If you’re planning to sell your dental practice, the way in which you structure the transaction is just as important as getting the right price.

With the potential to have a significant impact on how much of the sale price you’re able to hold on to once taxes have been extracted, a strategically structured transaction is extremely important for dental practice owners, and with guidance from specialist dental tax experts, you can preserve your wealth and reduce your tax exposure.

Here are some top tips for maximizing tax write offs for dentists while selling your practice:

• Get to grips with the existing tax landscape

Depending on how the sale transaction of your dental practice is structured, the 3.8% Net Investment Income Tax, or NIIT, may apply for those dentists on a higher income, to any gains from the practice’s sale. The tax burden may also increase due to taxes at state level.

Before a deal is finalized, your tax specialist will come up with a variety of sale scenarios in accordance with shifts in tax legislation.

• Use QSBS

Using IRC Section 1202, any owner of Qualified Small Business Stock (QSBS) is permitted to exclude some or all of the sale gains, provided a set of rigid requirements are met. Although dental practices are usually excluded from QSBS benefits, some related businesses, like dental software companies or dental labs, may be eligible. A specialist dental tax professional can help determine if you’re eligible.

• Manage tax liability with instalment sales

Permitting dental practice sellers to recognize gain over time when payments are received, an instalment sale can help you spread your income out over a number of tax years, limiting your exposure to higher tax brackets, as well as enhancing cashflow after the sale.

Having the right documentation is essential if your practice sale is to qualify for instalment treatment, along with compliance, and a tax expert can help you with this.

• Take advantage of ING trusts

If you’re selling a dental practice in a high-tax state, you may be able to use an ING trust (incomplete gift non-grantor trusts) to help you avoid state income tax. Requiring specialist tax advice and guidance, this approach must be set up in advance of identifying a buyer, and its effectiveness is dependent on state laws.

• Explore Charitable Remainder Trusts (CRTs)

These trusts can enable dentists selling their practice, to defer capital gains while receiving income for either a set term, or life, and give support to a chosen charity.

Although CRTs are usually only beneficial for bigger practice sales in which the tax benefits and charitable giving goals are in line with the long-term objectives of the owner, a tax specialist can help you determine if a CRT makes sense for you.

• Determine whether a stock or asset sale is the optimal structure

While stock sales typically offer capital gains in the long-term with favorable tax rates, asset sales on equipment or goodwill, can trigger ordinary income and for C Corporations, cause double taxation if distributions of proceeds are received by shareholders.

Deciding upon the best tax structure well in advance of the sale, can reduce the risk of an audit and optimize a tax reduction for dentists after-tax.

While selling a dental practice is a business transaction like any other, it is also one that requires meticulous planning, early tax modelling, and regular consultations with a dental tax expert to achieve the best tax outcomes.