How Does 2018 Tax Reform Affect Dentists?
Please see below a short list of areas that will affect your personal and dental business taxes by the new tax law. Please contact our office to schedule a meeting as early as possible to start the tax planning process.
A. Beginning Jan. 1, individual dentists are now allowed to deduct up to 20 percent of qualified business income that passes through from a partnership, an S corporation, or a sole proprietorship. In essence, the dentist that has a pass-through entity will only be taxed on 80 percent of their pass-through income.
1. If your taxable income is $315,000 or less and you file a joint return ($157,500 filing single), then you are able to take the 20 percent deduction of pass-through entity income.
2. If your taxable income is between $157,500 and $207,500 (single) and/or $315,000 and $415,000 (married filing joint), then there will be a phase-out of the 20 percent deduction.
3. If your taxable income is $415,000 (married filing joint) or greater ($207,500 filing single), then there will be no 20 percent qualified business income deduction.
B. Internal Revenue Service Code Section 179 allows business owners to deduct the purchase price of equipment and/or software put into service during the year. Section 179 depreciation expensing limits have been raised to $1 million per year, with a spending cap phase-out starting at $2.5 million of equipment purchased in a given year. This became effective on Jan. 1. Bonus depreciation, which was 50 percent, increased to 100 percent for any equipment acquisitions subsequent to September 27, 2017. This includes both new and used property acquired. Consult with your dental CPA on the specifics of depreciation and bonus depreciation.
C. Medical expenses can now be deducted for 2017 and 2018 calculated as an itemized deduction in excess of 7.5 percent of the taxpayer’s adjusted gross income. Previously, it was limited to 10 percent of the taxpayer’s adjusted gross income.
D. An existing home mortgage would retain the $1 million mortgage interest limitations. After December 15, 2017, the deduction is limited to a mortgage of $750,000 or less. For 2018, home equity loan interest is no longer deductible.
E. Under the new legislation, the deduction for all state and local taxes combined cannot exceed $10,000. These taxes include state and local income, sales, real estate or property taxes.