With the 2024 election around the corner, understanding the tax changes proposed by Vice President Kamala Harris and former President Donald Trump is crucial for dental practice owners.
Capital gains and dividends
A significant change proposed by Harris is taxing capital gains and dividends at ordinary income tax rates rather than the lower rates currently in place. This policy could affect the sale of your practice by increasing the taxes you would owe on the profits from the sale.
In contrast, Trump has proposed reducing the capital gains tax rate, which would directly benefit those looking to sell. Lower capital gains taxes would allow sellers to keep more of their sale price as profit.
Financial transactions
Harris has also proposed a financial transaction tax (FTT) on stock trades, bond trades, and derivative transactions. While this may seem more relevant to Wall Street than Main Street, the implications for investment and retirement accounts are significant. If you plan to reinvest the proceeds from your practice’s sale into the stock market, an FTT could reduce your overall returns.
Trump has not proposed similar taxes, focusing instead on measures aimed at reducing operational costs and increasing business investment.
Corporate tax increases
One of the central components of Harris’s tax plan is an increase in the corporate tax rate from the current 21% to 35%. This sharp rise would directly impact dental practices structured as C corporations. Higher corporate taxes reduce net profits, making it more challenging to reinvest or maintain your level of income.
On the other hand, Trump has indicated a desire to reduce the corporate tax rate below the current 21%. However, the political feasibility of such a cut is uncertain, and if you are considering the timing of a sale, current tax rates provide a clearer financial picture than potential future changes.
Estate tax expansion
Harris has shown support for expanding the estate tax, which would affect the transfer of wealth from one generation to the next. If you plan to leave your practice to your heirs, the increased estate tax could significantly reduce the amount they inherit. Trump, however, has not made any significant proposals to expand the estate tax and might focus on maintaining or even reducing it.
Reviewing your estate planning strategies can help ensure your heirs receive the maximum benefit. Deciding the best time to transition out of your practice could mitigate potential future estate tax liabilities.
Medicare for All and health-care taxes
Harris’s proposal to fund a version of Medicare for All with a 4% income-based premium tax on households earning over $100,000 annually could impact your personal income and the financial performance of your practice. For example, if your household income is $200,000, an additional 4% tax would mean an extra $8,000 in taxes per year. As health-care funding structures shift, understanding these changes will help you navigate potential regulatory impacts.
Trump has focused on deregulation and incentives for business investment rather than new taxes to fund health care.
Staying informed about health-care policy changes is crucial for managing the financial health of your practice. Ensure you make the best decision for you and your business.
Conclusion
The potential tax changes proposed by Kamala Harris and Donald Trump underscore the importance of strategic financial planning for dental practice owners. By understanding and preparing for these changes, you can make informed decisions that maximize your after-tax income and secure your financial future. Staying proactive in your financial planning will help you navigate the evolving tax landscape effectively.
Editor's note: This article appeared in the September 2024 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
