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