Just as you carefully craft treatment plans for your patients, your veterinary practice requires a well-thought-out strategy to navigate the ever-changing landscape of tax policy. In times of political or legislative shifts, staying ahead of potential tax changes is crucial to protecting your practice and your bottom line.

US tax policies can change dramatically with new administrations and congressional priorities. What are the key areas where these changes typically take effect?

• Capital gains tax rates: Significant when transitioning or selling your practice.
• Income tax rates: Directly impact practice owners, associates, and employees.
• Estate tax rules: Critical to consider in your broader legacy planning.

For many DVMs, the impact of these changes could amount to hundreds of thousands of dollars—either as unexpected liabilities or as opportunities for savings.

At myVETgroup (MVG), one question rises above the rest:

“What should I be doing now to prepare?”

It’s a great question. Whether you’re eyeing a near-term practice transition or laying the groundwork for your future, understanding these tax changes is the first step to making confident, informed decisions.

How Capital Gains Tax Could Affect Your Practice Sale

You’ll pay capital gains tax on the profit when selling your veterinary practice. As of 2024, practice sales are taxed at 20%, with an additional 3.8% Net Investment Income Tax (NIIT) for high-income sellers.

Tax policy changes around capital gains often follow two significant trends:

• Rate increases: Some proposals aim to align capital gains with ordinary income tax rates, particularly for high earners.
• Rate decreases: Other reforms suggest lowering rates across the board to incentivize investment and business transitions.

What does this mean for you? On the sale of a typical veterinary practice, the difference between these scenarios could result in hundreds of thousands of dollars in additional taxes—or savings. And don’t forget: state and local taxes may apply, further influencing your net proceeds.

Given the uncertainty, here are three steps you can take now:

1. Get a current valuation: Understand the fair market value of your practice to assess potential tax liabilities under different scenarios.
2. Review your timeline: Timing is everything if you’re considering a sale shortly. Work with your advisor to align your plans with personal and market factors.
3. Explore your options: Consider different deal structures, such as installment sales or earn-outs, to minimize your tax impact or spread it out over time.

While tax considerations are important, they shouldn’t be the only factor driving your sale decision. A smooth transition for your staff, patients, and community remains a top priority. This is where the guidance of a specialized financial advisor becomes invaluable.

Income Tax Implications for Practice Owners and Staff

Income tax rate changes can significantly impact your personal finances and your practice’s operations. Current income tax brackets, established under the Tax Cuts and Jobs Act, are set to expire in 2025 unless extended or revised. Understanding how these scenarios might affect you is critical.

Income tax reforms generally take two forms:

• Rate adjustments: Shifts in marginal tax rates, especially in higher brackets, can directly affect practice owners with combined income from the practice and investments.
• Bracket modifications: Changes to the thresholds for different tax brackets could alter how much of your income is taxed at various rates.

Why does this matter for DVMs?

1. Your personal tax burden: Practice owners often fall into higher tax brackets, making them particularly vulnerable to policy shifts. A small rate change could result in thousands of dollars in annual tax differences.
2. Practice operations: Adjustments to income tax rates may influence critical decisions, including:
   • Staff compensation and benefit packages.
   • Equipment purchases and facility upgrades.
   • Timing of income and expenses.
   • Retirement plan contributions.

By proactively modeling potential scenarios with your practice advisor, you can ensure that you’re making informed choices that align with your practice goals and financial objectives.

(We’ve continued this conversation in Part 2.)