How will the new tax law likely affect dentists? Here are 10 specific provisions you ought to watch.
THE TAX CUTS AND JOBS ACT of 2017 is already having a large impact on individuals and businesses. What’s in it—or not—for dentists? My initial assessment is that the law will likely save most dentists between $3,000 and $20,000 annually. Here are 10 key provisions to keep an eye on.
1. PASS-THROUGH DEDUCTION. If your practice is an S-Corporation, partnership, LLC or sole proprietorship, your deduction will depend on your taxable income. To maximize this deduction, take reasonable measures to lower your practice’s net profits. (For specifics—regarding this and the other nine points covered her
2. SECTION 179 DEDUCTION. This deduction, enabling practices to deduct fully the cost of equipment in the year of purchase, has nearly doubled, to
$1 million, and has expanded beyond equipment.
3. MEALS AND ENTERTAINMENT. Budget wisely for business entertainment such as sporting events, golf fees and any club dues, as these expenses are no longer deductible. Meals for travel and for the convenience of the employer or team remain 50 percent deductible.
4. DOMESTIC PRODUCTION. The Section 199 deduction—which allows manufacturing businesses to claim an extra deduction for production-related activities, and which many orthodontists and dentists with in-office CAD/CAM used to lower their taxes—has been eliminated. You could optimize it for 2017 through an amended return, though, even if you’ve never claimed it before.
5. INDIVIDUAL TAX RATES. With new tax brackets now starting at higher levels and rates newly lowered, it’s time for most doctors to reduce their federal withholding and estimated tax payments to increase their current cash flow.
6. HOME EQUITY DEBT. Home equity interest is no longer deductible. Look for ways to eliminate home equity debt and/ or minimize non-deductible debt.
7. ITEMIZED DEDUCTIONS. With state, local and property tax deductions capped at $10,000, new home-mortgage debt deductibility limited to $750,000 and the phase-out on itemized deductions eliminated, many doctors in high-tax regions or who own expensive homes may lose major write-offs.
8. ALTERNATIVE MINIMUM TAX. The AMT now has an increased exemption limit, helping many who live in states with a high income tax who were previously paying the AMT.
9. ESTATE AND GIFT TAX. The new law doubles the estate-tax exemption to $11.2 million per person, or $22.4 million per married couple.
10. S-CORP VERSUS C-CORP VERSUS LLC. Changes to individual and corporate tax rates may lead many tax professionals to advise doctors to switch their corporate structure. I’d advise against doing so, as opportunities abound for doctors who already operate as a C-Corporation.
In short: Get in touch with a CPA or financial adviser who specializes in dentistry. Lower taxes today can mean more money to invest in your practice, or in your long-term financial goals.
DAN WICKER, CPA is a partner at Dallas- based Cain, Watters & Associates, at the forefront of financial and tax planning for dental professionals. Visit cainwatters.com/ contact to arrange a free consultation with a CWA adviser. The information featured here is not intended to be personal tax advice.