tax implications of buying a dental practice

When you are considering becoming a business owner, you have the option of buying an existing business or starting a new one. We have had an office in home so the only thing that is being sold is the client list. You probably wouldn’t think of making an investment recommendation to your clients without first considering the tax consequences. What’s most favorable to the buyer often isn’t optimum for the seller, and vice versa. European dental industry is in its early stages To date, relatively few chains of practices have made an impact on the European dental market, estimated at more than US$70 billion. The benefits that you enjoy afterward will be substantially greater if you seek the advice of an experienced dental attorney when negotiating the deal and before signing the purchase agreement. There are many misconceptions about dental practice transitions. Running a property business. If you are buying a dental practice for the first time, you will suddenly be exposed to a variety of business and legal issues that go along with owning a practice and being your own employer. Our experienced specialists will ensure your dental practice sells for top dollar to the right buyer—a dentist who will take care of your staff, your patients, and the legacy you’ve built. ← Previous Post Ownership structures for real estate. You bought that couch in the waiting room for $1,000, depreciated it over the last five years on your tax returns, and then valued it at $200 on your list of assets when you sold the practice… Staff can stay and current owner can provide transitional suppport for continued customer satisfaction. The market-based dental practice valuation method relies on market data of other dental practice sales in your area. Based upon my actual transition results, dental practice transfers are highly successful for both sellers and buyers. Tax Implications When Buying or Selling an Advisory Practice. Our dental practice brokers have helped dentists in all 50 states find the right buyer for their dental practice and complete successful, stress-free transactions. Gross revenue around $57,000 Person 95% Business 5%. “What are the tax consequences when I sell my dental practice?” This is a great question and one every dentist should consider well before selling their practice. This includes items like furniture, fixtures, equipment, dental supplies, patient files, and goodwill of the current practice. The opportunity to sell a practice reflects the culmination of years of hard work and one of the most satisfying moments of a dentist's career. This method typically looks at historical practice collections times a collections multiplier (60% to 80%). I would not pay you anything at all for a list of your clients if you were going to continue to do your utmost to retain them as clients. We partner with you to package up your practice to sell and connect you with the right buyers. Private equity houses are starting to see the potential and are already active in this space, buying individual practices and groups to form larger chains. How the practice was originally established plays a significant role in determining the tax liability related to the sale of your practice. You say a "client list", but do you in fact mean the clients whose names appear in that list. IF YOU OWN YOUR OWN DENTAL PRACTICE, YOU'VE JOINED THE RANKS OF NEARLY 30 MILLION OTHER SMALL BUSINESS OWNERS ACROSS THE COUNTRY.According to a recent census bureau report, small businesses represent over 99% of all employer firms in the US, half the workforce, and 60% of the net new jobs.Like other small business owners, you have a host of responsibilities, many of which … We are shutting down my partnership, discontinuing our DBA and giving up our business number.My understanding is that this would be the sale of an intangible asset ie. Best Practice #1 – Performing Sell-Side Tax Due Diligence Before Conducting a Sale Process It’s all too often that a material tax issue is identified during the course of a buyer’s tax due diligence which delays the deal process, results in a change to the terms of the transaction to the seller’s detriment, or causes a buyer to walk away from a deal. As a California Dental Law Firm, we understand the complexities concerning your specific situation. See: 10 Steps to Buying a Dental Practice from a Dental Lawyer. For the purposes of the calculations, we have assumed the following: the sale will occur in Ontario, the percentage of revenue is the industry average (60% taxable/40% exempt); and both the seller and purchaser are registered for the HST. A: As a result of the reduction of corporate tax income tax rates, I would still advise to not place the dental practice into a C corporation. The purchase and sale of any business can be a daunting task. Tax Consequences of Selling a Dental Practice Posted on Friday, January 2nd, 2015 at 6:39 pm. Our team of dental finance specialists understand the financial challenges and opportunities within the dental sector. If you are a dental practitioner and looking for guidance on tax and other issues, contact one of our trusted advisors here. Historically, this practice generates revenue of $600,000. If you are considering buying or selling a Dental Practice then we invite you to contact Greg Bullock, our dental law specialist on 01283 526220 or at greg.bullock@elselaw.co.uk. If you leave profits in your C corporation, you will save taxes going from 35 to 21 percent. Small Tax Practice, either book of accounts or practice location. Find out the tax implications you need to know. 