Tax laws are continuously changing, making not only understanding the effects of the laws extremely challenging, but also implementing them accurately difficult. Several new laws have been implemented that directly affect healthcare originations and medical practices. Medical practices that meet certain requirements will benefit from tax reform, while larger healthcare organizations, such as hospitals, will be faced with complex tax provisions. Delineating the precise tax implications for one’s medical practice is best done with the guidance of a knowledgeable tax professional. In order to take full advantage of tax breaks (i.e. tax deductions, tax exemptions, tax credits…etc.) offered by the IRS, it is essential to develop and implement strategic tax planning methods for your medical practice.
Tax Cuts and Jobs Act (TCJA)
The passing of the TCJA by Donald Trump in 2017 shifted the income tax bracket thresholds and reduced nearly all levels of statutory tax rates on taxable income. One example of how the TCJA has affected individual members of the healthcare field relates to the change in the SALT (state and local income tax) deduction limit, which is now $10,000.00. Meaning physicians practicing in California (as well as to other high tax states) will become ineligible for state income tax deductions, increasing their overall tax bill. As the last major tax reform legislation was passed into law in 1986, the Tax Cuts and Jobs Act meticulously closed many loopholes that were relied upon by many medical practices and physicians.
The tax benefits of being a self-employed physician and/ or a partner in a medical practice are significant. The eligible tax deductions that can be claimed by a doctor include the following examples:
- Board examination fees
- Work-related clothing (i.e. scrubs, lab coats, work shoes…etc.)
- Office equipment
- Medical supplies
- Malpractice insurance
- Cell phone expenses
- Patient refunds
- Payroll taxes
- Accounting and retirement planning fees
- Work-related travel expenses
When claiming any itemized deduction, it is essential to maintain copious records that can substantiate your deduction. Owners of pass-through entities (i.e. sole proprietorship, S corporations, partnerships, and limited liability companies), which many medical practices are, may qualify for the Section 199A deduction. This deduction permits the owner of a medical practice to claim a deduction that is equal to 20% of his or her qualified business income. The earnings limit to qualify for the Section 199A deduction in 2019 were single filing taxpayers earning less than $157,000.00 and $315,000.00 for married couples filing jointly. Once the earning threshold is surpassed, this deduction becomes no longer applicable to the taxpayer. Specific deductions should only be claimed after careful consideration and guidance from a tax professional.
For Further Information
If you follow your instincts and are clear with your needs you will likely find an accountant that is an excellent fit. While the task to connect with the right accountant may seem overwhelming, please keep in mind it will be worth it in the long run. The financial guidance that a good accountant will provide during one’s lifetime can result in significant financial gain. With the full range of accounting services Allman & Allman APAC provide, we are certainly equipped with the expertise for which you may be in need. Seeking guidance from our firm will proved you the opportunity to work with individuals armed with broad and deep financial knowledge, able to provide advice on a wide range of issues. As a full-service public accounting firm, our professional services will surely help you succeed and thrive. Please feel free to reach out to Allman & Allman APAC via email at Genna@apapd.com or via phone at 760-406-5056 to discuss your situation and find out how we can help you grow. We look forward to hearing from you.
“California Conforms to Several Federal Tax Reform Provisions.” Deloitte United States, 19 July 2019, www2.deloitte.com/us/en/pages/tax/articles/california-conforms-to-several-federal-tax-reform-provisions.html.
Sundin, Paul. “How the New Tax Plan Affects the High-Income Physician.” Passive Income M.D., 11 July 2018, www.passiveincomemd.com/new_tax_plan_high_income_physician/.
“Top Tax Changes Affecting Physicians and Medical Practices.” Kaufman Rossin, www.kaufmanrossin.com/news/top-tax-changes-affecting-physicians-medical-practices/.
“Tax Strategies for Doctors with Kids: Physician Family Financial Advisors: Fee-Only Financial Planner for Doctors: Eugene, Oregon.” Physician Family Financial Advisors | Fee-Only Financial Planner for Doctors | Eugene, Oregon, www.physicianfamily.com/tax-strategies-for-doctors.
“Top 10 Tax Reform Changes for Hospitals and Health Systems.” Top 10 Tax Reform Changes for Hospitals, 14 Mar. 2018, www.mossadams.com/articles/2018/march/top-10-tax-reform-changes-for-hospitals.