Doctors’ Checklist for Taxes on a Practice Sale

You built a practice.
Now you’re planning the exit.

This checklist helps you keep more after taxes.
Short steps. Clear actions. Straight talk.

First, pick your lane

• Asset sale. Buyer purchases assets. You keep the entity. Often more tax-friendly for buyers.

• Stock or ownership sale. Buyer purchases the entity itself. Often simpler for sellers.

Ask early:

• Which path fits your specialty, payor mix, and buyer type?

• What does your state allow for professional entities?

• What will the purchase price allocation look like?

12–18 months before an LOI

• Clean the books. Tight AR, AP, and payroll records.

• Track add-backs (owner perks) with receipts.

• Fix commingling. Separate accounts and cards.

• Set a tax plan you can defend.

• Review your entity and pay design. Compare paths here: Best tax structure for doctors (2025) and S-corporation tax benefits.

• If you own the building, consider holding it in a separate LLC and leasing to the practice at a fair rate.

6–9 months before an LOI

• Pre-draft a normal working capital target with your advisor.

• Update employment and independent contractor agreements.

• Inventory equipment. Log serials, dates, and condition.

• Review risk coverage. Malpractice, BOP, cyber, EPLI, umbrella.

• For larger groups, explore structured risk tools: Power of Private Insurance, Self-Insurance Guide (2025), Captive insurance basics.

Before you sign an LOI

• Model asset vs stock outcomes by entity type.

• Draft a target allocation (goodwill, noncompete, equipment, supplies).

• Map your owner comp through close.

• Project after-tax cash under 2–3 price scenarios.

• Read a focused primer: Minimize taxes when selling a medical practice (2025).

Allocation drives tax. Don’t skip it.

• More to goodwill often favors sellers (capital gain).

• More to equipment can favor buyers (faster deductions).

• Noncompete and certain covenants may be ordinary income to you.

• Put the draft allocation in the LOI when you can.

• Keep a simple note that states the logic.

Your entity changes the math

• S-corp.

  • Stock sale often yields capital gain.

  • Asset sale can trigger double layers if built-in gains apply.

  • Check shareholder basis and debt.

• Partnership/LLC taxed as partnership.

  • Interest in the entity vs asset deal can shift ordinary items.

  • K-1s continue through the short year.

  • Track hot assets.

• C-corp.

  • Asset sale can create two tax layers.

  • Stock sale may be cleaner if a buyer accepts it.

Bring your CPA early. Bring them to the LOI stage, not after.

Earnouts, escrows, and installment sales

• Earnouts. Tax timing follows how and when you receive payments.

• Escrows/holdbacks. Plan for cash you can’t touch at close.

• Installment sales. Spread gain across years. Watch interest rules and state tax.

Real estate and the practice

• Separate real estate LLC with a clean lease to the buyer or to your practice if you keep it.

• Agree on rent that reflects the market.

• Decide if you keep the building, sell it, or 1031 into something simpler.

Retirement plans and tax levers you can pull

• Max 401(k)/403(b). Owners: add profit sharing or Cash Balance Plan if time allows.

• Fund HSA for the triple benefit.

• Consider a donor-advised fund to bunch gifts in a high-income year.

• Harvest losses if markets wobble: Market losses & tax-saving opportunities.

• Skim IRS Tax Tips when you set levels.

State taxes matter

• Model post-sale cash in your state.

• If relocation is on the table, map timing and rules.

• Quick read: High-state income taxes in retirement.

W-2, 1099, and K-1 income in the sale year

• If you juggle all three, coordinate estimates and withholdings.

• Keep separate banking and logs for 1099 work: 1099 contractor tax guide.

• If you add side income to bridge the exit, pick low-risk options and track records: Physicians increasing income with non-clinical side businesses and multiple income stream strategies.

Travel, CME, and meetings during deal season

• Keep clean logs if you combine business and leisure.

• Rules for mixed trips are strict. Read Business vacations: what doctors can deduct (2025).

The one-page close list

• Working capital math is final.

• Employment or PSA terms are signed.

• Allocation attached to the purchase agreement.

• Escrow and earnout terms are clear.

• Payroll through close is done.

• Short-year returns scheduled.

• Q4 estimates set.

After close: stay sharp for one year

• Watch earnout and escrow triggers.

• Save every statement tied to the sale.

• Update your estate plan.

• Rebuild your cadence: weekly, monthly, quarterly checks.

• Revisit your retirement buckets and withdrawals.

• Open a small project list you’ll enjoy. It helps the transition.

Helpful reads while you plan

• Minimize taxes when selling a medical practice (2025)

• Doctor tax-saving strategies (2025)

• Best tax structure for doctors (2025)

• S-corporation tax benefits

• Market losses & tax-saving opportunities

• 1099 contractor tax guide

• Physicians growing non-clinical income

• Multiple income stream strategies

• High-state income taxes in retirement

• Business vacations: what doctors can deduct (2025)

• Power of Private Insurance • Self-Insurance Guide (2025) • Captive insurance basics

• The Richest Doctor

• IRS Tax Tips

FAQ

Asset sale or stock sale—what’s better for me?
It depends on your entity and buyer demands. Model both. Look at total after-tax cash, not just the headline price.

What is purchase price allocation and why should I care?
It splits the price among assets like goodwill, equipment, and covenants. The split changes your tax bill. Get it into the LOI when you can.

How do earnouts get taxed?
You pay tax when you receive the money. Track interest and any true-up language.

Can I spread the tax with an installment sale?
Yes, if structure and cash flow allow. Review interest rules and state tax.

If I keep the real estate, what should I do?
Hold it in a separate LLC. Use a fair lease to the buyer. Keep clean records.

What should I fix before an LOI?
Books, contracts, payroll, risk coverage, and a draft allocation. Clean files raise trust and price.

Do I need to change my retirement plan before the sale?
Maybe. Owners can add profit sharing or a Cash Balance Plan if timing works. It can cut tax in the sale year.

Block two hours with your CPA and attorney.
Bring draft numbers, entity docs, payroll history, and a sample allocation.
Lock your LOI plan before you start negotiating price.

Ready to talk strategy? Start here.

Visit contact physiciantaxsolutions.com to schedule a consultation and learn how we can help you take control of your tax strategy today.

This post serves solely for informational purposes and should not be construed as legal, business, or tax advice. Individuals should seek guidance from their attorney, business advisor, or tax advisor regarding the matters discussed herein. physiciantaxsolutions.com assumes no responsibility for actions taken based on the information provided in this post.