Should you purchase a dental practice using an S Corporation? What if you already have a corporation, do you have to create another one?
We often have clients that contact us during tax season after they have purchased a Dental Practice as an S Corporation. Many dentists working as independent contractors have had an accountant or attorney setup a S Corp for their contract work. So when they need to purchase a practice they just use the same entity without knowing the pitfalls.
The purchase of a dental practice is often split between Goodwill, Equipment and Dental Supplies. Most dentists think they can immediately write off most of these expenses. However there as specific rules when it comes to deducting purchased assets under a S Corp. If you don’t have enough shareholder basis your losses generated from your equipment deductions are suspended.
No Equity= No Deduction= Surprise Tax Bill come April 15th
In plain English it means you can’t use it until the practice has earned more money or you put more capital into the business. Since most practice loans are under the business name and the dentist them selves have probably not put any of their own money into the purchase, they effectively have no basis.
Tips
- When you are looking to purchase a dental practice it is often well advised to speak to a Dental CPA that has experience in that area. Their insight can often save you thousands if not tens of thousands of dollars.
- It may make sense to have a separate entity for the purchase.
Virjee Consulting is a CPA firm that focuses on the Dental Industry. We work with dentists across the country at every point during their career. We have built our practice on the mission to help dentists save taxes, improve practice productivity and retire successfully.
Here’s to your best financial future ever!
Written by Omar Virjee, CPA. For more information on our services, please feel free to contact one of our Dental CPA team members by calling 713-396-3172 or emailing omar@virjeeconsulting.com
