Key Updates and Tax Planning Opportunities with the Tax Cuts and Jobs Act of 2017 (TCJA)

Small Business Tax Reforms:

• C Corporation tax rate has been cut to 21% from 35%.
• Pass-through entities (S Corporations, Partnerships, LLCs, Sole Proprietors) may receive a 20% deduction of qualified business income:
  • Married Filing Jointly Phase-out Income Thresholds: $315,000-$415,000
  • Single Phase-out Income Thresholds: $157,500-$207,500
  • Subject to other limitations depending on whether the income is “specified service income”.
• Section 179 expensing of equipment purchases doubles to $1,000,000 annually with the phase-out rising to a $2.5 million cap.  

Individual Tax Reforms:

• New Tax Brackets:

• Personal exemptions are eliminated and the standard deduction increased to $24,000 for married filing jointly filers and $12,000 for single filers.
• State and Local Income and Property Tax Deductions are limited to $10,000 per year for married filing jointly and single filers.
• Charitable contributions deduction limits increase to 60% of Adjusted Gross Income.
• Up to $10,000 can be withdrawn from a 529 Plan Account for private or religious school K-12 tuition.
• The Child Tax Credit doubles to $2,000 per qualifying child with the income.  
  • Married Filing Jointly Phase-Out Income Thresholds: $400,000-$440,000
  • Single Phase-Out Income Thresholds: $200,000-$240,000
• A new $500 tax credit is available for dependents in college or elderly relatives.
• Children with unearned income exceeding the annual threshold is now taxed at the Estate and Trust tax rate.
• Estate and Gift Tax exemptions increased to $11.2 million per taxpayer or $22.4 million per married couple and the annual Gift Tax Exclusion increased to $15,000 (indexed with inflation).
• Alternative Minimum Tax exposure has the potential to be reduced.

Tax Planning Opportunities

Are you fully funding your 401(k) Plan to its 2018 Maximum Contribution of $55,000 plus a $6,000 catch up for dentists 50 years or older?

• At the top tax bracket of 37%, a 50 year old dentist fully funding a 401(k) Plan could yield $22,570 in federal income tax savings.

If you have fully funded your 401(k) Plan, would you like additional tax-deferred savings?

• Adding a Cash Balance Plan paired with your 401(k) Plan may enhance your ability to save for retirement and greatly lower your Federal Income Taxes.

Are you fully funding your Health Savings Account (HSA) to its 2018 Maximum Contribution of $3,450 for single and $6,900 for families plus a $1,000 catch up for dentists 50 years or older?

• Health Savings Accounts offer an upfront Federal Income Tax deduction today and allows for tax-free growth as well as tax-free distributions for qualified medical expenses.

Has your family’s income been too high to claim the Child Tax Credit in past tax years?

• A Married Couple can now have a taxable income of up to $400,000 before the $2,000 per child expanded tax credit begins to phase out.  

Have you been making annual Roth IRA contributions?

• Everyone is now eligible to contribute to a Roth IRA regardless of income. Please speak with us for further details.

Are you thinking about expanding, upgrading, or enhancing your practice?

• The increased annual $1,000,000 Section 179 Deduction Limit, allows you to immediately expense business purchases such as a new CEREC, Cone Beam, Digital X-Rays or upgrading your operatories can all help reduce your Federal Income Taxes.  

Please reach out to us to discuss these tax planning tips and other strategies we implement to minimize your tax exposure. 

The information contained herein is for informational purposes only and does not constitute legal or tax advice. Contact a tax or legal professional prior to taking any action based upon this information.