The new tax bill passed at the end of 2017 certainly has ramifications for most, but the question most people are asking is how the new tax law affects them personally. Unfortunately, there is no simple global answer that fits everyone. The bill1 is lengthy and complicated despite a goal of the legislation being to “simplify” things. The standard deduction doubled (changing from $6,500 to $12,000 for single filers, or from $13,000 to $24,000 if married filing joint), but also eliminated personal exemptions and placed caps on other deductions, such as mortgage interest, state and local taxes, and property taxes. The complexity of the changes is leading many to seek guidance from tax professionals and Financial Advisors. Ironically, one of the deductions eliminated was the one in place for tax preparation services. Although there is too much contained in the bill to cover in a single article, here are some of the top issues that each of you should be looking into:
Residents & Early Career Physicians
- Student loan interest of up to $2,500 per year can still be deducted. With student debt becoming more and more of an issue, especially for physicians, this is important. The problem is that it’s most likely only useful to residents or early career physicians since the deduction completely phases out for a single individual with modified adjusted gross income over $80,000, or a couple at $165,000.
- Moving expense deductions have been eliminated, so for physicians who are looking to relocate, or for residents who are moving to their first job post-residency, it will be critical to negotiate moving costs into contracts.
- For those who have children or plan to start a family, Congress did make it a little more attractive by increasing the child tax credit from $1,000 to $2,000. Thresholds have been increased to $200,000 for singles and $400,000 if married filing joint.
- If your business structure provides you with pass-through income (i.e., sole proprietorships, partnerships, limited liability companies, and S corporations), you can now claim a 20% deduction for the first $315,000 of pass-through income if married filing jointly. Percentage limitations may apply in some circumstances.
- The new tax brackets lowered the effective tax rates for most taxpayers, but not for all. For example, tax rates go up slightly if you are in the $200,000-400,000 income range and single; there are additional anomalies for other income ranges and filing status.
- There has been a reduction in the corporate tax rate to 21%. Since this only applies to businesses which are organized as C Corporations, the benefit may not apply to many physicians yet.
- I’ll reiterate the importance of the pass-through deduction. The phase outs reduce the advantage for some, but it revolves around taxable For business owners this can be significantly lowered through business expenses, charitable contributions, and the usage of qualified plans.
These are a few items to review with your advisors to see how they may impact you and what action steps you should take to minimize taxes going forward. Please consult your tax advisor for professional tax advice. As Jill Schlesinger, CFP®, summarized the new tax bill in her blog article (https://www.jillonmoney.com/blog/2017/12/31/whats-in-the-final-gop-tax-bill ) “How the 2018 tax legislation impacts your bottom line depends on how much you earn, how you earn it, where you live and the size of your family.”
As good practice, it is always wise to review your business structure, qualified plans, and tax strategies on an annual basis, but especially when such sweeping tax changes are enacted. If you’d like to review ways to act on the new bill, or any other financial issues, please visit our website at www.capanjax.com to schedule a free consultation with one of our Financial Advisors, or call us at 904-730-7433.
Disclaimer: This content was developed from sources believed to be providing accurate information. The information in this material is not intended to provide legal or tax advice. You should consult your legal or tax advisor for information concerning your individual situation.