153 rd IOWA DENTAL ASSOCIATION ANNUAL SESSION

1. 153rd IOWA DENTAL ASSOCIATION ANNUAL SESSION BrownWinick Law Firm 666 Grand Avenue, Suite 2000 Des Moines, IA 50309-2510 Website: www.brownwinick.com BLOG: www.brownwinick.com/BLOGHealthLaw

2. BUSINESS ASPECTS OF PRACTICE Drew D. Larson: larson@brownwinick.com Robert D. Hodges: hodges@brownwinick.com Christopher L. Nuss: nuss@brownwinick.com Website: www.brownwinick.com BLOG: www.brownwinick.com/BLOGHealthLaw

3. SELLING A DENTAL PRACTICE Drew D. Larson BrownWinick 666 Grand Avenue, Suite 2000 Des Moines, IA 50309-2510 Telephone: 515-242-2485 E-mail: larson@brownwinick.com

4. SELLING A PRACTICE • All dental practices are going to transition. • Hopefully the owner is able to get some value out of it through a sale.

5. STANDARD CASE 1: Succession Time (future)

6. STANDARD CASE 2: Succession with Overlap Time (future)

7. Standard Case 3: Single to Group Practice Time (future)

8. GOALS • Clarity regarding obligations. • Meeting each party’s needs and goals. • Managing tax issues and risks. • Transitioning business operations.

9. GOALS - SELLER • Get the best price for the business. • Minimize ongoing obligations and liabilities. • Maximize up front cash.

10. GOALS - BUYER • Get the lowest price for the business. • Minimize the risk the seller oversold the value of the business. • Ensure you have a remedy if the seller breached the agreement.

11. DUE DILIGENCE • Opportunity for Buyer to research Seller. • Seller knows its own business better than the Buyer. • Buyer wants to know what he/she is getting into. • Covers everything.

12. DUE DILIGENCE – SELLER PREP • If a Seller does not have good records, it increases the Buyer’s risk. • Annually check to make sure corporate and financial records are in order. • Buyers (and their financing sources) abhor risk. • Poor records can easily sink a deal or substantially lower the price.

13. DUE DILIGENCE - DISCLOSURES • Financials • Assets and Real Estate • Corporate Documentation • Tax Information • Litigation • Employee Matters • Regulatory/Payer Compliance

14. ADVANTAGES TO SELLING DENTAL PRACTICE • Buyer already knows how business works. • If Buyer an employee, already knows the business. • Financing generally available.

15. TWO BASIC STRUCTURES • Asset Purchase • Stock Purchase

16. ASSET PURCHASE • Generally preferred by Buyers. • Best limits successor liability. • Provides a stepped up basis. • Requires depreciation recapture for Seller, if applicable. • Generally ordinary income up to amount of depreciation recapture, then capital gains.

17. STOCK PURCHASE • Generally preferred by Sellers. • Can be simpler, no transfer of contracts, etc. (may have notice requirements). • No step up in basis for Buyer. • Generally all capital gains in excess of basis.

18. FINANCING • Cash • Bank • Seller Financing • Combination

19. INDEMNIFICATION AND REMEDIES • Survival – Protection and Certainty • Indemnification • Defense of Claims • Baskets, Caps • Setoff • Exclusivity of Remedies?

20. OTHER ISSUES • Employment Agreement • Non-Compete Obligations • Confidentiality • Earn Out • Transition Assistance

21. QUESTIONS

22. Estate Planning: A Basis Check-Up Robert D. Hodges BrownWinick 666 Grand Avenue, Suite 2000 Des Moines, IA 50309-2510 Telephone: 515-242-2465 Facsimile: 515-343-8465 E-mail: hodges@brownwinick.com

23. Disclaimer IRS Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that, except to the extent expressly provided to the contrary, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Please consult your tax advisor for advice specific to your individual situation. This presentation should be considered general in nature and not specific legal advice. No attorney-client relationship is intended or implied.

24. “BIG PICTURE” ENVIRONMENT • $5,430,000 for unified credit 2015 • Increased rate to 40% • “Portability” permanent • GST mirrors unified credit • Annual exclusion gifting still viable

25. “CHOPPING BLOCK” ITEMS • $5,430,000 for unified credit • Minority/Marketability Discounts • “File and suspend” for Social Security • “Rolling GRATs” • Death Tax?

