By Scott Colonna, OD,
and Rachel Siegel, CPA
Feb. 28, 2018
The changes to federal tax law this year present both opportunities and areas of potential concerns for practice owners. Here are key points to be aware of to make the most of the new law, while guarding against potential downsides.
Don’t Do Anything Just Yet
As business owners, the change in the corporate tax rates, and the pass-through deduction of your first 20 percent off income, is tax free. This is only if your taxable income is under $315,000 for married couples filing jointly, and $157,500 for single filers.
There are still some details about the new law that have not come out, and Congress has up to one year to give us guidance on them. So, analysis of what needs to be done should be tempered with a wait-and-see approach. For instance, a change in corporate structure from a C- to an S-corp may be beneficial for some practice owners, but it’s best to wait until more is known about the tax plan before filing for that change.
Work Out a Plan with Your Accountant
Every practice owner needs to speak to their CPA and have the accountant run an analysis utilizing the practice’s year-end numbers from 2017. The analysis needs to include possible changes in W-2 salary, increased payroll taxes, and the eventual taxation of any dividends taken out of the corporation if the entity was changed to a C-corporation from pass-through entity.
The practice owner and accountant will need to look at the big picture and all taxation involved, not just the one rate they have been paying for years, or what they think they will be paying under the new tax plan.
Along with that, practice owners need to take into consideration the tax law changes that may affect them as individuals rather than just practice owners, which may be significant. For example, the amount of retirement monies that can be contributed to their personal accounts may be impacted by the new law. In addition to discussing with your accountant how the new law may impact your practices’ finances, you need to talk separately about your personal investments and retirement savings.
May Be Time to Purchase Practice Equipment
Practice equipment investments can be expensed immediately now as opposed to gradual deductions over time. This change was made retroactive, and can be applied to purchases made after September 27, 2017, so some owners may be able to optimize this benefit. However, if the practice was already profitable, and the CPA took the Section 179 depreciation on the new equipment purchased in the past, the owners will not feel a difference.
EDITOR’S NOTE: Tax analysts point to advantages to purchasing used equipment under the new tax law. The purchase of used equipment that already has been written off can immediately be claimed as a 100 percent deduction, they underscore.
Changes to Employee Deductions
The new tax laws eliminated miscellaneous deductions, so employees can no longer deduct un-reimbursed employee expenses. Some employers, including practice owners, are making sure they get receipts for any other business expenses and reimbursing the employees for those also.
We are not seeing companies, including healthcare practices, giving bonuses due to the potential tax savings. However, we are seeing employers putting in place benefit programs to allow their employees to get better benefits while also allowing the owners to profit as well.
With so much in the news about some companies giving employees bonuses due to savings from the new tax plan, you may find yourself fielding questions from employees who expect a similar bonus from you. Be ready to explain either that you’re not sure yet how the new tax structure will impact your practice, or that the savings won’t be significant enough for you to reward additional bonuses. Or, of course, you can pass on the good news that they, too, will be receiving a bonus.
Whatever you do, give yourself enough time to ensure it makes sense specifically for your practice. As we mentioned, all of the details about the new tax plan have not been revealed yet, so what seems like a good move now may look very different in a few months.
Rachel Siegel, CPA, is the owner of Go Figure Accounting.