How Is Tax Reform Affecting Dentists’ Tax Returns in 2019?

The Tax Cuts and Jobs Act of 2017 made sweeping changes to the federal tax code. Even though we’ve had a year to adjust, this filing season is the first time we’ve really started to see the results of changes that went into effect during 2018. There were a number of tax changes affecting dentists and their tax and financial planning for their families and more specifically, their practices.

Here’s a breakdown of those changes and how tax reform affects dentists this tax season.

First is the new 20 percent pass-thru income deduction. Since most dental practices are set up as some form of S-Corp, LLC or partnership, this is an important change that should be incorporated into 2018 tax preparation. There are some income limitations and other regulations to be aware of, as noted in this earlier blog post.

Other potentially money-saving strategies to consider if the dentist’s income is borderline too high to qualify, consider retirement plans, making larger deductions of cash or donations, taking first-year depreciation deductions and/or bonus depreciation, etc.

This new deduction could potentially also help associates save on taxes, too. They would need to be considered an independent contractor instead of an employee to take advantage of the pass-thru entity deduction. They could also set up a separate entity for themselves. But consult with a qualified dental CPA to ensure any creative tax-saving strategies are just that – creative, not illegal.

Another big change last year concerned the Meals & Entertainment deductions. The QuickBooks chart of accounts should have already been updated to reflect new categories. Read more about these changes here.

The other big change we saw was the repeal of the Domestic Production Activities Credit. Dentists who made their crowns, restorations, retainers and appliances on-site used to be able to claim the Section 199 manufacturing deduction. This change was unfortunate but hopefully the new pass-thru entity deduction makes up for the shortfall.

The tax law may have had some dentists questioning whether to reorganize their practice type as a different entity, especially since the corporate tax rate was lowered to 21 percent. Hopefully, most dentists also realized that keeping their business structure as-is was probably the best course of action.

As a dentist, are you confused about how last year’s changes are affecting your tax return? Contact the Dental CPAs team here for questions or call us at 410-453-5500 to schedule your appointment to prepare your 2018 personal or dental practice taxes.