You’ve made the big decision — to expand your footprint by buying another practice, or to sell the one you’ve built so you can slow down or move into retirement. Whether you’re gearing up for growth or preparing to hand over the reins, there’s one major consideration that can’t be overlooked: taxes.
Tax planning plays a critical role in any practice transition. From capital gains to depreciation recapture, both buyers and sellers are impacted by complex tax laws that can significantly affect the outcome of the sale. If you’re navigating this for the first time, or even the second or third, it’s not always clear what to expect.
That’s why we’re here to help. In this article, we’ll break down the key tax considerations dentists should understand when selling or purchasing a dental practice, so you can move forward with confidence and peace of mind.
Tax Planning for Buying a Dental Practice
When a dental practice is sold, there isn’t a single lump-sum price for the business. Instead, the total sale price is allocated across several categories for tax purposes. These typically include:
- Equipment and furniture: Items such as dental chairs, X-ray machines, and office furnishings
- Supplies: Consumables like gloves, masks, and dental tools
- Accounts receivable: Outstanding payments owed to the practice
- Goodwill: The value of the practice’s reputation, patient base, and brand recognition
- Covenants not to compete: Agreements preventing the seller from opening a competing practice nearby
Each category is taxed differently, so how the sale is allocated can significantly impact your tax liability. Strategic allocation is essential to ensuring a fair and financially sound outcome for both buyer and seller.
Why does this matter? Because certain allocations may favor one party over the other. For example, allocating more of the purchase price to equipment, furniture, and fixtures can benefit the buyer through accelerated depreciation, allowing for a more favorable tax write-off in the early years of ownership.
That’s why it’s critical to work with a dental CPA or an experienced practice management advisor who understands:
- Tax planning strategies specific to dental practice transactions
- How to maximize tax deductions for dentists, including office upgrades
- The impact of asset allocation on both short-term and long-term tax implications
Having a dental practice tax expert by your side to evaluate the practice’s assets and guide negotiations can help you reduce tax exposure, make informed decisions, and set your new practice up for financial success.
Tax Consequences of Selling a Dental Practice
If you're thinking about selling your dental practice, there's a lot to consider. You want to maximize the value of the business you've worked so hard to build while also thinking about your patients, your team, and your legacy.
One of the most critical (and often overlooked) parts of the process? Planning for the tax impact.
Yes, you’ll owe taxes on the sale. But the amount you’ll actually pay depends on how the deal is structured and how the assets are allocated. From equipment and property to personal goodwill, each element is taxed differently. Not only that, but each plays a major role in how much money you take home after the sale.
Your business structure will also influence the tax strategy. Most dental practices fall into one of these categories:
- Sole Proprietorship
- S Corporation
- C Corporation
- Limited Liability Company (LLC)
Each entity type has its own rules when it comes to dental practice sales. For instance, selling stock in a corporation can result in very different tax consequences than selling assets. And the implications can extend to any shareholders involved.
Like buying a practice, selling is much smoother with a knowledgeable advisor at your side. A dental CPA or financial professional who understands tax laws for dentists can help you:
- Assess the right timing for your sale
- Minimize your tax burden through smart allocation
- Avoid common pitfalls that reduce your net proceeds
Many practice owners expect a major payday when they sell, but taxes can take a significant bite out of that check. With the right planning, you can preserve more of your earnings and walk away with the financial freedom you’ve worked so hard for.
Why Work With an Expert When Buying and Selling a Dental Practice?
Selling a dental practice is far from a simple transaction. It’s not just about agreeing on a price and signing the paperwork. The process involves valuing everything from equipment and inventory to accounts receivable, payables, and your patient base. Every detail matters.
And while it might be the last thing you want to focus on, taxes will have a significant impact on the final outcome, especially your personal finances. Your total tax liability will depend on your full financial picture, including other income sources, deductions, and your filing status.
That’s why it’s so important to work with a specialist who understands the financial landscape specific to dentists.
An expert in financial planning for dental professionals can guide you through the complexities, help you reduce your tax burden, and make sure you’re set up for long-term success — whether you’re buying or selling a practice.
Tools to Help You Prepare
If you're thinking about purchasing a dental practice — or ready to sell the one you've built — you likely have a lot on your plate. And figuring out where to start with tax planning can feel overwhelming.
That’s why we’ve created a Tax Planning Checklist for Dentists, a practical guide with smart strategies to help you plan effectively and make informed decisions, whether you're buying or selling.
At Dental CFO, our team of financial experts specializes in supporting dentists through major transitions. We’ll help you establish a fair market value for the practice and offer honest insight into whether now is the right time to make a move.
Ready to take the next step? Reach out to us and tell us about your goals. We’re here to help you navigate this important phase of your career with confidence.
FAQs About Buying or Selling Your Dental Practice
How much is a dental practice worth?
The value of a dental practice depends on several factors, including location, annual revenue, profitability, patient base, and the condition of equipment and facilities. Most practices are valued at 60% to 80% of annual collections, but a professional dental practice valuation is the best way to determine an accurate market value.
What is the best time to sell a dental practice?
The best time to sell is when the practice is financially strong, collections are steady or growing, and you have a clear transition plan. Many dentists aim to sell one to three years before retirement to maximize value and allow time for a smooth ownership transfer.
What are the tax benefits of owning a dental practice?
Owning a dental practice offers several tax benefits, including deductions for business expenses (e.g., equipment, rent, salaries), retirement plan contributions, and depreciation of assets. Strategic tax planning can significantly reduce your tax liability and improve long-term financial outcomes.
What is the best way to sell a dental practice?
The best approach is to work with a team of professionals, such as a dental CPA, attorney, and practice broker, who can help you prepare for the sale, value the business accurately, structure the transaction efficiently, and minimize taxes. Early planning ensures a smoother, more profitable transition.
