Impact of expiring tax cuts on physician tax returns

Ninety days and counting until the 2001 Tax Act sunsets.  Expect tax rates across the board to increase on January 1st unless new tax rules are enacted.  Congress recently warned us, however, that they will not even take up extending the current tax rules into 2011 until after the November mid-term elections.  Here is what you can expect for 2011 tax rates assuming Congress isn't able to provide President Obama with a Tax Act by the end of the year:

• The 10% tax bracket disappears reinstating the 15% rate as the lowest tax rate.
• The 25% tax rate jumps to 28%.
• The 28% tax rate jumps to 31%.
• The 33% tax rate jumps to 36%.
• And the 35% tax rate jumps to 39.6%.

As you can see, while the lowest rate increases by 5% and the top rate increases by 4.6%, the three other brackets increase by 3% each.  Since the 10% bracket is quite small, and the top bracket only affects taxpayers earning more than $400k, most people should see their federal income tax burden increase by about 3% of their taxable income assuming Congress lets the current tax rules expire.  For each $100k of taxable income, therefore, expect to pay $3k more in federal income taxes.

About the Author

Reed Tinsley CPA

This article is written by Reed Tinsley, a Houston, TX-based CPA with over 30 years of experience advising physicians and medical practices across Texas and the United States. Reed holds certifications as a Certified Valuation Analyst (CVA), Certified Healthcare Business Consultant (CHBC), and Certified Financial Planner (CFP), specializing exclusively in the healthcare sector. He is a published author, nationally recognized speaker, and trusted advisor to physicians on accounting & tax, practice management, and financial planning. Schedule a Free Consultation.