AUTHOR: The Dental CFO
October 19, 2022
You’ve decided to buy another practice and expand your business’ footprint. There’s a lot of work ahead, but you’ve found a practice to purchase and you’re excited about the future. Or, maybe you’re selling your practice. You’ve decided to downsize so your plate isn’t so full, or it’s time for retirement and you’re ready to relax after years of hard work. Amidst everything you have going on, one thing looms large: taxes.
Whether buying or selling, tax planning will be a central point of conversation during the transaction process. When a business is sold, the buyer and seller will be impacted by various tax codes and laws. You’ll need to know how tax laws for dentists will impact the sale and what that means for you. And we know this isn’t an easy topic. So, we’ll walk you through a few things to consider when buying or selling a practice.
Tax Planning for Buying a Dental Practice
When a dental practice is sold, the business has no single price. The sale will be broken down into various categories like equipment and furniture, supplies, receivables, and other types for tax purposes. The “category” choice is important, because certain categories may benefit one party more than the other. For example, more money allocated to furniture, equipment, and fixtures will give the current purchaser a favorable tax write-off, due to the accelerated depreciation rules.
You’ll need to work closely with a dental CPA or practice management expert who can help you with tax planning for buying a dental practice. They also understand tax deductions for dentists, including money you spend to upgrade the office you’re purchasing. Having a knowledgeable advisor who can examine a practice’s assets and be by your side during negotiations will help you save money and create the best situation as you prepare to assume ownership.
Tax Planning for Selling a Dental Practice
If you’re considering selling your practice, there are many things to consider. You’re trying to get the most value out of your business while also thinking about patients, employees, and everything else you’ve worked hard to build. And one of the most critical parts of the selling process is planning for the tax bill. Yes, you’ll owe taxes on the sale price. But many different pieces affect what you’ll pay.
Just like buying a practice, tax planning for selling a dental practice will involve lots of number crunching when it comes to the value of equipment, other property, and personal goodwill. Each is taxed differently and can significantly impact the amount of money you take home after the sale.
The structure of your business will dictate many things you’ll need to consider when you’re ready to sell. Your practice can be structured in various ways, but it’s likely a sole proprietorship, an S Corporation, C Corporation, or an LLC. Each business type is unique in how it can be sold. For example, you may sell the shares of stock in your corporation, which will create tax implications for you and anyone who owns shares in the practice.
Like buying a practice, tax planning for selling a dental practice is less stressful when you work with an expert like a dental CPA. A financial professional who knows tax laws for dentists can help you determine if it’s the right time to sell your business. Many owners envision a large payout when selling their practice. But taxes can cut into those returns and dramatically affect your personal finances. You need to understand the entire financial picture before you sign the paperwork to sell your business.
Whether You’re Buying or Selling, Keep These Things in Mind
The sale of a dental practice isn’t an easy process. You don’t sit down, negotiate a price, and walk away. It’s a complex system of pricing inventory, valuing accounts receivable and payable, client roster, and every facet of the business. Even though it may be the last thing you want to think about, taxes will play a huge role in selling or purchasing a business. The taxes will impact you personally. You’ll need to take your entire financial life into account. Your additional income sources, deductions, and filing status will affect how much you owe.
Working with a specialist who’s an expert in financial planning for dentists can help you navigate the tax maze and work through the nuances of buying or selling a practice.
Tools to Help You Prepare
If you’re considering purchasing a practice or deciding it’s time to sell your business, you have a lot on your mind. And you may not know where to even look for resources to help. We’ve put together a tax planning checklist for dentists. It offers creative ways to consider your tax strategy and plan appropriately.
The Dental CFO team has financial experts who can help you with buying or selling a dental practice. We can establish a value for the business and give you feedback on whether we think this is the right time to buy or sell. You can reach out to us, tell us a bit about what you’re working on, and we’ll be in touch to help you navigate this next phase of your career.