The $50,000 Tax Mistake Many Dentists Make Before Retirement
- Jul 18
- 2 min read
Updated: Jul 25
Many dentists spend decades building a successful practice, only to lose $50,000 or more in unnecessary taxes during their transition into retirement.
At ISTAXPro, we often see this preventable mistake: failing to plan the tax structure of your practice sale and your personal income streams in advance. Here’s what you need to know before you retire.
1. Overlooking Goodwill Allocation
When selling a dental practice, a significant portion of the sale price can often be allocated to personal goodwill rather than tangible assets. Goodwill is typically taxed at long-term capital gains rates, which are lower than ordinary income rates. Without planning, dentists often have the entire sale treated as higher-taxed income.
Action: Work with your advisor to structure your sale with a clear goodwill allocation that aligns with IRS guidelines to potentially reduce your tax burden.
2. Ignoring Installment Sale Opportunities
Taking the entire sale payment upfront may push you into the highest tax brackets in the year of sale, resulting in avoidable tax spikes. Structuring the sale as an installment sale allows you to spread payments—and the associated tax liability—over multiple years, often keeping you in a lower effective tax bracket.
Action: Evaluate installment sale options and how they align with your cash flow needs and retirement lifestyle plans.
3. Missing Pre-Retirement Retirement Plan Contributions
Many dentists stop maximizing retirement contributions in the years leading up to their sale, missing out on opportunities to defer taxes while reducing taxable income. Using Cash Balance Plans or Defined Benefit Plans can allow significant pre-retirement deferrals, offsetting the high income you may receive during a sale year.
Action: Plan at least 2–3 years before your transition to utilize advanced retirement plans as part of your exit strategy.
4. Forgetting State Tax Planning
Dentists in high-tax states like California often fail to consider state-specific tax planning, missing opportunities for sourcing income, timing deductions, or leveraging state-specific retirement strategies to reduce the combined federal and state tax burden on the sale.
Action: Integrate state-specific planning with your federal strategy to optimize your overall effective tax rate.
Take Control Before You Transition
Retirement is one of the most critical times for tax planning. By proactively addressing goodwill allocation, installment sales, advanced retirement contributions, and state-specific strategies, you can potentially save $50,000 or more—money that can be redirected toward your retirement lifestyle, investments, or family legacy. At ISTAXPro, we specialize in helping dentists navigate practice transitions with a tax-focused, personalized strategy that protects the wealth you have spent years building.
Considering Selling Your Practice?
Contact ISTAXPro to schedule your Practice Transition Tax Strategy Review and ensure you keep more of what you earn as you move into your next chapter.
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