The new federal tax law, enacted by Congress and signed by President Trump last December, could have huge implications for your independent pharmacy.
In this blog post, we break down some of the new tax law implications, including pros and cons for pharmacy owners. First, a disclaimer: we are not certified public accountants, and nothing in this blog should be considered tax advice. Always seek professional consultation from a qualified CPA. Having said that, knowledge is power. Use this information to ask better questions when you meet with your accountant.
With the Tax Cuts and Jobs Act, the tax rate for C-corporations changed from a 15%-35% rate to a flat rate of 21%. That’s the largest corporate tax reduction in US history. Since most small businesses are not set up as C-corps, you may not be affected by this. For non C-corp entities (aka pass-through entities), such as S-corporations, Sole Proprietorships, and LLCs, you may be able to qualify for a 20% income tax reduction.
To qualify, you must have a taxable income below $157,000 if you’re single—or $315,000 if married and filing jointly. If you qualify, the deduction will be applied to either your qualified business income, or your taxable income minus capital gains (whichever is lower).
IRS Section 179, a tax benefit that provides up to $1,000,000/year of accelerated depreciation as of January 2, 2018, is still in full effect under Trump’s new tax law. At RxSafe, we know hundreds of pharmacy owners who’ve used this deduction to save tens of thousands of dollars on taxes to offset the cost of capital equipment. Visit our Section 179 page to learn more.
Another change: small businesses are now eligible for a tax credit for providing paid family and medical leave to employees—an expense that previously only large businesses were typically able to afford. Depending on what you pay for leave, your business may be eligible for a 12.5%-25% tax credit—which makes a big difference at the end of the year.
The new tax law isn’t all rainbows and unicorns for pharmacy owners. For example, the Qualified Business Income Deduction proposed rule would expand the "specified service trade or business," or SSTB, definition of "services performed in the field of health" to include pharmacists. Currently, that definition applies to professionals such as doctors and dentists, but not pharmacists. Altering the definition may keep some pharmacy owners from receiving the pass-through deduction, as any health care professional under the SSTB definition would not receive it unless an exemption applies. Groups such as the National Community Pharmacists Association (NCPA) are arguing against changing the SSTB definition.
"The inclusion of pharmacists in the Proposed Rule ... is overly broad and presents some factual distinctions that are necessary for appropriate application of the pass-through deduction," the NCPA wrote in an Oct. 3 letter to Treasury Secretary Mnuchin. NCPA is asking the Treasury Department to clarify regulations for the Qualified Business Income Deduction, or pass-through deduction, specifically related to community pharmacists' right to obtain the pass-through deduction.
The Tax Cuts and Jobs Act also limits or even eliminates some deductions that small business owners have been able to make in the past. Deductions that have been limited include:
Deductions that have been eliminated completely include:
With the lowest small business tax rates since WWII, now is a great time to take stock in your pharmacy. You have the opportunity to dramatically improve your savings, and avoid sending thousands of dollars to Uncle Sam.
Here are some to-do items:
Interested in learning more? Visit our Section 179 page or call now at 877-797-2332.