Veterinary small business owners reap pass-through income tax deduction

The full deduction will be available as long as taxable income does not exceed $315,000 filing jointly or $157,500 filing individually

The American Veterinary Medical Association reported that veterinary small business owners will be able to take advantage of the new “pass-through” income tax deduction for the salaries they pay themselves.

The U.S. 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.

According to the IRS and treasury officials, 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 the stated 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 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 AVMA said it is reviewing the 200-page proposed rule and will provide comments advising the IRS and treasury 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. The AVMA said it encourages its members to read through the IRS’ Frequently Asked Questions about the rule and meet with personal accountants or tax professionals to discuss the rule and its effect.

 

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