7 Questions to Ask Before Buying a Solo Dentist Practice
Before buying a solo dental practice, ask these 7 questions to avoid tax pitfalls, valuation errors, and hidden liabilities. Practical guide for 2026.
Buying a solo dentist practice is a major financial and tax decision. The wrong move can cost you tens of thousands in unexpected taxes or hidden liabilities. Before you sign, ask these 7 questions. They cover tax structure, valuation, equipment, patient files, and more. Each question comes with concrete steps you can take this week.
1. What Is the Practice’s Tax Structure and History?
The seller’s tax structure affects your purchase price and future taxes. Ask for the last three years of tax returns (Form 1120, 1065, or Schedule C). Look for:
- Entity type: Is it an S-corp, C-corp, LLC, or sole proprietorship? Buying assets from a C-corp may trigger double taxation for the seller, which can inflate the price.
- Audit history: Have they been audited? Any pending disputes?
- Depreciation schedules: What assets are fully depreciated? You may need to re-depreciate them.
Action this week: Request the tax returns and a depreciation schedule. Review them with a CPA who specializes in dental practices.
2. Are You Buying Assets or Stock?
Most dental practice sales are asset purchases, not stock purchases. This distinction matters for taxes and liability.
- Asset purchase: You buy equipment, patient files, and goodwill. You can depreciate the equipment and amortize goodwill over 15 years. You avoid inheriting the seller’s tax liabilities.
- Stock purchase: You buy the corporation itself. You inherit all liabilities, including past tax issues. This is rare and usually only for specific situations.
Action this week: Confirm the deal structure in writing. If it’s a stock purchase, get a full indemnification clause.
3. What Is the Real Value of the Patient Files?
Patient files are often the largest intangible asset. But their value depends on how many are active and their insurance mix. Ask for:
- Active patient count: How many patients have visited in the last 18 months?
- Insurance breakdown: PPO, HMO, fee-for-service percentages. HMO patients may generate less revenue.
- Patient age and recall rate: Older files may have lower recall.
Action this week: Ask for a patient ledger report. Calculate the average revenue per active patient. Compare it to industry benchmarks (e.g., $400-$600 per active patient per year).
4. What Is the Condition and Age of the Equipment?
Dental equipment depreciates fast. A 10-year-old chair may be worth little, but replacing it costs $20,000-$50,000. Ask for:
- Equipment list with age and condition: Include digital x-ray sensors, handpieces, autoclave, and chairs.
- Service records: Regular maintenance extends life.
- Lease or owned: If leased, you may need to assume the lease.
Action this week: Hire a dental equipment appraiser. Cost: $500-$1,500. They will give you a fair market value and identify potential replacement costs.
5. What Are the Staff and Employment Contracts?
Staff can make or break a practice. But their contracts can also create liabilities. Ask for:
- Employee agreements: Non-compete clauses, salary levels, and benefits.
- Pending claims: Workers’ comp, unemployment, or discrimination claims.
- Retirement plans: If the seller has a 401(k) or pension, you may be responsible for funding.
Action this week: Review all staff contracts with an employment attorney. Ask for a list of any pending or threatened claims.
6. What Are the Real Operating Expenses?
Tax returns show revenue, but not always true expenses. Ask for the last 12 months of profit and loss statements. Look for:
- Rent: Is it above market? Does the lease transfer?
- Supplies: Are they buying in bulk at a discount?
- Utilities and insurance: Are there any rate increases coming?
Action this week: Compare the P&L to industry averages. Dental practices typically spend 5-8% on supplies, 5-10% on lab fees, and 3-5% on marketing. If numbers are off, ask for explanations.
7. What Are the Tax Implications of the Purchase Price Allocation?
How you allocate the purchase price among assets (equipment, goodwill, covenant not to compete) affects your depreciation and amortization deductions. A typical allocation might be:
| Asset | Allocation % | Depreciation/Amortization Period |
|---|---|---|
| Equipment | 30-40% | 5-7 years |
| Patient files | 10-20% | 15 years |
| Goodwill | 30-40% | 15 years |
| Covenant not to compete | 5-10% | 15 years |
Action this week: Work with a CPA to draft a purchase price allocation agreement (Form 8594). This must be filed with your tax return.
FAQ
Q: Can I deduct the purchase price as a business expense? A: No. You must capitalize the purchase and depreciate or amortize it over time. Equipment over 5-7 years, intangible assets over 15 years.
Q: What if the seller has unpaid taxes? A: In an asset purchase, you generally don’t inherit them. But in a stock purchase, you do. Always do a tax lien search before closing.
Q: How much should I budget for due diligence? A: Expect $3,000-$10,000 for appraisals, attorney fees, and CPA review. This is a small price compared to a bad deal.
Q: Can I negotiate the price based on tax issues? A: Yes. If the equipment is older or the patient files are low quality, use that to lower the price. Be specific with numbers.
Related guides
- 7 Mistakes Solo Dentist Practices Make in Their First Year
- 7 Things to Know Before You Start a Solo Dentist Practice
The bottom line
Buying a solo dental practice is a complex transaction with significant tax implications. Ask these 7 questions before you make an offer. Each one can save you thousands in taxes or prevent a costly mistake. This week, start by requesting the tax returns and equipment list. Then, hire a CPA and an appraiser to guide you. With the right due diligence, you can buy with confidence and build a profitable practice.