Practice Transitions

When a dental practice is sold there are two options for structuring the deal; as a stock sale or as an asset sale.  It is very important to understand the differences prior to entering into an agreement to buy or sell a practice.

A stock sale is the most beneficial to the selling doctor as the entire gain is considered a long-term capital gain (assuming ownership of more than one year).  Currently the federal long-term capital gains tax rate is 15%.  The highest ordinary tax rate is 35%. This is very favorable to the selling doctor.

The stock purchase is not favorable to the buyer as they do not get a current deduction.  It is basically the same thing as buying stocks on the NY Stock Exchange; no deduction at the time of purchase but it does create “basis”.  When the practice is sold there will be a gain or loss, which depends on the sales price less the basis.  Due to the fact that the stock sale is not favorable to the buyer it is not used often in practice transitions.

The other, more common, structure is the asset sale.  In an asset sale, the selling doctor keeps her corporation and the stock but sells everything in the corporation.  This would include supplies, equipment, furniture, goodwill and often times the accounts receivable.  These assets would be depreciated (expensed) over time.  Depreciation expense serves as a tax deduction for anywhere from 1 to 15 years (depending upon the asset type)

Even with an asset sale, allocating different amounts to the different asset types can change the tax result, so it is important to understand how each asset type affects the tax situation.  In the end, it will be a negotiation, but you will want to make sure you know how an asset allocation will impact your end of the deal.

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