“This exclusion, in my opinion, shows the lack of understanding by lawmakers about the realities of running an otolaryngology clinic in 2018,” he added, citing the many overhead expenses that medical practice owners have, including expensive equipment, rising staff health insurance, and digital health costs. “This deduction would have provided much-needed resources to cover some of these rising costs.
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April 2018The increasing complexities in medical practice administration are very much larger obstacles for small practices. The new tax bill will help some of these practices, but to suggest that it will create a paradigm shift for these physicians is an overstatement. —Eugene Brown, MD
In addition, some of the deductions that privately owned businesses could previously deduct have been restricted or the amounts of allowed deductions reduced under the new law, said Nadim Bikhazi, MD, an otolaryngologist at the Ogden Clinic in Utah. “From my understanding, the new tax law did not favor professionals but rather favored other types of services such as architects,” he said. Otolaryngologists in an S-Corp [or other pass through entity] have been hurt to some extent by some of the restrictions because of the changes in these deductions, he added.
One area of ambiguity is how ancillary sources of revenue that generate passive income for otolaryngology practices will be considered under the law. According to Dr. Bikhazi, practitioners who rely on passive income sources, such as those arising from CT scans or surgical centers, are looking for other ways to maximize tax deductions from these sources of revenue because they will be more restricted under the new law.
Calling this a gray area, Dr. Gisel said it is uncertain whether these types of revenue streams will be eligible for the 20% deduction under the new law. “For example, if an otolaryngologist also owns the real estate in which the practice lives, these real estate assets are often held in a separate company. It is currently unclear if income from these ancillary companies [is] eligible for the 20% deduction,” he said.
“It is important to consult with your tax accountant in such cases, because guidance on such companies should be forthcoming over the next few months regarding how to address such circumstances,” he said.
C-Corporations
The largest tax advantage for otolaryngology practices will be for those in a C-corporation (large practice or multispecialty group), given the proposed corporate tax cut from 35% to 20% on these entities. Some speculate that this substantial reduction for C-corporations may incentivize the creation of personal service corporations (PSCs), which were popular years ago. “If C-corporations for professionals are allowed to qualify for this lower rate, and/or the committee reduces or eliminates double taxation of corporate earnings, we’ll see PSCs come back into vogue,” said Johanna Fox Turner, CPA, CFP, RLP, of Fox Wealth Management, in a Medscape interview.
Rural Practices
Eugene Brown, MD, RPh, an otolaryngologist at Charleston ENT & Allergy in South Carolina, said the tax benefits under the new bill may have some benefit for small, rural otolaryngology practices, but he emphasized that the benefits are not robust enough to help these practices handle the challenges they face.