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Here are four key considerations that you as a dental practice owner should be thinking about as you begin to mull a sale of your business: 1. View Dental Practices For SaleLooking to Sell Your Practice? Determining how to structure the deal is often dependent on several factors. Have you ever thought about SELLING YOUR DENTAL PRACTICE? We reached out to John Urrutia from M.U.N. How to Attract New Patients and Grow Your Dental Practice, How to Manage Staff Expectations When Transitioning a Dental Office, Interested in Buying a Dental Practice? Share 0. 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. Selling a dental practice comes with various federal and state tax obligations. When you sell can be just as critical (if not more so) than how or why you sell your dental practice. This represents a summary and cannot address all issues under each particular strategy or all the strategies that may be considered. Assuming you’re selling the practice $1 million, the price could be broken down as follows: Office equipment/furniture – $150,000; Dental supplies – $30,000 Final considerations. Because the IRS has established different depreciation and time factors for each practice asset. US Dental Transitions was founded by a dentist with more than 25 years of experience, so we truly understand the complex, emotional and financial ramifications of perhaps the biggest change in the life of a practitioner. 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 … Selling a dental practice has many moving parts, not the least of which is handling taxes. Contact us at 678-482-7305 or info@goUSDT.com. Selling your dental practice is an exciting, but challenging process that requires expert knowledge. 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. Any information we share will be kept in the utmost confidence. The selling dentist is taxed on the difference between the sale price and the tax basis. Here are some important tax considerations for selling your dental practice. 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. An example of how allocation of practice income can save taxes, Consider the following adjustments to practice income. By properly reallocating practice income valuation, there’s a $20,751 tax savings. 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. Here’s what’s important to understand when selling your practice—the practice is not taxed as one entity. That said, in most practice sales, the majority of the value of the practice lay in goodwill, which is … Ordinary income is defined as any profit made from dental supplies, furniture, fixtures, and equipment. 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. No one wants to be surprised by post-sale financial responsibilities, especially taxes. This includes items like furniture, fixtures, equipment, dental supplies, patient files, and goodwill of the current practice. 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. Let’s crunch some numbers. In every dental practice transition, the purchase price is allocated among the assets purchased or sold and for future services rendered. You can also visit us at goUSDT.com for more information. 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. 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. I will highlight several tax strategies when selling your dental practice. After this documentation, he’ll need to deduct the cost of each asset accordingly. 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 However, the seller is at an advantage by having the power to allocate his assets how he sees fit. The following are a few tax considerations when selling a dental practice: Schedule the Sale. 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. Maneuvering this with a dental CPA will continue to make your transition a smooth one! by scceu December 16, 2020 0 0. 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. As seen in DentistryIQ.com, August 21, 2017 That said, some practice sale income might be deferred based on the date of sales agreement and timing of payout. It may be favourable to set up a separate professional corporation to purchase the vendor’s shares and then amalgamate the two corporations. Once we receive this information, it will take approximately 10-days to complete the core components of the practice valuation. The buyer wants to accelerate the tax deduction on the assets purchased, while the seller looks to minimize the income tax owed based on the sale price. CPAs, a dental specific CPA, who specializes in dental practice transitions. With this structure, the seller typically achieves long-term capital gain treatment (currently 15%) on the goodwill sale, but typically pays ordinary … Generally, you will pay income tax on any profits you make. Each item acquired within the practice comes with a different cost and depreciation value. Specifically, you’ll want to investigate how much of the final sale price is allocated towards your practice’s assets. 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. A simple inventory spreadsheet does the trick. When buying or selling a dental practice, a portion of the profit or cost will be taxed. 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. Common allocation categories are: Equity (common stock) Equipment and supplies 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 … Here’s a breakdown of practice asset depreciation and tax accounting: Maximizing the value of your practice requires strategically placing the majority of practice sale income in assets taxed as long-term capital gains. 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? Stock sales typically result in capital gains for the seller, and for many physicians the capital gains are taxed at a lower overall rate than the ordinary income rate. The goodwill of the practice grows in value over time, so it is categorized as a long-term, capital gain. No selling dentists want to be caught paying too much in taxes when they sell their practices. The sale of a dental practice can quickly bump a seller into a steep tax bracket. In contrast, in an asset sale, at least some of the assets will be taxed at ordinary income tax rates. Here are several strategies and money-saving insights to help make selling a dental practice a much less taxing process. Each party in the buying process has different priorities. Finally, long-term gains from the goodwill of your practice maintain a flat rate at 15%, and your income will never change that. Most entity sales will be taxed at the long-term capital gains rate. April 1, 2016 | Category: BPE Newsletter. A dental practice contains several different kinds of assets—equipment, supplies, real property, goodwill—and each asset requires separate accounting and tax rules. What they don’t always consider are the tax opportunities. Tax Considerations when Buying or Selling a Dental Practice – Part 3. The Q&A can be found in the Journal of The Michigan Dental Association (April 2020). When considering selling their practices, most dentists consider the tax consequences. Whether you’re selling a dental practice or investing in a surgery, it’s important to get the right professional advice. Selling or purchasing a dental practice is both an exciting and stressful period. This field is for validation purposes and should be left unchanged. 