Do we have to? Yes, we have to! Now, strap in and pay attention
because this stuff is important.
It's all fine and good for potential buyers to tell you what
they think your practice is worth, but what does that translate to
in after-tax dollars? Do you even know how the proceeds from a sale
transaction would be taxed? If not, that needs to be one of the
first questions you ask.
It's all fine and good for potential buyers to tell you what
they think your practice is worth, but what does that translate to
in after-tax dollars?
Source: Adobe Stock.
How a sale transaction is structured is one of the most important decisions in the whole process because it can have material economic ramifications. First and foremost, your advisers will need to know if your practice is structured as a C corporation, an S corporation or a partnership. As you'll see in the coming blog installments, the answer to that question will drive the bulk of the tax analysis. In fact, that question is so important that you may want to start thinking about it well in advance of pursuing a transaction. Depending on the answer, you may want to consider changing how your practice is organized so that a future transaction can be structured in a more tax-efficient manner.
And that's just the tip of the iceberg. Are you hoping to provide a portion of the proceeds to key employees or associate physicians? Have you considered how that will be taxed? As for that rollover equity we mentioned in previous posts, you want to make sure you don't have to pay tax on receipt of that equity at closing (don't worry — if structured the right way, you shouldn't have to). But if you are hoping that nonowners can also receive equity, that becomes much trickier to do in a tax-efficient way.
Of course, where it really gets interesting is the intersection of tax and health care regulatory issues (and by intersection, I mean an intersection gridlocked by miles of traffic and a 50-car pile-up — OK, maybe not that bad). In all seriousness, we often remark that trying to figure out how to structure a sale transaction in the most tax-efficient manner leads to a game of whack-a-mole. We fix a tax issue, but it presents a regulatory issue. We then fix the regulatory issue, only to spring another tax leak. And so on.
All of which is just meant to highlight the importance of sorting through these issues early in the process. Tax treatment is far too important and impactful, so make sure you go into a potential sale transaction with eyes wide open. And to help open those eyes, our tax colleagues will be summarizing, over the next three blog installments, some of the key tax implications of sale transactions depending on practice (and transaction) structure.
So yes, we're going to continue to talk about tax.
Originally Published by Healio
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
