Things to Know About Colorado Sales Tax when Purchasing a Practice

Financial reporting with paper reports and a calculator

With a dental business for sale, there are a lot of caveats that require careful consideration. If you are looking to purchase a dental practice in Colorado, sales tax is a vital thing to take into account. With a dental clinic or clinics at a number of locations, the sale would include equipment, furniture, and fixtures that are used on a day-to-day basis. At the same time, for tax purposes, patient records and the goodwill of the business will also be considered.

Sales Tax Considerations When Considering a Dental Business for Sale

The purpose of a buyer is generally to allocate a purchase price for the assets that are included in their transaction. This helps them accelerate the process of tax deduction. However, the objectives of a buyer and seller in a deal can conflict with one another, which ultimately means that tax expenses or savings can impact the price that is agreed upon.

The allocation agreed upon by the parties should be expressly stated in the purchase/sale contract. The IRS will typically accept it as a fair depiction of the assets' market values. Before settling on a final transaction price, your lawyer and advisors must take into account the tax implications of the allocations.

Buyer Sales Tax Consequences when Purchasing a Dental Practice

The assigned acquisition value of the assets purchased in the transaction will be listed on the balance sheet of the practice's buyer. Depending on the type of asset, he will recoup/deduct the cost. As the office purchases the necessary dental supplies, those costs will be billed to expenses. The tax code specifies a term of five or seven years to write off the expense for the furniture, fittings, and equipment. Additionally, in some cases, the equipment's entire cost or a portion of it may be written off in the year it was purchased. A practice must amortize the goodwill it has purchased over a 15-year period.