This article is about how the new tax bill will impact anesthiologist business taxes. We also have an article on how the new tax bill will impact your personal taxes as an anesthesiologist.
Back in December, Congress approved the biggest tax overhaul in 31 years. Within a few days, we started getting tons of phone calls and emails from our clients about how these taxes were going to impact them personally, as well as how it was going to impact their business taxes.
We recently hosted a webinar to review everything that impacts anesthesiologists and to answer some of our customers most burning questions. You can jump right in and start watching the webinar recording (skip to 19:40 or Chapter 10 Qualified Business Income (QBI) Deduction), or keep reading to learn what changes have been implemented for business taxes.
One of the most important things to note about that new tax bill is that while the changes for personal taxes expire in 2025, most of the changes made in business tax filings are permanent (unless otherwise noted).
The tax changes for business are mostly permanent.
In addition, it is important to remember that although the new tax bill has been written and approved we don’t know exactly how the nuances will be interpreted.
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Good news for C Corps
One of the major themes of the entire tax bill was the desire to lower the US corporate income tax rate, which is one of the highest in the world. As a result, the corporate income tax rate has been reduced to 21% for all C corps.
The corporate tax rate has been reduced to 21%.
Filing as a Passthrough Entity
On the flipside, Congress understands that most of the business revenue and job generation in the US comes from Passthrough Business Entities (mostly closely held) so a 20% qualified business income (QBI) deduction was created to level the playing field between big corporations and the other businesses that generate income in the US.
How would YOU like a 20% deduction?
The 20% pass-through deduction for S corps and LLCs garnered a lot of headlines. However, the bad news is that most anesthesiologists won’t be able to take advantage of it. Seems unfair, but read on…
This portion of the tax bill is extremely complicated in its application. Here’s what is most important for you to understand:
- It’s a temporary provision: expires in 2025
- Limitations and requirements: Calculating what is actually deductible is extremely complicated based on taxable income, phase-out ranges, W-2 wages paid to employees, and productive assets used in the business that have not yet depreciated.
- Restricted to Qualified Business Income(QBI): Specific service businesses, or businesses where the “principal asset of such trade or business is the reputation or skill of one or more of its employees”, are excluded. This includes many healthcare businesses including anesthesiology.
- Low income threshold: In general, to qualify for the full deduction, your taxable income must be below $157,500 if you’re single or $315,000 if you’re married and file jointly. It phases out beyond this and the calculations become even more byzantine.
The bottom line is that it will be extremely difficult for anesthesiology businesses to qualify for this deduction. Although there are some ways around it, you must consider the liability and legal issues you could face in the future. Talk to your accountant about your specific situation but be aware that this is unlikely to be a huge benefit to many anesthiologists — even if you have a pass-though business entity like an LLC or S corp.
Other Business Expenditures
In addition to the QBI deduction, some other changes have been made that can impact business taxes. These include:
- Code 179 deduction: Allows business owners to expense equipment purchases and other expenditures that would normally need to be capitalized and take the deduction immediately so your taxable income more accurately reflects your actual cash flow. The phase-out of this deduction has increased from $1m to $2.5m.
- 100% expensing: Also known as “bonus depreciation” or “accelerated depreciation” which is available for assets placed in services after September 28, 2017, through 2021. Beginning in 2022, this expensing provision is reduced by 20% every two years until 2026 when it is completely repealed.
- Deductions eliminated: Various deductions have been eliminated for businesses including entertainment expenses, transportation fringe benefits for employees, moving expense reimbursements.
- Credit for paid family and medical leave (only applies in 2018 and 2019): Although some organizations have considered adding new policies to take advantage of this credit we don’t recommend it unless you plan on keeping those policies after the credit expiration. If you add these policies for just two years, you could be facing issues regarding various employment laws as well as potential discrimination suits.
Want some help?
Filing business taxes is always complicated but we are here to help you. We have over 40 years of experience working with anesthesiologists on their specific issues, including personal and business tax preparation and planning services as part of our complete anesthesia billing services. We want to assist you in ensuring that you can take advantage of all the deductions and credits that are offered to you. We also have some additional resources to help you out:
If you want to know how the new tax bill impacts your personal taxes read How the New Tax Bill Will Impact Anesthesiologists’ Personal Taxes.
For more details about all the tax changes, watch the tax webinar replay.
Or, if you have specific questions feel free to contact us directly.
We will continue to update this blog as new regulations are released that explain exactly how these new tax laws will be interpreted and enforced by the IRS. Once most of the regulations are released we will host a follow-up webinar covering everything you need to know that specifically impacts anesthesiologists.