The bill, which passed Congress on Wednesday, December 20, 2017, sharply reduces the personal income tax rate for owners of pass-through entities, such as partnerships and sole proprietorships. A smaller tax break is given to owners of Subchapter S corporations, which is how most independent physician practices are organized.
Under the Tax Cuts and Jobs Act, owners of pass-through entities like those noted above, will receive a 20% deduction on their taxable income, dropping their maximum effective tax rate from the current 39.6% to about 29.6%.
Healthcare professionals and other skilled service providers will only qualify for the new break if they earn no more than $415,000 a year for a married couple filing jointly, or $207,500 for a single filer.
This will help some physicians, but it won’t be of significance to the two-physician family or to specialists whose incomes will be above that threshold.
There is no income limit on the tax break for other types of owners of pass-through entities who fall outside the bill’s definition of specified service trades or businesses, which includes medical providers. For instance, very high-income real estate developers in pass-through entities will receive the 20% deduction while very high-income physicians and other healthcare professionals will not.
However, high-income physicians and other service providers still may find ways to qualify for the lower pass-through rate by restructuring their business.
For instance, they could convert their office building into a real estate investment trust and charge themselves higher rent, effectively reducing their income. Also, hospital systems will most likely start restructuring their arrangements with employed physicians and other healthcare professionals to enable those professionals to take advantage of the lower pass-through tax rate.
Are you concerned about the economic effects and uncertainties of the New Tax Cuts and Jobs Act on your practice or individual income? If yes, you will probably leave money on the table and will not receive the well-deserved economic benefit for all your hard work.
HybridChart’s low-cost real time work flow and charge capture solution can add time to your day by increasing your efficiency and adding more cash to your bottom line. HybridChart’s cloud-based software will improve your profitability and patient outcomes based on your unique workflow, including census management, charge capture, secure messaging and discharge management. All of this can be directly managed from your smart phone or tablet.
Make it a New Year’s resolution. Start taking increased control of your profitability by decreasing any negative influences from the New Tax Act and collecting more of your hard earned money!
We are happy to help. Please call, email, or watch the online-demo today!
Dr. Gregory Sanders is a Harvard-trained, practicing cardiologist and founder and CEO of HybridChart. He has been coding since the 1980s and has spent his medical career focusing on improving processes. His patient care skills earned him recognition as one of Phoenix Magazine’s TOP DOCs. He lives in Scottsdale with his family.