Selling your dental practice

Selling a dental practice: what it costs in taxes, and what you keep.

Understand the impact of the sale on your personal financial and tax situation, and have a plan for the future.

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Free · No preparation needed · Dallas-based, working with sellers nationwide

Three things most sellers find out too late

01The sale price is not what lands in your account. Negotiate with your tax situation in mind.
02Most of the tax planning has to happen before closing. After the sale, your options are more limited.
03The practice was your source of income. You need a plan for how to pay for life going forward.

1989: Working with dentists since
19: States where we've served dentists
CPA + CFP®: Tax and planning on one team

Board service, Academy of Private Dental Practice

What the sale decides

What does selling a dental practice cost in taxes?

It depends on the structure and timing of the deal, not just the price. Plan ahead to save tax rather than wait till after the transaction closes.

What determines how much you keep is how the deal is written. These are the levers that matter, and each one is negotiable before the purchase agreement is signed.

Asset sale or stock sale

Buyers usually want an asset sale for the depreciation. For you, that means the price gets allocated across equipment, receivables, and goodwill. Goodwill is typically your lowest tax rate where the other pieces are typically higher. In general, we prefer asset sales vs. stock sales.

Capital gain or ordinary income

Goodwill is a capital gain tax rate. Equipment you have depreciated, accounts receivable, and supplies are generally ordinary income, taxed at higher rates. The allocation schedule decides which bucket each dollar falls into and how it is taxed.

Earnouts or rollover equity

A DSO offer often includes equity in the buyer or a payout tied to future collections. We assume the equity won't ever payout. If it does, that is a bonus but not something to bank on.

Sale timing

One of the keys to tax planning around your practice sale is timing. If you can schedule the sale to occur at a more beneficial time, it opens up opportunities to reduce tax payments.

Retirement plan and charitable moves

A sale year is usually your highest-income year. Retirement plan contributions, a donor-advised fund funded before closing, and compensation strategies can all reduce what you owe.

What we do with your offer

We forecast the taxes, help you understand potential strategies to reduce tax, and then prepare your return with those opportunities in mind.

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An example of the tax calculation

How is a dental practice asset sale taxed?

The allocation splits the price into three pieces (sometimes more), and each piece is taxed at a different rate. In general, we see the goodwill value be around 80% of the total value. For pass-thru entities, the tax rates will vary a lot due to your personal tax situation.

Allocation

Goodwill 80%: $800,000
Equipment 18%: $180,000
Supplies 2%: $20,000
Sale price: $1,000,000

Tax at each rate

Goodwill 20%: $160,000
Equipment 37%: $66,600
Supplies 37%: $7,400
Total tax: $234,000

What you keep

$766,000

Before closing costs and any broker commission.

Shift the allocation and this number moves. That is the negotiation.

Illustrative only, using a 20% capital gain rate on goodwill and a 37% ordinary rate on equipment and supplies. Your rates depend on your bracket, your state, and your basis.

Timeline

When should tax planning for the sale start?

Two years out
Clean up the books and the entity
Confirm the entity is the right one for a sale. Normalize owner compensation so the practice shows its real earnings. Decide what happens to the building. Start the retirement plan contributions you will want in the sale year.
Offer or LOI
Calculate the taxes before you respond
The LOI sets the price and usually the structure. This is where the allocation, the earnout terms, and the closing date get negotiated.
Around closing
Execute the tax moves
Ensure the retirement plan is setup for funding. Donate to charity or a donor advised fund. Determine how much to pay yourself going forward. Review the purchase agreement's allocation schedule. Set up where the proceeds will land.
After the wire
Replace the paycheck
Estimated tax payments on the gain. A cash reserve for the first year or two. A plan for the legal entity and books. An investment plan for the rest that produces the income the practice used to. The final tax return for the practice and the first one without it.

After the sale

What should you do with the proceeds?

How much do you actually need?

Look at your living expenses and future goals to determine how much you need to invest vs. keep in cash. You also want to review your investment allocations and possibly rearrange allocations.

Should you pay off debts?

When proceeds land in your account, it is tempting to payoff mortgages or lines of credit. People want to be 'debt free' which is understandable but often not the best financial decision. Evaluate debts individually.

Who manages it?

We manage the portfolio in-house, custodied at Charles Schwab, tied to your long term plans and tax situation. Own something with a loss? May be a great time to realize the loss to offset gains from the practice sale.

If you own the building

Selling the real estate is a separate decision

Some clients want to be landlords and others don't. If a building is sold at the same time as the practice, another gain calculation is required.

A corridor inside a modern dental practice, with treatment rooms opening off it

Basis decides the gain

Your gain is the sale price less your basis. Basis is what you paid, plus improvements, minus the depreciation you have claimed. It depends on the property's records, so it is the first thing we reconcile.

Depreciation recapture is the surprise

You already deducted the depreciation, so part of the gain is taxed back at a higher rate than a capital gain. That is what makes the bill bigger than owners expect.

Deferral is possible, not automatic

An installment sale spreads the gain across years. A 1031 exchange rolls it into another property. Both have catches, so model them before you commit.

Both sales, one projection

A property sale needs to be factored into the tax plan when you are selling the practice.

Read the full property sale walkthrough

Case study

A practice owner approaching transition

The Situation

A long-term orthodontic practice owner approaching retirement that has saved enough for retirement living expenses. They are tired of dentistry and want out.

Key questions included

I'm tired. When can I stop?
How do we transition out of our business?
How can I reduce taxes while selling?
Do I keep my entities open after the sale?
How much do we owe in tax next year?

