May Physician Financial Network

Leasing and Renewing Your Lease: Important things to know

Leasing and lease renewals are not typically conducted on a level playing field. After all, the landlord is in the real estate business and most doctors are not. By planning ahead and having professional representation, you can negotiate a lower lease rate and receive substantial tenant improvement allowances and free rent.

How does the lease renewal process work?

An important clause found in a standard lease is the renewal option. This allows you to extend your lease for a predetermined amount of time (usually five or ten years) by giving your landlord six to twelve months’ written notice. Renewal options include terms for specific lease rates, concessions such as free rent and tenant improvement allowances, and whether a new base year for operating expenses will be granted. All of these terms are negotiable and play a large role in the financial structure of a lease renewal.

How do I calculate what I am currently paying per square foot?   

Knowing what you are already paying per square foot is especially important if you are thinking about renewing your lease. What you are paying now versus what buildings are leasing for in your immediate area can be vastly different. We have seen a substantial decrease in lease rates over the last two years. The way to calculate your price per square foot is to multiply your monthly rent by 12 months and divide it by your square footage. Keep in mind that NNN or CAM charges (operating expenses for the property such as real estate taxes, building insurance, and common area maintenance) are also calculated the same manner.

What type of cost savings can be achieved through a successful renewal?

If properly negotiated, you can receive significant rent savings and build out allowances. It is very common to start a lease renewal at a lower lease rate than what you are currently paying. As the economy continues to struggle, landlords are offering aggressive concessions and more attractive lease terms to good tenants to keep their buildings leased. The amount of overall savings will depend on the availability of competitive vacancies, the efficiencies of the buildings, the market knowledge of the broker and the broker’s ability to negotiate business points and reduce overall exposure.

What are some common mistakes doctors make during the process?

One of the most common mistakes doctors make is negotiating without the help of a commercial real estate professional, specifically one who specializes in representing healthcare professionals. Some doctors believe they can save money by not using a broker; but to benefit in real estate, you need leverage. Landlords are in the real estate business and negotiate with professional guidance. Selecting an expert to represent you provides the leverage needed to receive the best possible lease terms. Further, landlords are responsible for paying commissions, not tenants, so professional representation is available to you at no out of pocket cost.

Another mistake doctors make when entering into a lease renewal negotiation is not being familiar with their current lease terms and exposure. Prior to contacting the landlord about a lease renewal, you should be well aware of your current lease terms including every option and deadline. As mentioned, most leases contain options that must be exercised within a specific time period, typically six to twelve months prior to the lease’s expiration. If you allow this period to pass, you risk losing all rights outlined in the option, which can cause the negotiations to begin at a disadvantage.

When should the process begin?

As a rule of thumb, you should begin to consider the renewal process 12 – 18 months in advance of your lease’s expiration. This is recommended so that you can compare all relocation options in the market before your current lease options expire. Tenants who miss their lease options incur more risk. Landlords view this as an opportunity to push rents higher as the window of opportunity to relocate closes. If tenants holdover, they often see penalties of 150 to 200 percent of their last month’s rent and can also incur consequential damages if they holdover without permission. The bottom line is that if there is not ample time to relocate if necessary, the landlord has a strong upper hand.

This article was written by Roger Hernandez and Colin Carr, with Carr Healthcare Realty, where they specialize in representing Healthcare Professionals with all real estate needs. They have successfully negotiated over 750 lease and sale transactions. You can reach Roger at (719) 339-9007 or roger@carrhr.com.

2011 Year-End Tax-Saving Moves for Physicians

Year-end tax planning is challenging again this year because of uncertainty over whether Congress will enact sweeping tax reform that could have a major impact in 2012 and beyond. Regardless of what Congress does before the end of this year or early the next, there are solid tax savings to be realized by physicians taking advantage of tax breaks that are in effect for 2011.

We have compiled a checklist of actions for medical practices and individual physicians based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you will likely benefit from many of them.

Medical practices and practice owners

Medical practices should consider making expenditures that qualify for the business property expensing options (Section 179 expensing). Among the assets that qualify are tangible medical equipment, computers and off-the-shelf computer software, as well as some leased equipment depending on the terms of the lease.

For tax years beginning in 2011, the expensing limit is $500,000 and the investment ceiling limit is $2 million. Also, a limited amount of expensing may be claimed for qualified real property. This opens up significant year-end planning opportunities.

