TCJA - What I got from the webinar

[jfoxcpacfp]

I promised in another thread (that I cannot find) that I would get back to the forum with information gleaned from the first webinar I have seen on the Tax Cuts and Jobs Act (TCJA). I have since watched the same webinar THREE times (sometimes, I am a little slow, I guess). The one thread running through it was that we really don't know how a lot of this plays out. However, I did get a lot of ideas about many of the various provisions of TCJA and I've typed them up. It has turned into almost 2,000 words, so I'm going to use it for our newsletter article that comes out mid-month.

However, I had promised to get back to you guys here (including Dr. Mom and I would never, ever dare to let Dr. Mom down) so I've decided to go ahead and post the article (really just a list) for everyone. Those of you who will get the newsletter later will just have to deal with it in an adult way :cry:

Hopefully, there will be something in this that will enlighten or help some of you. And if you ask me questions about anything beyond typos, I probably won't be able to help yet. This provider has announced it is in the process of putting together another 4-hour webinar strictly focused on the pass-through provisions so I will learn more soon.

[Hatton]

I t is still confusing.  I think the fact it is based on total taxable income will likely knock me out.  Income can vary however.  I guess we will all wait and see.

[Dr. Mom]

Thanks Johanna! ❤️??

[G]

To state the obvious: tax professionals are not going out of business and I'm not submitting my tax return on a postcard.

[pulmdoc]

I am glad to see that you agree that eligibility for the 199A deduction is entity-specific, I.e. a surgeon making $600k with a restaurant-owning spouse can take the deduction on the restaurant business (subject to W2 limitation) even though total taxable income >$415k.  This is consistent with my interpretation as well, although the wording of the law did not make this very obvious.  It also means that there is a truck-sized loophole in the law in that medical practices benefit from spinning off physical assets (land, buildings, CT scanners etc) into a separate entity if taxable income >$415k, then paying rent to the building company so those profits qualify for the deduction.

[Slav4ikMD]

Do you guys know how this would impact those of us who are both employed and self-employed? Does “entity” mean a person or source of income? Say you have a physician who generates 200k as W2 income and 315k as self-employed. I assume such a person is out of luck, correct? Or is the self employed income viewed as a separate entity here?

Of say one has a W2 for 100k and 1099 for 215k - the 20% deduction would only be for the 1099 part - am I understanding this correctly?

Thanks!

[jfoxcpacfp]

Slav4ikMD wrote:

Do you guys know how this would impact those of us who are both employed and self-employed? Does “entity” mean a person or source of income? Say you have a physician who generates 200k as W2 income and 315k as self-employed. I assume such a person is out of luck, correct? Or is the self employed income viewed as a separate entity here?

Click to expand...

Entity is a business, including a sole proprietorship. The pass-through entity would qualify for the deduction, but it is applied at the individual level based upon taxable income. So you may have a deduction available due to having a pass-through entity but lose it at the taxpayer level because of the taxable income limitation for certain professionals. That is the result in the your example above.

Slav4ikMD wrote:

Of say one has a W2 for 100k and 1099 for 215k – the 20% deduction would only be for the 1099 part – am I understanding this correctly?

Click to expand...

Correct.

[Slav4ikMD]

Thanks Johanna!

Do you have any reference that explains on how the phase out works?  As I understand it, if someone has a gross of 315k, one can potentially save 315k x 20% x .24 tax bracket, so 15k and change.  Now say one earns just under the 415k threshold, what would that math look like?

(As you can probably tell I am trying to plan ahead for this coming year and figure out whether making any adjustments in what I do can save me some or just isn't worth sweating it at all.)

[pulmdoc]

There are two separate income limitations, both at the same income level. The first is the phaseout on "specified service income" in which there is a 1%/1k reduction in the deduction up to $415k MFJ at which there is 100% reduction (ie no deduction left). So if you have taxable income >$415k and your only business is medicine (even if you have multiple jobs in medicine) you are out of luck. The second phase-in is that your deduction is the smaller of 20% of QBI or 50% of W2 wages paid (or 25% W2 wages paid +2.5% of cost of depreciable assets, if that is bigger). This phases in over the same $315k->415k range at a 1%/1k rate.

If you are in the phaseout range, you need to calculate BOTH limitations to figure out your deduction, then multiply the deduction by marginal tax rate to figure out tax savings. For example, a physician who is an S corp has W2 wages of $125k and total taxable income of $375k. The total potential deduction is (375k-125k x0.2)=50k. The "specified services" phaseout is (375-315)=60%, so allowable deduction is now (0.4 x 50k)=20k. The W2 limitation is (0.5 x 125k)=62.5k. You get the smaller of 20k or 62.5k, so deduction=20k. Marginal tax rate at that level is 32%, so tax savings= (20k x0.32) $6400.