On Dec. 20, 2017, the Senate voted 51-48 to approve sweeping tax reform legislation known as the Tax Cuts and Jobs Act. The $1.5 trillion tax bill, which makes deep and permanent cuts to corporate taxes and temporarily lowers individual taxes, is now headed to the President for his signature. Below is a summary of the bill’s provisions likely to have an impact on general dentists and their practices:
- Pass through companies: Under the final tax bill, the majority of pass through companies will get to deduct 20 percent of their income tax-free. Notably, however, this deduction phases out starting at $315,000 for married couples and $157,500 for single filers for service businesses such as law firms, doctor's offices (including dentist’s offices) and investment offices. These changes expire after 2025. (Refers to how individual owners of a business pay taxes on income derived from that business on their personal income tax returns. Pass through taxation applies to sole proprietorships, partnerships, and S-Corporations.)
- Student Loan Interest Deduction: The bill keeps in place the student loan interest tax deduction. This allows single filers with a modified adjusted gross income (MAGI) of up to $80,000 and joint filers with a MAGI of up to $160,000 to deduct up to $2,500 in student loan interest.
- Cash Method of Accounting: The bill would now allow corporations and partnerships with corporate partners with average gross receipts of as much as $25 million to use cash accounting, under which a business recognizes income and deducts expenses when cash is exchanged instead of having to accrue income and expenses. Cash accounting is already available to all sizes of sole proprietorships, partnerships without a corporate partner, and S corporations, including dentist offices, with average annual revenue of up to $5 million. Further, eligible businesses would now be able to use cash accounting even if they had inventories. Under current law, businesses with inventory must use the accrual method of accounting for tax purposes.
- Individual Mandate: The bill repeals the Affordable Care Act’s individual health insurance mandate. This means that beginning in 2019, Americans would no longer be required by law to buy health insurance (or pay a penalty if they don't). This could impact the number of individuals who currently have or planned on adding dental coverage to existing plans purchased through the exchange.
Impact on General Dentistry: Given that changes were made up until final passage of the bill, the AGD is still in the process of analyzing the tax legislation to best determine its impact on general dentists and their practices. The AGD will report on any relevant findings as needed.