EDITOR’ S CORNER
EDITOR’ S CORNER
By Sonia Molina, DMD
Tax season is here, and you may be wondering how the Tax Cuts and Jobs Act of 2017 might change the way you run your dental practice. You’ re not alone! Rest assured that informed and sympathetic tax professionals can help you answer all your questions. Two features of the revised code for which you might want to consult a tax professional are the raised income limits on pass-through taxable income and the cash accounting method. Whatever your practice’ s financial circumstances, you should be aware of how these changes might affect your practice.
Pass-Through Taxable Income- Small business owners can deduct 20 % of the net income they earn on their personal income taxes. This deduction has limitations on total taxable income earned: single filers are capped at $ 157,000 in annual gross income( AGI), and joint filers are capped at $ 315,000. For service professionals( which includes health services) whose earnings exceed this income threshold, deductions phase out( gradual reduction of a tax credit to a taxpayer). Small businesses( S-corporations) can take advantage of this deduction, not professional corporations or LLCs that register as C-corporations.
Cash Accounting Method- Compared to the accrual method, cash accounting is simpler for most small businesses. Cash accounting allows bookkeepers to record income as it is received and expenses as they are paid. Under the old tax code, only businesses that earned less than $ 5 million over the preceding three years could use the cash accounting method; the revised code raises the threshold to $ 25 million over three years.
As the first major overhaul of the tax code in 35 years, the“ Republican Tax Plan” has inspired mixed reactions for its unprecedented cut in the corporate tax rate( 35 % to 21 %). The President signed the bill into law on December 22, 2017, and the law’ s changes have been in effect since January 1, 2018. However, individual provisions will last until the end of 2025, while corporate provisions do not have an expiration date.
Many professionals have written on the positives and negatives of the revised
code, and how the changes might affect individual returns and the economy as a whole. However, no one can be absolutely certain of what these changes will yield. Tax attorneys and other accounting professionals will be responsible for interpreting and reinterpreting the code over the next eight years. The best we can do as dental professionals is educate ourselves and prepare for the future as we would for any other financial uncertainty.
Do remember that this editorial is neither legal nor accounting advice. If you have specific questions about how the law might affect your practice, contact a trustworthy tax professional who has your best interest in mind.
I wish you abundance and ease in the financial decisions ahead of you. Remember that LADS is here to help you. Never hesitate to reach out to LADS for information for your professional needs. �
Los Angeles Dental Society Explorer