We reached out to John Urrutia from M.U.N. Most dentists report income from the sale of their practice during the same year. The seller will face a hefty income tax on the profits from the sale. 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? Southeast Transitions is now US Dental Transitions. What are the allocations assigned to the particular assets being sold? 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. 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. 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. 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 … The goodwill of the purchased practice requires a different path to write off. Specifically, you’ll want to investigate how much of the final sale price is allocated towards your practice’s assets. With this structure, the seller typically achieves long-term capital gain treatment (currently 15%) on the goodwill sale, but typically pays ordinary … 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. I will highlight several tax strategies when selling 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. The sale of a dental practice can quickly bump a seller into a steep tax bracket. 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 As seen in DentistryIQ.com, August 21, 2017 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 … When you sell a tangible asset, you will be paying taxes during that tax year on your personal income. 10 Considerations For Selling Your Dental Practice – Strategy. 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 more common approach to dental practice sales is to structure the transaction as an asset and personal goodwill sale. By properly reallocating practice income valuation, there’s a $20,751 tax savings. April 1, 2016 | Category: BPE Newsletter. Once we receive this information, it will take approximately 10-days to complete the core components of the practice valuation. It’s a process that typically takes years and often hinges on firming up the financial plan of the owners. How Long Does It Take to Sell a Dental 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) (. Here are some helpful tips. This represents a summary and cannot address all issues under each particular strategy or all the strategies that may be considered. The federal corporate tax rate is currently 34%, or 35% with income greater than $335,000. 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? Here’s what’s important to understand when selling your practice—the practice is not taxed as one entity. An example of how allocation of practice income can save taxes, Consider the following adjustments to practice income. 5 Considerations to Keep in Mind. Selling a dental practice comes with various federal and state tax obligations. 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. The tax considerations of buying or selling a dental practice are only one part of the transition. Most dentists report income from the sale of their practice during the same year. After this documentation, he’ll need to deduct the cost of each asset accordingly. Final considerations. Let’s crunch some numbers. The following are a few tax considerations when selling a dental practice: Schedule the Sale. 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. Selling a dental practice doesn’t happen overnight. This article originally appeared in the Principles of Practice Management e-newsletter. These items are valued based on the original purchase price minus the claimed depreciation. 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. As with most, if not all, tax practice acquisitions, the buyer and seller have very different points of view. 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. 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. Share 0. Tax Considerations when Buying or Selling a Dental Practice – Part 3. No one wants to be surprised by post-sale financial responsibilities, especially taxes. That said, some practice sale income might be deferred based on the date of sales agreement and timing of payout. No selling dentists want to be caught paying too much in taxes when they sell their practices. By properly reallocating practice income valuation, there’s a $20,751 tax savings. 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. 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. Contact us at 678-482-7305 or info@goUSDT.com. You can also visit us at goUSDT.com for more information. 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. 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. However, the seller is at an advantage by having the power to allocate his assets how he sees fit. 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 In every dental practice transition, the purchase price is allocated among the assets purchased or sold and for future services rendered. 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