New Federal Tax Bill and Its Impact on Doctors

By Josh Lantz, CRPC® and Katherine Vessenes, JD, CFP®, RFC

Many of us have been glued to the news in recent weeks. The new tax bill is official as of writing this article, signed into law Friday, December 22nd, 2017.   

Let’s start with the good news for physicians and dentists:

1.     Federal Brackets. The Federal tax brackets will go down 1-4% for each bracket. The 15%, 25%, 28%, 33%, 35%, and 39.6% turns into 12%, 22%, 24%, 32%, 35%, and 37%. In general, this should result in tax savings for all doctors.  In some cases, those reductions might be offset by increased taxes in other areas. Even if your particular bracket didn’t change much, keep in mind your dollars that funnel through the smaller brackets are taxed less.


2.     The PEASE limitation is repealed. This was effectively a surtax impacting our doctors who were making more than $261,500 (single) and $313,800 (married joint) in 2017 that phased out itemized deductions. Many doctors don’t realize they were previously losing the ability to deduct their home mortgage and other itemized deductions because of the PEASE limitation. With the repeal of the PEASE limitation this means doctors at those old 2017 income limits will have more itemized deductions than before with the exception of state income deductions.  This is also a reason the cap on state and property tax deductions, which we’ll go through below, might not have as large an impact on your taxes as reported by some media sources.


3.     Estate Tax. Estate tax exemptions were increased to $11.2 million (single) and $22.4 million (married) effectively making federal estate tax a non-factor for most doctors. Certain states still impose state estate taxes though, so watch out. This will continue to be a problem for many of our clients who live in MN, RI, MA, NY, WA, OR, PA, and a few others.


4.     Standard Deduction. The standard deduction almost doubled to $12,000 (single) and $24,000 (married). This will result in fewer individuals needing to itemize their taxes.  Most of our attending physicians and dentists will still need to itemize. This is good news for Residents and Fellows as it will likely reduce their taxes.


5.     Child Tax Credit. Expanded child tax credit. It will go from $1,000 to $2,000 per child. Previously, our doctors rarely took advantage of this credit, unless they were a resident, due to the income phase outs for higher earners. More of our doctors will benefit by this change as the phase outs go from $75,000 (single) and $110,000 (married) up to $200,000 (single) and $400,000 (married).


6.     Charitable deductions. There is an increase on the amount you can gift charities and deduct those gifts from 50% of Adjusted Gross Income to 60%. This is also good news for our charitably inclined doctors.


7.     Medical expense deductions. Congress reversed course on the controversial removal of deducting medical expenses. The draft bills removed the deduction. The new bill increases the current deduction of medical expenses by changing the deduction from expenses that are above 10% of adjusted gross income (AGI) down to 7.5% AGI for 2017 and 2018. Then in 2019, this deduction goes back up to 10% AGI.


8.     College 529 Plans. Under the new law 529 plans can be used tax-free for private elementary and secondary school expenses in addition to savings for college and technical schools. This includes public, private, or religious schools. There’s a $10,000 distribution limit per student each year.  Since many states offer a state tax deduction for contributions to a 529, if you are paying for any of this type of schooling, whether it is college or K-12, you could run your contributions through a 529 plan and make a quick distribution and qualify for the state tax deduction as a strategy.


9.     Back Door Roths: The back-door Roth strategy will remain viable for most of our doctors.


Now onto the bad news:

1.     SALT. There will be a $10,000 limit on state and property tax deductions, called SALT for State and Local Taxes.  This will be especially difficult for our doctors living in high state tax states like NY, CT, NJ, IA, OR, MN, and CA. This is probably the largest negative change in the tax plan for doctors. To check how this impacts you, ask your accountant to run a projection when you file your 2017 return so you can pre-plan for your taxes next year in 2018. A quick method is to look at your last tax return from 2016. Look at your Federal 1040 and flip a few pages until you come across your Schedule A labeled Itemized deductions. The second deduction outlines how much you were deducting for state and property taxes. Then calculate your federal tax savings from the lower brackets to see if the lower brackets offset the loss of the ability to deduct your state and property taxes above $10,000 dollars. We can help you give you an idea of the impact at your next meeting.


2.     AMT. The Alternative Minimum Tax (AMT) was not eliminated.


3.     Inflation adjustments. The new tax brackets are tied to chained-CPI for inflation purposes. The reason that matters is chained-CPI is generally a little smaller than the previous inflation index they used. That means the tax bracket levels potentially won’t go up as high over time.


4.     Capital gains. Capital gain and qualified dividends rates will remain the same. We were hoping that the net investment income tax of 3.8% would be eliminated as it creates a tax-drag on taxable investments over time.


5.     Mortgage interest deductions. The mortgage interest deduction will be modified. Previously, home mortgages under $1 million qualified for deductions. That will drop to $750,000. This new rule only applies to doctors who obtain new mortgages after Dec. 15th, 2017. Any existing mortgages retain their deductibility. 


The net impact on doctors and dentists:

For a lot of our doctors, we expect their taxes to go down slightly, depending on their income, mainly due to the changes of the tax brackets. We expect this whether you’re a doctor with lower pay or at a higher income level.


However, doctors in the higher taxed states like NY, CT, NJ, IA, OR, MN, and CA, need to work with their tax advisor soon to do a tax estimate to see what the impact will be so you can be proactive in the event you need to put aside extra to pay a larger tax bill.


Just this morning we ran some rough tax projections for an anesthesiologist in Minnesota, one of the higher taxed states. With the pluses and the minuses of the bill, we estimate his tax bill will be approximately the same in 2018, as it is in in 2017.


We will update you as we know more. We’ve left out some of the details of the various changes in an effort to get this to you quickly and share the most important highlights for our doctors.


We will be updating these news bulletins as we develop different strategies over the next few months. As you know, we continue to be committed to saving your taxes now and in the future while growing your wealth.


Feel free to reach out if you have specific questions.

Katherine and Josh

Katherine Vessenes, is the founder and CEO of MD Financial Advisors who serve 500 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, Registered Financial Consultant, author and speaker, she is devoted to bringing ethical, fiduciary advice to physicians and dentists. She can be reached at


Josh Lantz, CRPC®, advises hundreds of doctors on their finances all around the nation. When he isn’t meeting with doctors Josh oversees the financial planning department, portfolio management, insurance department, and client services at MD Financial. Josh previously worked at Ameriprise with the #2 nationally ranked advisor.