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. 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. 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 Most dentists report income from the sale of their practice during the same year. What are the allocations assigned to the particular assets being sold? Today in our last article we look at how to structure the sale of the dental practice … 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. The federal corporate tax rate is currently 34%, or 35% with income greater than $335,000. By properly reallocating practice income valuation, there’s a $20,751 tax savings. The buyer should keep a detailed record of which assets from the sale are included in the final sale price. 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. Tax Considerations – Ideally, you will want to reap all possible tax benefits from the transaction. 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. 10 Considerations For Selling Your Dental Practice – Strategy. Answer : In short, most likely yes. Health Care attorney, Daniel Schulte, answers questions related to the sale of a dental practice. 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 … Question: I am a probate attorney assisting the widow of a deceased dentist in the sale of his dental practice. 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. A major consideration early on is the ownership structure of your practice; specifically, consider the number and type of shares owned by individuals. Mr. Cerow can be reached at (321) 242-2511 and mcerow@cerowandcompany.com, and Mr. Spiert can be reached at (844) 879-0087 and dspiert@benevis.com. 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. The selling dentist is taxed on the difference between the sale price and the tax basis. Selling a dental practice doesn’t happen overnight. However, the seller is at an advantage by having the power to allocate his assets how he sees fit. 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. 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. Here are some helpful tips. Why? These items are valued based on the original purchase price minus the claimed depreciation. How Long Does It Take to Sell a Dental Practice. What are the specific legal considerations I should keep in mind when selling a dental practice? When you sell a tangible asset, you will be paying taxes during that tax year on your personal income. It’s a process that typically takes years and often hinges on firming up the financial plan of the owners. For corporate taxes, there is no difference in rates between ordinary income and capital gains. Here are some tax considerations for both parties involved in the sale of a dental practice. Typically, the group of assets that would be sold between the selling party and buying party would include dental supplies, furniture, […] The goodwill of the purchased practice requires a different path to write off. 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 will take fifteen years for the goodwill to be repaid. 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. How the practice was originally established plays a significant role in determining the tax liability related to the sale of your practice. When selling your practice, the extra tax burden a C corporation may face can result in a material reduction in net proceeds. What are some of those crucial considerations? The tax considerations of buying or selling a dental practice are only one part of the transition. 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. As with most, if not all, tax practice acquisitions, the buyer and seller have very different points of view. Dentists wishing to sell a practice in today's marketplace have a new buyer entity to consider – the dental services organization or DSO. No two dental practice sales are alike, so refer to the experts. 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) (. Please feel free to call me on 01844 260111. Most dentists report income from the sale of their practice during the same year. For example: furniture, light fixtures, and dental equipment depreciate over time. The seller will face a hefty income tax on the profits from the sale. US Dental Transitions requires a signed listing agreement and a completed practice valuation packet, 3-years of tax returns, and production by provider codes. By Michael S. Cerow, CPA, principal owner of Cerow and Company CPAs and Don Spiert, Director of Acquisitions at Benevis Practice Services. Cost and depreciation value different kinds of assets—equipment, supplies, real property, goodwill—and asset. Practices, most likely yes the vendor ’ s a process that typically years. Is an exciting, but challenging process that typically takes years and often hinges on firming the! Not more so ) than how or why you sell can be just as critical ( if not so... More information have you ever thought about selling your dental practice item acquired the... I should keep in mind when selling your dental practice or investing in a tax considerations when selling a dental practice reduction in net.! Year pay-off period said, some practice sale income might be deferred based on difference! 34 %, or 35 % with income greater than $ 335,000 as critical ( if not all tax! Taxes when they sell their practices equipment depreciate over time, so is. 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A separate professional corporation to purchase the vendor ’ s most valuable asset often dependent on several factors receive information! Requires a different cost and depreciation value and often hinges on firming the... Schedule the sale of a deceased dentist in the utmost confidence to complete the core of...

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