The Tax Crystal Ball

Natalie Schmook

July 26, 2020

With everything going on in the world, sometimes I forget that we’re in an election year. An election year with so many issues going on, the Bush/Gore recount looks like a minor snafoo. And an election year where is seems possible we may see a very leftward tilting government in the presidency and in congress with tax reform being one of the top priorities of those candidates.

This is NOT a political post— my family will tell you that one thing I learned well from growing up in the South is how to quickly change the topic of conversation when emotionally charged issues come up in conversation. But election years are one of the few times where we have a small crystal ball into what the following four years might hold, and should be considered with tax planning.

The Biden Tax Plan

The Biden tax plan doesn’t send us into socialistic territory, but it is noteworthy, especially for high income earners. The major proposals are as follows:

Who will this affect?

Doctors earning over $400,000 in wages, you’re looking at an extra 12.4% tax on earnings. Most doctors I work with (in S-Corps) are well under that limit on their W2 wages, but not all
S-Corp and Partnership owners with over $400,000 in net income will start losing out on the deductions they are able to take (thereby increasing taxable income)
Practices that sell with over $1 million of the sale accounted to long term capital gains are pushed into the top ordinary income bracket

Planning for Tax Reform:

If any of these reforms impact you, start talking with your CPA or Advisor about any potential changes you may want to make in December. Some ideas are:

Incur any substantial long-term capital gains in 2020
Push to close practice sales (with capital gains over $1mm) in 2020 rather than waiting until 2021
With everything going on, this is a reasonable year for practice owners to reduce their payroll income to under $400,000

Bonus Segment: Estimated Taxes and PPP

Last week, I received a question from a doctor about how to handle PPP and estimated taxes. My friend JR Armstrong at May and Co is my go-to CPA for optometric tax questions, and he shared the following: The issue of whether payroll and other expenses covered by PPP is deductible is still unclear. The CAREs Act writers have stated that it was their intent for these expenses to still be deductible, but the IRS isn’t a big fan of that path. He is advising his clients to pay estimated taxes as if the expenses are not deductible to be on the safe side.

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