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Before Selling a Physician Practice, Weigh Tax Risks Carefully

HealthLeaders Media Staff, for HealthLeaders Media, October 15, 2013

"The tax implications of the transaction are ­extremely important and one that I don't think physicians initially focus on when they think about this as an option for their practice," he notes. "How much you can dictate some of the decisions and steer the deal to your best tax advantage will depend on who is buying. If you are in a state that allows nonphysicians to own the practice, that gives physicians more flexibility to decide whether to structure the sale as an assets sale or a stock sale."

An asset sale is one in which a buyer purchases certain assets and liabilities of a physician practice but not others. A stock sale, on the other hand, is what most people think of when they imagine someone "buying a practice"-the buyer is acquiring the practice with the intention of replacing the seller as the doctor within the practice. The stock sale involves a buyer purchasing a seller owner's equity in a physician practice as well as its assets and liabilities. Additionally, most or all of the accounts on the physician practice's balance sheet are sold with the practice.

The incorporation of the practice-namely, whether it is a ­C corporation or an S corporation-becomes ­important during a sale, Riley says. With a C corporation, income is taxed once as earnings, and then shareholders are taxed again when corporate earnings are distributed. In contrast, S corporation earnings are generally taxed just once, with the shareholders. When evaluating an offer to purchase your practice, consider how the incorporation will affect the proposed price. The net purchase price after taxes can be substantially less for C-corporation shareholders than for S-corporation shareholders, Riley says. (See the story on p. 4 for more on the different sale options.)

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