Taxes and Fees When Selling a Law Firm

What You Need to Know About Taxes and Fees When Selling A Law Practice.

Not every lawyer lives in the world of business sales and transitions and even fewer have ever had the opportunity to advise and work on a law practice sale. The unique blend of law practice transaction specifics with the ever-changing landscape of structure options, how the government taxes proceeds and associated fees with a sale create potentials for some unknown and unwanted surprises. 

You don’t need to be a tax or law practice expert, but it does help to put a CPA on your team early. Beyond that,  having an early idea of how things may work always helps in laying out structure and paths to achieve.

Consider these quick items on structure and taxation before going too far in your plans:

• Transaction Structure Options. From stock purchase to asset purchase to mergers and beyond there are many potential purchase structures to consider. Each of those has its impact on taxes and your financials. 

• Taxation on Sale Proceeds. Depending on the structure of your law practice entity and the structure of the purchase your tax hit can often be anywhere from 20% to 50% or more of the sale proceeds. Making sure you understand how the net amount would be calculated under certain structures and terms to negotiate to lessen that tax hit to the lower range is key.

• Fees. Yes, you are an attorney but expect to pay other advisors such as practice brokers/consultants, accountants, and even an attorney to help you through the process. Knowing and calculating these as part of your expected after taxes and fees benefit is key.

Knowledge of deal terms and having an idea of where key points of the deal may impact your net number is key to get your transition plans moving without surprises later. Look for the right people to add to your team, as it is near impossible to go it alone and plan for the best outcome while minimizing those surprises and hits to the bottom line.