2018 Tax Reform
Implications & Implementation for Healthcare The Tax Cuts and Jobs Act (TCJA) passed last December includes a broad range of tax changes impacting both individuals and business entities. In this article, we will address some of the changes that directly impact healthcare companies and physician practices. One of the most complex and confusing changes By LUCY CARTER, in the new tax law CPA is the individual deduction related to pass-through income (Section 199A deduction). We will address the implication of this change and its impact on healthcare companies in a subsequent article in the Janu- & MARK ary 2019 issue of PATTERSON, CPA Nashville Medical News.
A key component of the Accountable Care Act (ACA) was the individual mandate to acquire and/or provide health insurance coverage. TCJA effectively eliminates the mandate through elimination of the individual responsibility payment effective Jan. 1, 2019. The goal of the mandate was to provide an offset to the unfavorable economics of expanded higher cost healthcare by requiring and bringing in a younger, healthier population to health plans. The downside of this change is an anticipated 13 million fewer Americans being insured by 2027 (CBO projections). The projected reduction is due to anticipated higher premiums (10 percent above what was projected prior to the new tax law) and the non-acquisition of health insurance by the young and healthy. On the plus side, the CBO projects $340 billion dollars in savings over 10 years through the repeal of subsidies. The bottom line for practices is that self-pay and patient-responsible balances are likely to increase. Maintaining cash flow will require establishing consistent processes and monitoring collection of these balances.
Corporate Tax Rate & Alternative Minimum Tax (AMT)
The corporate tax rate for C-Corpo-
rations is reduced to 21 percent for years beginning after Dec. 31, 2017 (previously a flat rate of 35 percent for personal service corporations). The rate reduction has caused some entities to question whether they should convert their pass-through entities to a C-Corporation to take advantage of the low rate. Keep in mind that to take advantage of the lower corporate rate, the corporation must retain taxable income, which may not meet the goals of a practice or healthcare entity. For C-Corporations, the 21 percent rate will be beneficial to cushion the tax implications of debt repayment and nondeductible expenses.
The TCJA contains several new provisions that benefit the deduction of capital assets. 100 percent expensing (bonus) for certain business assets, which was effective Sept. 27, 2017. Used property qualifies under TCJA (under the old rules, only new property qualified for bonus depreciation). This change phases out between 2023 and 2026 with a 20 percent decrease annually. The downside for Tennessee taxpayers is that bonus depreciation is not recognized at the state level. Section 179 expensing of capital assets
has been increased from $510,000 to $1 million. Likewise, the threshold for phase out has been increased from $2 million to $2.5 million. Depreciation for luxury autos (i.e. passenger auto) has been increased for automobiles placed in service after Dec. 31, 2017. For example, first-year depreciation under prior law was capped at $3,160. The deduction under TCJA is capped at $10,000 ($18,000 if bonus depreciation is claimed). Qualified improvement property (QIP) is defined as an interior improvement to an existing non-residential building (exceptions are elevators, enlargement, and structural changes). QIP will qualify for Section 179 expense, and should qualify for 15-year depreciation and bonus depreciation (technical correction pending).
Business Interest Limitation
Under prior law, interest expense has generally been allowed as a deduction in the year in which it was paid or accrued. TCJA limits the deduction for interest expense on business returns to interest income plus 30 percent of: Net taxable income + Depreciation and amortization + Interest expense If your annual gross receipts are below $25 million, you will be exempt from this (CONTINUED ON PAGE 14)
Nashville Medical News November 2018