Starting the evaluative process now will position physicians and other medical professionals to be well-prepared by early fall of 2025, enabling them to make informed investment decisions and changes to plan for the upcoming tax season, whether they are early-career physicians, tenured medical professionals with robust portfolios or independent contractors.
Key provisions in the new budget include:
Compensation and the SALT Cap Limit
One of the key changes in the budget bill governs itemized deductions for state and local taxes (called the SALT cap limit), including mortgages, charitable contributions and the like. The SALT deduction cap increases from $10,000 to $40,000 for most taxpayers beginning in 2025. However, this higher cap begins to phase out when modified adjusted gross income exceeds $500,000 without dropping below the original $10,000 limit. The income threshold will increase by 1% annually through 2029 and revert to $10,000 in 2030. Of note to independent contractor physicians who may have a limited liability corporation (LLC) as a pass-through business entity for taxes (PTET): the new bill restricts some services or businesses – including most physician practices – from the PTET SALT deduction at the entity level, so independent contractor physicians operating as PTETs might not benefit as much as other business owners from the expanded allowance. Some physician practices, in fact, might face higher federal taxable income, especially those in states with already high tax rates. On individual tax returns, physicians can claim a higher SALT deduction, but it is subject to a phased reduction for high earners.
Qualified Business Income (QBI) Deductions
“The fact that the 20% QBI deduction is now a permanent part of the tax code for non-corporate taxpayers is a really big deal,” Pendleton notes. “It increases the deductions that physicians can take on their taxes.” While health professionals still fall into a business class that faces income-based phase-out of the QBI deduction, they will benefit from higher income thresholds for the phase-out component of the bill. Likewise, the higher phase-out levels mean that even lower-income or part-time physicians can benefit from the new minimum deduction levels, he notes. Deductions might include costs related to the purchase of cars/trucks, or bonus depreciation allowances on income from other financial ventures.
New Investment Accounts for Children Born 2025-2028
Children born between 2025-2028 will be seeded with $1,000 government contributions to which parents, relatives and businesses can contribute up to $5,000 a year in after-tax dollars, with employer/physician practices able to contribute up to $2,500 of the annual limit tax-free. The stock index-based accounts support long-term, tax-deferred growth for education, home ownership or entrepreneurial endeavors, and can be offered as an employee benefit.
Purchase Decisions
What major life purchases are you considering, and what will the tax consequences be? “If you have looming big-ticket items or other critical financial decisions, think about when you want to pull the trigger. Get some clarity and make an informed plan about your financial strategy,” Pendleton explains. “Financial planning is different for recent medical school graduates than it is for established, career physicians who have been building robust portfolios over the years. If you set up your financial plan when you were 35 but haven’t looked at it for 15 years, it’s time to re-check and maybe re-set your investment plan and the next phase of your strategy in accordance with the new tax bill’s provisions and timetables.”
Pendleton offers this bottom-line advice for physicians and other healthcare professionals:
Evaluate your business structure to maximize the new SALT deduction guidelines and QBI benefits
Monitor your income thresholds around key factors, including if your income fluctuates throughout the year and around phase-out levels for both SALT and QBI deductions
Considering leveraging a government-funded child investment account for long-term family investment planning or if offered as an employee benefit
