications of an optometrist selling assets of his/her practice to another optometrist. The longer you own the practice – the longer you pay ordinary income tax. One of the many important facets of a dental practice sale is taxes. Benefit from reduced expenditures and tax responsibility – new owners are responsible for practice insurance, real estate expenses, taxes and employee compensation/benefits. He will recover (deduct) the cost based upon the type of asset. 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. What are the tax implications of selling a dental practice? A transaction involving a medical practice is even further complicated by confusing and often impractical health care laws. Tax ramifications of selling a dental practice: Sole proprietorship, partnership, or corporation (The Expert series for dentists) [Janes, Patricia E] on Amazon.com. Let’s crunch some numbers. 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. Reduce your tax obligation by gifting up to $14,000 per year to any individual, with no additional tax burden for the recipient. 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. Selling a dental practice is an emotional process for any doctor because of the relationships developed with their patients and staff over the years. Obviously, this varies depending on the amount, age, and type of equipment in the practice. While focused on business and contractual terms in the highly regulated health care industry, buyers and sellers often ignore important … After the sale of your practice – you’ll benefit from the long-term capital gain rate – which is about. 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 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. Selling a dental practice today is much different than it was years ago. 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. We are hiring professionals to help support our dental offices. Do not go it alone! “What are the tax consequences when I sell my dental practice?”. Build Your Team of Advisors: Broker/Consultant, CPA/Accountant and an Attorney (keep them informed). 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 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. 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. Most entity sales will be taxed at the long-term capital gains rate. Answer : In short, most likely yes. Selling a dental practice comes with various federal and state tax obligations. 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. Selling stock creates a taxable event for the seller. 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 … 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. 179 Depreciation election or Bonus Depreciation. 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. 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. 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. 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. 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. 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