There are a few things you might want to know as you go through the sales process that can help you make the most from your veterinary practice sale. There are multiple ways to structure a veterinary practice sale, and how you allocate the sale price will determine how much money you will keep after taxes.
Two Ways To Structure A Veterinary Practice Sale
Sell the Shares
Selling the practice’s shares are very rare but can occur if the practice is incorporated. The sale of corporate shares allows the seller to pay the capital gains tax rate of 20% on the entire sale price instead of the ordinary income tax rate - which can be as high as 39.5%.However, if corporate shares are sold, a buyer is left with no tax deductions. Therefore, the sale of shares often results in a lower sale price to compensate for the lack of tax deductions for the purchaser.
Sell the Assets
Selling the practice’s assets is the most common type of veterinary practice sale. When the sale is structured as an asset sale, the federal government requires that you allocate the purchase price into six sections called asset categories. The assets categories are: equipment, furniture & fixtures, office & clinical supplies, miscellaneous assets, goodwill, and restrictive covenant.
The sale of assets allows the seller to pay the capital gains tax rate of 20% on the amount of the sale price allocated to the goodwill asset category. The vast majority of the sales price, up to 87%, can be allocated to goodwill. This allows the seller to keep much more of the sales proceeds after taxes. The sale of assets allows the purchaser to deduct the purchase price over time against future practice income. Selling the practice’s assets results in a win – win for both parties.
For example, if a practice sells for $450,000, the seller only pays $72,000 in taxes instead of paying as high as $142,200 in taxes because of the allocation of the sale price to goodwill. Accurately structuring the allocation results in savings of as much as $70,200 in this example.
Let us help you get the most from your veterinary practice sale by giving us a call at 214-593-7158 or clicking below to schedule a time to talk.