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    What dentists need to know about new tax deductions

    Can you take advantage of the new 20 percent deductions?

    Because of changes in the new tax laws, many dental practice owners are in consultation with their financial advisors. They want to know which type of business entity will give them the most tax savings and deferrals on a current basis.

    Of all the new points to be concerned about, dental practice owners seem to be obsessed to find out if they have the ability to write off an additional 20 percent of their taxable income after all of their deductions before computing their income tax liability. As this is based on “pass through,” entities, many dental practitioners are checking to see if they qualify.

    If not, they want to know what to do to make sure that they are able to get this extra benefit. The concept is supposed to be available to small business owners, as most dentists are defined. There are quite a few obstacles for the dentist compared to a manufacturer, as an example.

    Let’s discuss some examples and see if the dentist may be able to secure this additional benefit for 2018.

    How do dentists make sure they are able to get the 20 percent additional deduction?

    As a surprise to many professionals, including dentists, the extra deduction that everyone has been happily speaking about may not be available to them based on their taxable income.

    Tax CutsThe actual designated name of the income used to be able to claim the 20 percent deduction is “qualified business income.” This type of income comes to the dentist if his or her practice is structured as a partnership, which may be a general partnership, an LLC, an LLP or a PLLP, S corporation or sole proprietorship.

    The type of tax return filed would be a 1065, 1120s or a schedule c, respectively. The 1120, commonly known as a c corporation, does not qualify as a “pass through” entity, so the 20 percent deduction is not available for that type of business structure.

    The deduction works by reducing the personal taxable income on the individual tax return. The taxpayer can itemize or take the standard deduction. Income amounts are important in order to qualify for the deduction for the dentist, as the taxable income after the itemized or standard deduction is taken determines qualification. Taxable income above certain amounts will disqualify the dentist from taking the deduction of the additional 20 percent on his or her personal tax return.

    Up next: Who qualifies?

    Bruce Bryen, CPA, CVA
    Bruce Bryen is a certified public accountant with over 40 years of experience and is a part of RKG Tax & Business Services LLP, an ...

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