Guide
Tax and legal structures for a dental practice sale
The difference between a well-structured sale and a poorly-structured one is typically 15 to 30 percent of net-to-seller. This is where that math lives.
The headline purchase price is not what you keep. Between the number on the term sheet and the number in your bank account, taxes and legal structure eat a meaningful percentage. The difference between the best-structured version of your deal and the worst-structured version is typically 15 to 30 percent of net proceeds — money that is yours, after taxes, if you get the structure right.
This is an overview, not a legal opinion. Every item below is a conversation to have with a dental-specific transaction attorney and a CPA who has closed at least ten dental deals, and to have it early enough that the choices are still open.
Asset sale vs. stock sale
The first structural fork. Almost all DSO acquisitions of private practices are asset sales. The DSO buys the practice's assets — equipment, patient lists, goodwill, trade name — and assumes specified liabilities. The seller keeps the legal entity and its tax attributes.
Stock sales are rare in dental because buyers do not want legacy liability exposure (malpractice tails, pre-close patient claims, historical payroll issues). When they occur, they are typically only in partner buy-ins or in sales between two dentists.
The tax consequence of asset sale matters: the purchase price gets allocated across asset classes, and each class is taxed differently.
Purchase price allocation
In an asset sale, both sides are required to report a purchase price allocation on IRS Form 8594. This allocation decides your tax bill.
| Asset class | Seller tax treatment | Buyer preference |
|---|---|---|
| Tangible equipment | Ordinary income to extent of depreciation recapture | High allocation (deducts faster) |
| Accounts receivable | Ordinary income | Lower allocation |
| Patient list / goodwill | Capital gain (15–20% federal) | Lower allocation (amortizes over 15 years) |
| Covenant not to compete | Ordinary income | Higher allocation (amortizes over 15 years) |
| Real estate (if owned) | Section 1250 gain (mixed rates) | Usually separated out |
Seller and buyer preferences are directly opposed on most line items. The negotiation over allocation is a meaningful piece of the deal economics. A seller who lets the buyer write the allocation is often giving up five to seven figures in after-tax proceeds.
QSBS planning — worth a look if you planned ahead
Qualified Small Business Stock under IRC Section 1202 allows federal tax exclusion of up to $10M (or 10x basis) on the sale of qualifying stock held for five years. For a dentist who structured their practice as a C-corporation five years before sale, this is potentially the single largest tax savings in the entire transaction.
Most dental practices are not structured as C-corps because C-corp operating income is unfavorable (double taxation of distributions). QSBS planning requires an intentional F-reorganization to create C-corp stock that starts the five-year QSBS clock, ideally five or more years before sale. If this was not done, the opportunity is closed. If you are three-plus years from exit and have not had this conversation, have it this quarter.
F-reorganization
An F-reorganization is a tax-free restructuring (typically from S-corp to a new LLC or C-corp structure) that preserves the entity's history for tax purposes while changing its form. Used for multiple reasons in a dental sale context:
- Converting S-corp to C-corp to start the QSBS clock (requires five years before sale).
- Separating operating practice from real estate holding into distinct entities.
- Creating a holdings structure that can receive rollover equity cleanly.
- Simplifying a complex partnership structure before a sale process.
F-reorgs are fiddly. Mechanically they require exact sequencing, specific IRS filings, and coordinated action by multiple advisors. They are also routinely within the toolkit of any dental-specific transaction attorney. If yours has never done one, get a second opinion.
State tax considerations
Federal capital gains are 15 or 20 percent depending on income. State adds between 0 and 13.3 percent depending on where you are. For a California seller vs. a Florida or Nevada seller with an otherwise identical deal, the difference in net-to-seller is material.
Residency change planning before a sale is legal, standard, and often worth the effort for sellers with significant state tax exposure. It requires genuine relocation, established well before the sale closes, with proper documentation of intent. Rushed or cosmetic residency change efforts are audited and reversed.
Post-close: what to do with the money
The sale proceeds hit the account. The two most important moves happen in the first 60 days:
- Estate planning update. Your net worth just changed materially. Your estate documents need to reflect the new asset base. Trusts, beneficiary designations, insurance, and gifting strategy.
- Short-term parking and liquidity. Do not rush the investment decision. Treasuries or high-yield savings for the first 90 days is not boring — it is the responsible hold period while you evaluate structures (private banking, direct allocation to managers, family office style separately managed accounts).
The sellers I know who are happiest five years post-sale are the ones who did the estate planning and tax work pre-close, and who held cash for the first quarter post-close rather than making major investment decisions while still emotionally processing the transition.