If you are a veteran dentist and are thinking of retirement soon, setting the plan is critical to your overall success in retirement. Start your planning stage 3 – 5 years prior to your desired retirement. Ask yourself:
- How can I get the highest value in a sale?
- How do I secure my future income?
- How do I protect my assets?
Some options for your retirement plan could be: Work until you die; sell your practice outright; hire associates as employees and then manage the practice; sell and work back in the practice; or sell one or more fractional interest in your practice and phase out over a period of years.
Here are four key elements for success:
- Address significant transition planning and life planning before selling
- Set a plan to sell you practice at a higher value
- Create a Strategic Transition and Financial Plan for both the selling and purchasing dentist
- Establish an investment strategy to secure financial health during retirement
Important to getting the highest value in a sale is how taxes will affect you. Consult you tax advisor before entering into any sale as each individual’s situation is different. For simplicity, this is based on sole practitioner, not a dentist that is incorporated. There are differences; too many to discuss here. Here are some, not all, things to keep in mind.
- The sale of supplies and instruments is a taxable gain for the entire amount at ordinary income rates.
- Furniture, Fixtures and Equipment that is sold and does not exceed the original cost, it is normally taxed at ordinary income. If a buyer pays more that the original cost that portion is a capital gain to the selling doctor.
- Accounts receivable are the amounts for work already completed and billed for. Nothing for future work is included. Not typically sold, but if so, are taxed at ordinary income rates.
- Buildings that are owned by the seller are not usually purchased at the same time as the practice. It is common for the Buyer to lease until the practice is paid for and then purchase from Seller at the fair market value. At that time, it would be considered capital gains.
Monica Rebella, CPA, PFP