Taxes on an Asset Sale: The Basics to Ask Your CPA

The price in an offer is not what you keep. Taxes can take a meaningful share, and how much depends partly on how the deal is put together. That is why your CPA should be involved before you sign a letter of intent, not after.

This post is not tax advice. It explains a few general concepts so you can have a better conversation with your CPA. Your situation depends on your entity type, state, history and goals.

Why structure matters

In an asset sale, the buyer purchases your clinic's assets. That can include equipment, supplies, your name, patient relationships and goodwill. The buyer pays your entity, and the proceeds reach you based on how your entity is taxed.

Different assets can be taxed differently when sold. Some gains may be treated as ordinary income. Others may qualify for capital gains treatment. The mix affects your total tax bill, and your CPA can explain how it applies to you.

Purchase price allocation

In an asset sale, the total price is divided among the assets being sold. This is called the purchase price allocation. It is usually negotiated and written into the purchase agreement.

Buyer and seller often have different interests here. A seller may prefer more value in categories that get favorable tax treatment. A buyer may prefer more value in assets it can write off faster. Neither side usually gets everything it wants.

Common categories in a physical therapy practice sale include:

• Equipment and furniture
• Supplies and inventory
• Goodwill, including patient relationships and the practice name
• The non-compete agreement
• Any consulting or transition payments

Each category may carry different tax treatment for you and for the buyer. Ask your CPA to model a few allocation scenarios before the allocation is final. Small changes can matter. It also helps to know which categories you care about most before the buyer proposes its own split.

Payments that look like price but are not

Some money in a sale is not purchase price at all. Your salary after closing is wage income. Consulting fees are typically taxed as ordinary income too. A buyer may suggest moving value from the price into these payments.

That shift can change both your taxes and your risk. Wages depend on staying employed. Price paid at closing does not. Review any proposed shift with your CPA and attorney.

Timing of payments

Not every dollar is paid at closing. Some deals include a seller note, where the buyer pays part of the price over time. Others include an earnout, where part of the price depends on future results.

Deferred payments can affect when you recognize income for tax purposes. They also affect how much you ultimately receive. Ask your CPA how each structure would be taxed and when.

Timing questions also include the calendar. Closing in December versus January can shift income between tax years. Whether that helps depends on your other income and plans.

Questions to bring to your CPA

Bring these to your CPA early, ideally a year or more before you sell:

• How is my entity taxed, and how does that affect an asset sale?
• How might different purchase price allocations change my after-tax proceeds?
• How would a seller note or earnout be taxed, and when?
• Should any planning happen now, before a letter of intent?
• What state and local taxes apply to my sale?
• How should I weigh purchase price against salary after the sale?

Also ask your CPA to coordinate with your transaction attorney. The allocation and payment terms live in legal documents. Your tax plan only works if those documents match it.

Where we fit

We are not tax advisors. Our job is to represent you as the seller, run the process and negotiate business terms. We work alongside your CPA and attorney so the terms, tax plan and legal documents line up.

We handle asset sales only. Stock sales and sales of LLC or PC membership interests involve securities. Those are outside what we handle, and a registered broker-dealer handles them.

Your next step

Before any buyer conversation, book an hour with your CPA. Bring your entity documents and last three years of returns, and ask for an estimate of your after-tax proceeds at a sample price.