Under the Tax Cuts & Jobs Act (TCJA) of 2017, the deduction for State and Local Taxes (SALT) on your federal tax return is limited to $10,000 starting in 2018. If you are making a mad dash to your local tax collector’s office you might want to re-think your plan. Dentists attempting to pre-pay their state income or property taxes may find themselves dealing with long lines or heavy website traffic similar to that experienced during their last-minute Christmas shopping.
Alternative Minimum Tax (AMT) – Or, pouring SALT into a wound.
Before rushing to pre-pay your SALT taxes check with your friendly Dental CPA to find out if you are in the AMT. If you are, the deduction for those taxes on your federal tax return is lost. While the regular tax system allows for the deductions and lowers your regular income tax, AMT is triggered by SALT taxes. So, for every dollar your regular income tax goes down, your Alternative Minimum Tax goes up. You lose the deductions. It’s like pouring SALT into a wound. Very painful. If you are not in the AMT, pre-paying SALT’s by December 31st will help lower your 2017 tax bill. But beware! A deduction for any pre-paid tax will be disallowed if that tax has not already been assessed. In other words, don’t guess at and try to pre-pay any 2018 taxes.
For most doctors, the new tax law should provide some relief in spite of the fact that the deduction for SALT tax is limited to $10,000. The tax brackets are all ratcheted down and the threshold for AMT is higher meaning fewer people will find themselves subject to it.
There will be much more coming out in the coming weeks as Dental CPA’s take advantage of time in January (our eye of the storm) to study the new tax law and attend continuing education classes. Yikes! I better register before they are all filled up with all those pesky Non-Dental CPA’s!