OCT 2018

MedEsthetics—business education for medical practitioners—provides the latest noninvasive cosmetic procedures, treatment trends, product and equipment reviews, legal issues and medical aesthetics industry news.

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© GETTY IMAGES END-OF-YEAR TAX PLANNING 46 OCTOBER 2018 | MedEsthetics THE PASS-THROUGH CONUNDRUM The federal tax rate for incorporated practices is now 21 percent. But if you are the owner of a "pass-through" busi- ness, such as an "S" Corporation, sole proprietorship or partnership, you may end up paying a higher rate when you claim the income on your individual tax return. To help even the playing fi eld, the TCJA created a 20 percent deduction for qualifi ed business income earned from pass-through businesses. If your taxable income exceeds $315,000 for a married couple fi ling a joint return or $157,500 for individu- als, the deduction is subject to limitations based on the type of business, the taxpayer's taxable income and the amount of W-2 wages paid by the business or practice. Owners of pass-through businesses also need to pay close attention to changes in the personal income tax rules, including the removal of the personal exemption as well as deductions for state and local income tax, and the increased standard deduction. PLANNING RULES As the end of the tax year approaches, there are some general rules that can guide practices to real tax savings year after year. They include: 1. Don't spend money simply to reduce that tax bill. With tax credits and deductions, $1 spent does not equate to $1 saved. Also keep in mind that if accelerated deductions result in a net operating loss (NOL), it can only be used to offset tax bills down the road. As mentioned above, there is no longer an NOL carryback. 2. Know thy accounting method. Most year-end tax strategies work best for cash-basis taxpayers vs. accrual-basis businesses. An accrual-basis practice reports all income in the year it is earned and all expenses in the year incurred; a cash-basis practice records income as it is received and expenses as they are paid. So if you are an accrual-basis business paying for a 2019 expense in 2018, you are not entitled to a deduction on the 2018 tax return. 3. Perform a "pro forma" analysis before making any changes or large expenditures. Use estimated income and expense fi gures to forecast the practice's tax liabilities for 2018 with the new rules, deductions and credits. Otherwise, the true impact of "reform" will not be known until the tax return is prepared—when it may be too late to make any moves to reduce your tax burden. 4. Re-examine your business entity. Based on the new rules, practices may be able to achieve signifi cant tax savings by changing the entity used to fi le its tax re- turns from a "C" Corporation to a pass-through entity or vice versa. This process does take time, so now is the time to run the numbers. Above all, if your tax professionals are not already involved in your year-end tax planning process, now is the right time to enlist their aid. Mark E. Battersby is a freelance writer who specializes in tax and fi nance topics. If your tax professionals are not already involved in your year-end tax planning process, now is the right time to enlist their aid.

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