The Elephant in the Room

The expiration (sunset) of several provisions of the Tax Cuts and Jobs Act (TJCA) in less than 18 months will dramatically increase tax liability for most dentist making over $150,000. Some of the provisions set to expire:

The current tax rates will return to the 2017 rates and adjust for inflation.
Repeal of $10,000 state and local tax (SALT) deduction limit
Return on the Alternative Minimum Tax (AMT) for high-earners
Elimination of Code Sec 199A that rewarded non-corporate taxpayers with a 20% business deduction

Congress has attempted to extend some of these provisions over the last few years but gridlock has prevented any attempts. We will have a much better idea of the likelihood of extensions in December after the November elections.

THE RATES

While it may feel like you have been paying lots of tax over the last few years, the rates have been some of the lowest in history. Tax rates are like buckets with your first bucket taxes at the low 10% rate. Each subsequent bucket is taxed at an increasingly higher rate until it is full and you move to the next bucket. In the chart below, you can visually see where some of the tax increase will come from. Comparing 2025 to 2026:

The 12% bracket becomes the 15% bracket
The 22% bracket becomes the 25% bracket
The 24% bracket becomes the 28% bracket
The 32% bracket becomes the 33% bracket AND starts at a much lower income level
The top bracket goes from 37% to 39.6% AND starts in middle of the current 35% bracket

For a young married dentist with around $400,000 in income, the change in brackets would result in over $12,000 in additional Federal tax due.

For a successful dentist in his 50s with $950,000 in income, the change in brackets would result in over $35,000 in additional Federal tax due.

THE SALT and AMT

The one silver lining to the sunset of the TCJA is the repeal of the SALT limit, which limits state taxes as a personal deduction to $10,000. For those dentist in high tax states, this limit is occasionally preventing up to $100,000 in deductions and costing $50,000 in additional tax due. This repeal does have a potential downside though as the AMT exemption will be back in force and high earners with lots of personal deductions (like state income tax) will be subject to the higher AMT rates.

THE 199A

The TCJA permanently lowered the corporate tax rate from 35% to 21% starting in 2018. In order to provide relief for small businesses taxed as partnerships and S-Corps., Congress create the 199A 20% QBI deduction. All this fancy wording just means that if you qualify, you get a deduction of 20% on your taxable practice profit. Unfortunately, the 199A deduction is set to expire at the end of 2025 and that will mean huge increases in taxable income for some dentist.

WHAT TO DO NOW

While nobody’s crystal ball is very clear regarding future tax policy, we will know much more about the likelihood of the sunset or the extension of the current tax rates after the November 2024 elections. You should work with your CPA to establish a plan to (as weird as it sounds) PAY TAXES NOW at these low rates if the sunset looks like a reality.