Selling your dental practice is a major milestone — one that can provide financial security for years to come. For many dentists, the excitement of a sale can be quickly dampened by the realization that taxes can take a big chunk of the profits.
With careful planning and the right dental practice tax strategies, you can minimize your tax bill and keep more of what you’ve earned.
This article provides some of the key steps and considerations for selling a dental practice. While every situation is unique, understanding the tax landscape and your options can make a meaningful difference in your after-tax wealth.
9 tips to help minimize taxes
1. Know your taxable gain
In addition to dental practice valuation, it’s important to determine how much of your sale proceeds will be subject to tax. The taxable gain is generally the difference between your sale price and your “basis.”
Your basis is what you’ve invested in the practice. This includes equipment, improvements, and some expenses.
For instance, if you sell your practice for $1 million and your basis is $400,000, your taxable gain is $600,000.
This gain is typically taxed as a combination of long-term capital gains (for assets held over a year) and ordinary income (for items like accounts receivable or depreciation recapture).
2. Structure the sale wisely
How you structure the sale can have a big impact on your tax bill. Two common options are:
- Asset sale: You sell the individual assets of the practice (equipment, goodwill, patient lists, and more). Most small practice sales are structured this way. The IRS requires you and the buyer to allocate the purchase price among different asset categories, each taxed differently.
- Stock sale (for corporations): If your practice is incorporated, you might sell shares of the company. This can be more tax-efficient but is less common for small practices.
Work with tax and legal professionals to optimize the allocation. For example, maximizing the portion allocated to goodwill (which is taxed at lower capital gains rates) can reduce your overall tax burden.
3. Take advantage of installment sales
An installment sale allows you to receive payments over several years instead of all at once. This can spread your tax liability over time, potentially keeping you in a lower tax bracket each year.
Basically, you report a portion of the gain each year as you receive payments, rather than all in the year of sale. However, you must report some gains (like depreciation recapture) immediately, even with an installment sale.
4. Offset gains with losses
If you have investments or assets with unrealized losses, consider selling them in the same year as your practice transition. Tax loss harvesting or a long-short strategy can help offset your gains, reducing your taxable income.
For example, if you have $50,000 in capital losses from other investments, you can use them to offset $50,000 of your gain from the practice sale.
5. Consider retirement plan contributions
Maxing out contributions to retirement plans, like a SEP IRA or Solo 401(k), in the year of sale can reduce your taxable income. For 2026, you may be able to contribute up to $72,000, depending on your age and income.
Make sure you’ve contributed the maximum allowed for your retirement savings account before the sale closes.
6. Explore charitable giving
Donating a portion of your proceeds to charity can provide significant tax savings. Options include giving directly or through a donor-advised fund. This is especially powerful if you’re already charitably inclined.
Consider gifting appreciated assets (like stocks) instead of cash to maximize your deduction and avoid capital gains tax on the appreciation.
7. Plan for state taxes
Don’t overlook state income taxes, which can be substantial depending on where your practice is located. Some states have special rules for business owner’s sales, so find a tax advisor with knowledge of local laws.
8. Engage in tax-aware investing after the sale
Once you’ve sold your practice, how you invest the proceeds can affect your long-term tax bill. Consider using tax-aware strategies, such as:
- Long-short strategy: Offsetting gains of the sale by recognizing tax losses each year.
- Tax-loss harvesting: Selling investments at a loss to offset gains.
- Asset location: Placing tax-inefficient investments in tax-advantaged accounts.
- Deferring gains: Choosing investments that minimize taxable distributions.
These strategies, when implemented thoughtfully, can help your wealth grow more efficiently over time.
9. Work with qualified professionals
The tax code is complex, and mistakes can be costly. Engage a team that includes specialists familiar with dental practice sales who can help you:
- Model different sale scenarios and their tax impacts
- Structure the deal to your advantage
- Ensure compliance with all IRS and state requirements
Moving forward
Selling your dental practice is both a professional and financial turning point. By understanding your options and planning ahead, you can minimize taxes and maximize the legacy you leave for yourself and your family.
Start early, seek expert advice, and make tax efficiency a central part of your exit strategy.
Mercer Advisors has been wealth management for dentists — and succession planning for dentists — for more than 40 years. If you want financial guidance built for dental practice owners, let’s talk.
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