Veterinary small business owners will be able to take advantage of the new “pass-through” income tax deduction, U.S. Treasury Department officials have told the AVMA.
The Treasury Department and Internal Revenue Service (IRS) last week released proposed regulations detailing how they plan to apply the deduction, which is available to sole proprietorships, partnerships, trusts and S-corporations under Section 199A of the tax code. The deduction was part of the Tax Cuts and Jobs Act, which was signed by the president in December and takes effect for the current 2018 tax year.
During a call announcing the regulations, IRS and Treasury officials confirmed that the full pass-through deduction will be available to owners of all small businesses, including veterinary practices, as long as their taxable income does not exceed $315,000 if filing jointly or $157,500 if filing individually.
Beyond those income thresholds, the regulations would limit the deduction for the owners of certain types of businesses, including veterinarians and other business owners in the “field of health.” The limited deduction would apply to veterinary business owners with taxable income between $315,000 and $415,000 if filing jointly, and $157,500 and $207,500 if filing individually, and would be calculated based on a formula provided with the proposed regulations. No pass-through deduction would be available for veterinary business owners with taxable income over $415,000 if filing jointly and $207,500 if filing individually. This limitation is not just for veterinary business owners, but applies to other business owners called out in the rule, such as physicians and others in the field of health, lawyers, consultants, and accountants.
The proposed rule is nearly 200 pages and very complex. AVMA is reviewing it in detail and will provide comments advising the IRS and Treasury Department how it could be improved to better meet the needs of veterinarians. A public commenting period on the rule is expected to begin later this week and run for 45 days.
Meanwhile, the proposed regulation provides important details that veterinary business owners can use to begin determining how the deduction is likely to affect you individually. We encourage you to read through the IRS’ Frequently Asked Questions about the rule and meet with your own accountant or tax professional to discuss the rule and its effect on you.
Correction, August 29, 2018: This post originally stated that veterinarians could take advantage of a new income tax deduction for the salaries they pay themselves. That statement was inaccurate and has been corrected. We regret any confusion caused by this error.