Approach

We assessed their practice and personal financials, cash flows, valuation report, taxes, and investments. Our work focused on:

Building long term retirement and cash flow forecast
Setup a defined benefit plan and profit sharing plan for the practice years before sale
Setup a donor advised fund
Selected appreciated stock to donate to charity and the donor advised fund
Timed the sale to occur in the beginning of the year so there was less taxable income during the year

Client Outcome

The client reduced their taxes owed and transitioned to semi-retirement on steady financial footing.

Lower current and future tax exposure through proactive tax planning
Clear direction on portfolio positioning for new phase of life
Several years of charitable giving pre-funded in the sale year, when the deduction was worth the most
A clear timeline for transitioning out of the practice and into retirement

Case study is illustrative and anonymized. It describes the planning work performed and does not represent investment performance or a guarantee of any outcome.

What it costs

What does it cost to work with us through a sale?

The planning fee is fixed, so what the work costs through the sale is known before it starts.

See how each service is billed

Planning

$950 a month: Ongoing planning fee, invoiced quarterly in arrears. Begins when your plan is delivered.
$10,000: Upfront onboarding and planning fee. Half on signing, half when your plan is delivered, normally within three months.; What your fees include
Your written plan: full business and personal financial review with suggested next steps
A full plan review each year and quarterly check-in calls
Owner-pay, entity, and transition decisions as they arise

Investment management

1%: Of the assets we manage, billed quarterly in arrears; We expect to manage the majority of your investments, including the proceeds, so planning, tax, and portfolio decisions stay coordinated.

Tax preparation

About $1,400: Estimated average for individual (1040) returns. Base fee from $1,000.
About $2,200: Estimated average for business and trust returns. Base fee from $1,000.

These are estimates, not quotes. Your actual fee is billed at the time the return is ready, and depends on clean data, acquisitions or divestitures, and other unique tax accounting situations. A sale year is usually the most complex return you will file.

You can also keep the CPA you have. Many clients do, and we coordinate with them.

90Days

Mutual evaluation period

If it is not working at 90 days, we refund your planning fees.

Ninety days is a mutual evaluation period, and it is our chance to decide whether you are a good fit for the firm too.

Unusual complexity

Reviewing the sale itself is additional work, so we quote it as part of the engagement. We may adjust the scope and fees to fit your circumstances. Every agreement is in writing before work begins.

Questions sellers ask

Frequently asked questions about selling a dental practice

How is the sale of a dental practice taxed?

It depends on how the deal is structured. In an asset sale, which is how most dental practices are sold, the price is allocated across goodwill, equipment, and a non-compete. Goodwill is generally taxed as a capital gain. Depreciated equipment and any non-compete or consulting agreement are generally taxed as ordinary income at your top rate. In a stock sale the whole gain is generally capital gain. Your entity type and the tax year the closing lands in also change the bill.

Is an asset sale or a stock sale better for the seller?

We normally suggest an asset sale rather than a stock sale for a dental practice. An asset sale is also better for the buyer because they can depreciate what they bought. Most dental practice sales are asset sales, so the negotiation that matters for you is the allocation schedule: how much of the price is assigned to goodwill.

Can I still reduce taxes on the sale after signing the LOI?

Yes, but there are fewer options remaining. The LOI usually sets the price and structure, but the allocation schedule, the earnout terms, and the closing date are typically still negotiable. Some dentists have come to us the year after their sale asking for tax planning help and unfortunately it's too late.

Should I take DSO rollover equity or an earnout instead of cash?

Maybe. We treat equity in a future entity as the cherry on top. Not something we are counting on. There is nothing wrong with taking equity but cash on close is our main focus.

What happens to my retirement plan when I sell the practice?

The plan stays open for a year or two depending on how much income the owner is making. Typically the year after the sale, the owner makes a large contribution for the tax benefits. After the large contribution, the owner can decide if the retirement plan is still worth keeping or terminate it and roll out the funds.

What should I do with the proceeds from a practice sale?

First, set aside the estimated tax on the gain, because it is due before your return is filed. Next, set aside cash for the retirement plan contribution and possible charitable contributions. Last, consider reviewing your portfolio and investing the proceeds for long term growth.

I already have a broker and a CPA. Why would I need a financial planner for the sale?

The broker works for the deal and is paid when it closes. Your CPA files the return after the fact and generally isn't focused on the future or tax savings opportunities. We are responsible for planning ahead to potentially reduce taxes and ensure you are working towards your priorities or goals. That is the gap we fill, and because we are CPAs and CFP® professionals on one team, the tax modeling and the personal plan are the same work.

What does it cost to work with J.E. Simmons through a practice sale?

Through the sale you pay a monthly planning fee, an upfront onboarding and planning fee in year one, and a percentage of the assets we manage. After the sale the planning fee ends and only the investment fee continues. Tax preparation is billed separately once each return is prepared, and reviewing the sale itself may cost extra. Every figure is on the process and fees page.

Do you work with dentists outside Texas?

Yes. We are based in Dallas and work with dental practice owners nationwide. Most of the work is done remotely, however, clients find it valuable to visit our offices for the day to walk thru the plan in person.

Fifteen minutes, before the LOI becomes a contract.

Bring the offer if you have it. We will tell you what to look at, what is negotiable, and whether it makes sense to work together. No preparation is required.

You talk with Kyle Simmons, CFP®, not a salesperson.
We ask about the practice, the offer, and what you want life to look like after.
You leave with a straight answer on whether we are a fit.

Fee-only and fiduciary. We are paid by our clients, not by product sponsors. No commissions and no product sales. Client assets are held in custody at Charles Schwab.