For both buyers and sellers, a dental practice transition is typically the largest financial transaction they’ll enter into. 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. This includes items like furniture, fixtures, equipment, dental supplies, patient files, and goodwill of the current practice. 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. 179 Depreciation election or Bonus Depreciation. In most dental practice sales, a majority of the purchase price is allocated to goodwill. 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. If the selling practice is a C-corporation, the double taxation can cause asset sales to result in a nasty tax burden. Understand the Tax Consequences of Selling a Dental Practice. Answer : In short, most likely yes. In the most common sale structure, a dentist sells her practice for a lump sum of money.  Though we say the dentist is selling “the practice,” 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. This rate, for 2018, is the same as the ordinary income tax rate, depending on the filing status. In contrast, in an asset sale, at least some of the assets will be taxed at ordinary income tax rates. Generally, you will pay income tax on any profits you make. Tax ramifications of selling a dental practice: Sole proprietorship, partnership, or corporation (The Expert series for dentists) Instead, sellers should consider owner financing some or all of the buyer’s practice purchase. Buyer consequences. An alternative finance route when buying / selling a dental practice In essence, the seller replaces the traditional bank as the lender. 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. How the Seller Gets Taxed when Buying a Dental Practice. Creative thinking also exposes other tax opportunities when selling a practice. One other item that can affect the tax consequences is how the purchase price is paid. 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. 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 … When researching how to sell your dental practice, it’s important to consider the tax consequences.Specifically, you’ll want to investigate how much of the final sale price is allocated towards your practice’s assets. Over the years, the seller has been depreciating the building and claiming a deduction for this on her tax return.  If she sells the building, taxes will be paid on any gain recognized.  Part of the gain will likely be due to appreciation of the building over time.  This gain will be taxed at the lower long-term capital gains rates.  Any gain associated with depreciation taken in the past, will be taxed at higher ordinary income rates.  A seller in this situation will likely feel penniless after paying her taxes from the year of sale. 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. 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. 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. This is a great question and one every dentist should consider well before selling their practice. The dental supplies will be charged to expense as they are purchased by the practice. Most dentists report income from the sale of their practice during the same year. Unfortunately, sellers face a substantial income tax on the profits that they make from the sale. 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. Selling a dental practice is an emotional process for any doctor because of the relationships developed with their patients and staff over the years. 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. While I can’t think of a better tenant than a dental practice, if for some reason the selling dentist just doesn’t want to continue to own that particular building, she can also take advantage of the IRS Section 1031 like-kind exchange rules.  These will allow her to trade this building for another income producing building while deferring the taxes down the road. 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. No selling dentists want to be caught paying too much in taxes when they sell their practices. 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. When selling a practice, the owner is taxed based on the difference between the sale price and the tax basis. We are hiring professionals to help support our dental offices. Selling a dental practice has many moving parts, not the least of which is handling taxes. Build Your Team of Advisors: Broker/Consultant, CPA/Accountant and an Attorney (keep them informed). What are the tax implications of selling a dental practice? Practice Management; Practice Transitions; Tax consequences of buying or selling a dental practice. Benefit from reduced expenditures and tax responsibility – new owners are responsible for practice insurance, real estate expenses, taxes and employee compensation/benefits. Your tax advisor must understand your needs and goals in order to apply specific tax planning in your transaction. 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. Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider – the dental services organization or DSO. Please feel free to call me on 01844 260111. Let’s look at ordinary income first. 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. The buyer of the practice will record on his balance sheet the allocated purchase price of the assets acquired in the transaction. It’s important to remember that fair market value to collections, while the most common valuation method, is not the only method to value a practice. Let’s crunch some numbers. By doing so you would pay tax as you receive payments on … The IRS has two ways to tax sales of assets where the seller makes money – ordinary income and long-term capital gains. As with most, if not all, tax practice acquisitions, the buyer and seller have very different points of view. General Sales and Use Tax Guidelines. Dental Practice Valuations; Preparing To Sell; ... Tax Consequences of Buying and Selling a Practice . 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. 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. Tax ramifications of selling a dental practice: Sole proprietorship, partnership, or corporation (The Expert series for dentists) [Janes, Patricia E] on Amazon.com. Based on this, the assets being sold may realize a capital gain and be subject to capital gains tax. 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. Caught paying too much tax consequences of selling a dental practice taxes when they sell their practices affect tax... 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