Happy Friday! Hope April is treating you well.
Here's a scenario we see more often than we'd like:
A practice owner spends years building a thriving business. They go to market, run a great process, and sign an LOI for $10M. They're thrilled.
Then tax season hits.
And they realize they're walking away with $6.2M — not $10M.
The deal didn't change. The tax planning did.
This week we're covering the topic most M&A advisors gloss over until it's too late: what you actually net after taxes — and why the structure of your deal matters more than most sellers realize.
Why Taxes Are a Deal Structure Issue (Not Just an Accounting Issue)
Most practice owners think about taxes after the deal closes. That's the mistake.
How your deal is structured — specifically how the purchase price is categorized — determines whether your proceeds are taxed at ordinary income rates (up to 37%) or capital gains rates (20% federal). That's a 17-point swing on every dollar.
And once you've signed the purchase agreement, most of those decisions are locked in.
The #1 Factor: Purchase Price Allocation
You may remember from Issue #2 that most healthcare practice deals are structured as asset sales — the buyer purchases your assets (goodwill, equipment, patient files, non-compete) rather than your legal entity.
In an asset sale, the buyer and seller must allocate the purchase price across different asset classes. Each class is taxed differently:
The insight: Buyers often want to allocate more to practice goodwill (which they can amortize over 15 years). Sellers want more allocated to personal goodwill (taxed at capital gains rates).
This single negotiation — often overlooked — can be worth $300K–$700K on a $10M deal. Consult your tax advisor early to understand your personal goodwill position before entering negotiations.
ILLUSTRATIVE SCENARIO: Same $10M Deal, Very Different Outcomes
ILLUSTRATIVE SCENARIO — Two specialty practice owners, both sell for $10M
Seller A: Lets the buyer's attorney handle purchase price allocation. Heavy allocation to practice goodwill, equipment, and non-compete.
Seller B: Works with their own tax counsel to negotiate allocation toward personal goodwill and more favorable asset classes.
Same deal. $1.2M difference. Purely from allocation negotiation — handled by their respective tax and legal advisors.
The Installment Sale: A Tool Worth Asking Your Advisor About
If your buyer is open to it, an installment sale lets you spread your proceeds across multiple tax years — rather than recognizing the full gain in one year.
Why this matters:
Receiving $10M in one year can push you into the highest federal bracket for that year, plus state taxes, plus Net Investment Income Tax (3.8%)
Spreading proceeds over multiple years may reduce your effective rate in each year
The potential benefit can be significant depending on your state, structure, and personal situation — worth exploring with your tax advisor well before closing
The trade-off: You don't receive all your cash upfront. This works best when the buyer is creditworthy, and you don't need full liquidity immediately. Your tax and legal counsel should evaluate whether this structure makes sense for your situation.
Federal taxes get all the attention — but state taxes can be just as impactful, especially for practices in high-tax states.
Illustrative state tax impact on a $10M sale:
If you're in a high-tax state, your state tax bill alone can exceed $1M. This is one of many reasons why engaging a qualified tax advisor who specializes in business sales — ideally 12+ months before closing — can make a significant difference in your outcome.
The Bottom Line: Tax Planning Is Pre-Deal Work
Here's the framework worth discussing with your advisors:
12+ months before closing:
Engage a tax advisor who specializes in business sales — not just personal returns
Understand your personal goodwill position and how to document it
Review your state tax exposure and any planning options available to you
During deal negotiation:
Don't let purchase price allocation default to the buyer's attorney
Explore installment sale structure if full liquidity isn't critical
Understand your estimated net proceeds under multiple scenarios before signing
At closing:
Confirm all tax strategies are in place before proceeds are received — timing matters
Know Your Net Number — Before You Sign
The number on your LOI is not the number you take home. After taxes, deal costs, and advisor fees, most sellers net 60–75% of the headline price.
Understanding that gap — and closing it as much as possible — starts with the right team around you before you go to market.
Keep winning,
Viper Partners
Seller-Exclusive Healthcare M&A Advisory
Disclaimer: This content is for informational purposes only and does not constitute legal, tax, or financial advice. All scenarios are illustrative. Tax laws vary by state and are subject to change. Always consult qualified legal and tax advisors regarding your specific situation before making any decisions.
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