In addition, consider making expenditures that qualify for 100% bonus first-year depreciation if bought and placed in service this year. This 100% first-year write-off generally won’t be available next year unless Congress acts to extend it. Thus, medical practices planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.

Traditional income tax planning calls for deferring income to 2012 and accelerating expenses into 2011. This strategy makes sense this year since the 2010 Tax Relief Act extended lower rates through 2012 and in most cases you will be subject to the same (or lower) tax rates this year as in 2012.

Physicians should also consider using a credit card to prepay expenses that can generate deductions for this year.

If you have a retirement plan for your practice consider adding a profit sharing option to your plan which could allow an additional deduction on your 2011 tax return for a contribution that doesn’t have to be paid until the due date of the practice’s tax return in 2012, including extensions.

If you own an interest in a partnership or S corporation you may need to increase your basis in the entity so you can deduct a loss from it for this year.

Individual physicians

If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2011.

You can realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding and then buy back the same securities at least 31 days later.

If you believe a Roth IRA is better than a traditional IRA and want to remain in the market for the long term, consider converting traditional IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2011.

If you expect to owe state and local income taxes when you file your return next year, consider increasing withholding of state taxes on your last payroll (or pay estimated tax payments) before year-end to pull the deduction of those taxes into 2011 if doing so won’t create an alternative minimum tax (AMT) problem.

When estimating the effect of any year-end planning moves on the AMT for 2011, keep in mind that many tax breaks allowed for purposes of calculating regular taxes (i.e. real estate taxes, state income taxes, miscellaneous itemized deductions and personal exemption deductions) are disallowed for AMT purposes.

You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.

You may qualify for a tax credit if you install energy saving improvements, such as putting in extra insulation or installing energy saving windows, or an energy efficient heater or air conditioner, in your home before 2012.

Unless Congress extends it, the up-to-$4,000 above-the-line deduction for qualified higher education expenses will not be available after 2011. Consequently, consider prepaying eligible expenses if doing so will increase your deduction for qualified higher education expenses. In addition, since contributions to many state 529 college tuition plans qualify for state income tax deductions you might think about making a 529 plan contribution before the end of 2011.

If you are age 70-and-a-half or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve important tax savings.

Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $13,000 in 2011 to each of an unlimited number of individuals, but you can’t carry over unused exclusions from one year to the next. The transfers may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

These are just some of the year-end steps that can be taken to save taxes. It’s possible that tax legislation could still be signed into law before January 1, 2012 extending expiring tax breaks or making other changes for 2012 that would affect your 2011 year-end planning. Therefore, it is critical to review your tax situation with your tax advisor now and make any changes that are still possible before the end of 2011.

If you have any questions, please feel free to contact Greg Papineau, CPA,  or Deborah Helton, CPA.

Information from this article was furnished from an article published by Physician’s Money Digest.

Could “Family Office” Support Benefit You?

In this day and age of social media, e-mails, texts, professional obligations and personal obligations, it seems as if there is no time to stop and smell the roses. In our fast-paced society, one of the most valuable resources that people fail to accumulate is their free time. The use of a Family Office can help you, the busy professional, regain your most valuable asset…your time.

The term Family Office is often a misunderstood term that most seem to associate with the rich and famous. While it is the rich and famous for whom Family Offices were originally created, it is a service that now is available to any professional who wants to regain their free time.  

While Family Offices take many forms and vary depending upon the individual that is being served, the most important feature that is common to all Family Offices is that there is a Trusted Advisor in place to oversee all aspects of your financial life.  For the remainder of this article, we will focus on the CPA serving the role of Financial Trusted Advisor. 

The services that a CPA can offer in a Family Office environment are that of a true Trusted Advisor, overseeing your entire financial life.

These services include:

• Personal bill paying
• Preparation of monthly personal financial statements
• Personal budgeting and cash flow planning
• Investment review and evaluation 
• Insurance review and evaluation
• Estate planning review and evaluation
• Asset protection review and coordination
• Charitable contribution planning
• Retirement  planning review and coordination
• Education planning review and evaluation
• Other concierge services as requested

A CPA can also perform more services that are offered by traditional accounting firms:

• Income tax return preparation
• Income tax planning

As you can see from the nontraditional Family Office services that a CPA can provide, one of the key features is the review and evaluation of investments, insurance, estate and asset protection planning. This coordination means that you need only one point of contact, the CPA. Your CPA can coordinate and monitor all other members of your financial team, like your attorney, investment advisor, etc.

 Please view our Web site for more information on how your CPA can help you manage your most valuable asset…your time.