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. When you make a purchase, you're paying with post-tax dollars: That $60,000 item may cost you as much as $80,000 or $90,000 (depending on your specific tax situation). We offer tailor-made tax efficient solutions. ... Property planning and business structures can reduce the cost of operating a dental practice by minimizing GST/HST cost. Wry - includes stock sale, asset sale, equity interest … 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. When you rent out property you may have to pay tax. When you buy a business, you generally pay a set amount for the entire business. Each side of a transaction, i.e., buyer and seller, have differing interests in the tax implications of the deal, and each side will want to structure the deal with the most favorable outcome. The letter of intent is the legally non-binding document that contains all the elements of the practice transition that you have negotiated with the seller. On the buy side, it can be a monumental financial obligation and personal commitment; on the sell side, it is the culmination of many years of invested time, effort, resources and emotion. Unfortunately, since dentists typically only do this once in their lifetime, they do not have a chance to learn from previous mistakes. The associate is now interested in buying a practice for $450,000. Written by Tim Horton Updated over a week ago You probably wouldn’t think of making an investment recommendation to your clients without first considering the tax consequences. OF A DENTAL PRACTICE Practice goodwill is the most important asset of any dental office. PITFALLS TO AVOID WHEN SELLING A DENTAL PRACTICE By Ron Lebow, Esq. In every dental practice transition, the purchase price is allocated among the assets purchased or sold and for future services rendered. Dental Buyer’s Advisory Leverage the experience of over 100 buying doctors to ensure a smooth dental practice purchase. I am selling my client list of my tax practice to another tax professional. Tax Consequences of Buying or Selling a Business - The after-tax consequences of buying or selling a business can vary dramatically depending on how the transaction is structured by Tax Attorney Charles A. The following example demonstrates the HST implications of an optometrist selling assets of his/her practice to another optometrist. Dental practice finance . Myth:Patient loss will be 20 to 30 percent. At buy-out, the practice gets to deduct the deferred compensation, which evens out the tax benefit. On average, a dental practice … 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. But, you will be paying an initial tier of tax at 21 percent. Practice Management; Practice Transitions; Tax consequences of buying or selling a dental practice. 2-4 years). 21 plus years loyal clients. The option you choose will affect how you will account for the purchase of the business assets for income tax purposes. If I’m buying or selling a prosthodontics practice, I would note that average practice values are on the lower end, but more likely reflect the average overall dental transitions market. This method can be misleading because it’s based on collections and does not take profits into account. While focused on business and contractual terms in the highly regulated health care industry, buyers and sellers often ignore important … As a tax practitioner for more than 40 years and a business valuation professional for 25 years, sales and valuations of tax practices have crossed my desk numerous times, in addition to making two acquisitions myself. The reason for this: double taxation. So, when planning a transition, the most important element is the manner in which the patients (or the referral sources) will be transitioned over to the new owner. The tax treatment is the same in either case, but I am puzzled about what you are selling. Will make a good addition, or startup. And it’s often also the advisor’s largest personal financial transaction. When buying a dental practice, one of the most important documents in the process is the letter of intent (or LOI, for short). A transaction involving a medical practice is even further complicated by confusing and often impractical health care laws. ordinary income but not a 1099. If the practice pays a part of the buy-out price through a promissory note, the maturity of the note should be long enough that it does not overburden the practice yet short enough so the departing dentist does not wait too long for closure (e.g. In an asset sale of a medical practice, let’s say you, the seller, have made a list of all the furniture and fixtures that are part of the sale. Buying other equipment In most cases you can claim tax relief on the full cost of substantial equipment, for example a computer, you have to buy to do your work. My more than 1,300 practice appraisals and the transition of more than 350 practices provided data for this article. Let's assume your business has plenty of cash on hand to acquire vehicles or equipment. Although goodwill is an intangible asset, it carries the most weight when buying a practice. Transition Well. Plenty of opportunities for expansion, capital can be recovered in two tax seasons. Here’s an example: Let’s assume a dentist has been working as an associate for 3 years and has made an average annual salary of $150,000. 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. Transferring a practice is often the largest business deal a financial advisor will oversee. 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