26. NON-TAXABLE ESTATES • Income tax efficiency may drive decisions • Portability return part of standard practice • Planning for non-involved children • Right of first refusals

27. COMMON MISTAKES • Incorrect beneficiary designations • No powers of attorney • Reluctance to use trusts • No periodic “check ups”

28. BENEFICIARY PROBLEMS • The will NOT “figure it out” • “Fair” vs. Equal • Fix a valuation formula in the plan • Be explicit regarding property distribution • Fiduciary designations

29. PROBATE AVOIDANCE • Pitfalls of probate • Public, Slow, and Expensive • Not a catastrophic result in Iowa • “All or nothing” approach • Non-attorney involvement

30. QUESTIONS

31. Uncle Sam “Needs” More Cash – Recent Tax Law Changes Affecting You and Your Business (And More …) Christopher L. Nuss 666 Grand Ave, Suite 2000 Des Moines, IA 50309-2510 Telephone: 515-242-2432 E-mail: nuss@brownwinick.com

32. RECAP OF 2014 FEDERAL LEGISLATIVE ACTIVITY AT ELEVENTH HOUR • “Extenders” bill passed and signed effective December 19, 2014, retroactive to January 1. • Most relevant common provisions: • Cost recovery/depreciation – bonus and § 179 • Credits – research activities, hiring certain individuals • Others – “BIG” period & “small business stock” gain • What to expect during the 2015 legislative session? • Update on “Tax Freedom Day” for 2015

33. EXAMPLE OF FEDERAL TAX INCREASE FOR 2014 (AND CONTINUING) Assumptions: Married filing jointly (w/o dependents) with mixture of salary ($65K), investment income ($90K), pass-through income from S corporations or LLCs ($400K), and pension/social security ($200K), and various itemized deductions and exemptions. For illustrative purposes only.

34. EXAMPLE OF FEDERAL TAX INCREASE FOR 2014 (CONT.)

35. WHY INCREASE IN TAXES FOR 2014? • Increase of top tax rate on dividends, capital gain, & ordinary income. • Increase in FICA & Medicare on earnings. • Quicker phaseout of itemized deductions & loss of exemptions. How change effective tax rates? • New 3.8% Medicare on net investment income. • Alternative minimum tax (AMT).

36. PLANNING POINTS GOING FORWARD • Estimated tax payments & wage withholding even more important (avoid large tax bill & penalty). • Basic choice-of-entity considerations (C corp, S corp, LLC, etc.) • Defer recognition of income and gain, while accelerating deductions. • Basic deferral mechanisms w/in accounting method • Section 179 expense & bonus depreciation • Utilize tax credits? • Equity interests in LLCs/partnerships • Other miscellaneous tools

37. PLANNING POINTS GOING FORWARD (CONT.) • Gifts & distributions from trusts to family members or other taxpayers in lower tax brackets. • Revise mix of investment assets. • Consider change in business entity form? • Others?

38. OTHER TAX PLANNING CONSIDERATIONS • “Active” participation in S corporation – NII tax and employment taxes. • Health insurance arrangement w/ employees or shareholders of S corporations. • Possible exit strategy - personal goodwill for C corporation shareholders.

39. STATE TAX PLANNING ISSUES • “Beware of multi-state operations, especially for pass-through entities – Compliance!! • New Iowa business property tax exemption – (http://www.brownwinick.com/news-blogs/legal-news/state-of-iowa-property-tax-reform.aspx) • Imposition of sales and use tax – collection and payment responsibilities.

40. CYBERSECURITY CONCERNS • Identity theft is on the rise, for filing false tax returns. • Scams acting as the IRS. • Outside payroll agents. • Document retention and destruction. • Potential Board of Director liability.

41. WHAT IS UPCOMING? POSSIBLE FUTURE CHANGES (OR MORE OF THE SAME) • Keep radar on Congress throughout the year, many key provisions set to expire (again) – likely to extend (again). • Each quarter, review year-to-date tax situation. • Any questions?

42. QUESTIONS

43. YOUR FACILITY:A PRACTICE’S SMILE TO THE WORLD Drew D. Larson BrownWinick 666 Grand Avenue, Suite 2000 Des Moines, IA 50309-2510 Telephone: 515-242-2485 E-mail: larson@brownwinick.com

44. WHY FACILITIES MATTER • Your facility is the public face of your practice. • You want the facility to be clean, in a good location, and welcoming. • Besides labor, facilities are often one of the largest expenses of a dental practice.

45. WORK WITH PROFESSIONALS • Commercial real estate is different than residential. • Lots of variables related to liability and costs • Lease agreements are complicated.

46. WORK WITH PROFESSIONALS (CONT.) • Commercial Broker, Lawyer, and Architect. • Worth paying up front to protect yourself on a contract you will be paying on for years.

47. DO IT RIGHT UPFRONT • Negotiating is like a dental cleaning. Not exactly fun, but important. • Fighting with a landlord later is like getting your wisdom teeth removed. It isn’t fun, and in this case you are conscious the whole time.

48. MAKING A LONG TERM COMMITMENT • You will likely be here a long time. Make sure you like it. • Are you sure that this is the last place you will want to be? Demographic shifts, etc.

49. OPTIONS – BUY OR LEASE • Advantages and disadvantages to each option. • Buyers tend to view the facility as an investment. • Tenants tend to view the real estate as an operational cost.

50. BUYING A FACILITY • Purchase Agreement • Key Provisions (check the teeth) • Price • Closing Schedule • Prorations, warranties, etc. • Financing Contingency?