In December, Congress approved and President Donald Trump signed the first significant update to the United States’ tax code in more than 30 years.
Some would say the changes were made hastily and under cover of darkness. But there is light within for most people, even if it shines brighter for some.
As the details get sorted out and the Internal Revenue Service (IRS) writes some rules, here is your guide to the Tax Cuts and Jobs Act of 2017, at least as it affects medicine, physicians, and your patients.
Let’s start with what won’t happen. A few weeks ago, the Texas Medical Association warned you about an automatic Medicare pay cut that would be needed to help pay for the tax cuts. Thanks to advocacy by seniors’ organizations and physician groups like TMA, Congress waived those automatic cuts via a separate piece of legislation that was passed and signed.
Here’s what you can expect to happen:
- The standard deduction has nearly doubled — from $12,700 for married couples in 2017 to $24,000 in 2018; and from $6,350 to $12,000 for single filers. However, the personal exemption is eliminated.
- Beginning in 2019, the tax penalties for not complying with individual mandate for health insurance will be repealed, though not the entire Affordable Care Act — also known as Obamacare. This is expected to cause insurance coverage rates to decrease and premiums to increase.
- The threshold for deducting unreimbursed medical expenses will fall to 7.5 percent for 2017 to 2019, but it will revert to the current 10-percent-of-adjusted-gross-income threshold in 2020.
- Some Schedule A expenses — such as personal property taxes, unreimbursed job expenses, miscellaneous expenses that exceed 2 percent of adjusted gross income, and moving expenses —no longer can be itemized after 2017, but for most taxpayers that is offset by the higher standard deduction. Note that real estate property taxes remain a deductible expense up to the IRS maximum.
- Tax brackets and lower tax rates established by this bill will expire in 2026, and current rates will return unless lawmakers change the tax code again in the future. Under the plan, households earning more than $308,000 will see the biggest cuts, and about 90 percent of middle-income households will see a tax cut.
- The alternative minimum tax threshold was increased, meaning that fewer people will have to pay the mandatory alternative to the standard income tax.
- Professional-services pass-through business owners — such as physicians with a sole proprietorship, S corporation, partnership, or limited liability corporation who have adjusted gross income less than $157,500 (or $315,000 if married filing joint) — may deduct 20-percent of their business income, other than their wages. The deduction phases out and is eliminated above those income amounts. Note that existing IRS rules apply in defining which employees must be paid wages. Plus, the new deduction is subject to multiple limitations and exceptions that will eventually be clarified by IRS rules, so consult your tax accountant for more information.
- The cost of capital expenses can be written off 100 percent in five years starting in 2018.
- The new corporate tax rate is a flat 21 percent, an improvement for all corporations earning more than $50,000 per year.
- Graduate students will keep tuition waivers, and student loan debt interest will remain deductible regardless of whether a taxpayer itemizes deductions.
- Federal and private student loan debt discharged due to death or disability will not be taxed from 2018 through 2025.
- Private activity bonds, frequently used to finance construction of hospitals, will remain tax exempt.
If you have more questions about how the tax code changes might affect you, your patients, or your practice, contact TMA’s knowledge center at (800) 880-7955 for fast answers, or email email@example.com.
Of course, for specific guidance about your practice or personal finances, we always recommend you contact your attorney, accountant, or financial planner.
Updated Jan. 19, 2018.
January 04, 2018