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.

Diagnosis: How Does Your Medical Practice Rank with the Competition?

When it comes to benchmarking your practice, there are many ways to look at performance levels and how your practice operates compared to other practices within your specialty. What you don’t know about the business and financial aspects of your practice can hurt you.  Benchmarking your practice can help reveal areas for improvement to ensure that you meet your goals.

Comparing your practice’s health to others can help you:

• Determine areas of growth
• Evaluate costs & eliminate waste
• Improve your staff ratios with regard to revenue and other target variables
• Evaluate specific work processes
• Make expense decisions with hard data

Once you have comparable data you can start to measure results and create goals specific to your practice.  The old saying is that you can only manage what you can measure. By creating and monitoring key performance indicators, also known as KPIs you can measure, monitor and improve various aspects of your practice, such as gross charges, collection rates, number of new patients, no-show rates and other important indicators.  Keeping your pulse on trends within these KPIs is vital to continually improve the health of your practice.

BiggsKofford has the tools and database to benchmark your practice within your specialty.  If you have questions about setting up key performance indicators and comparing them to other top performers in your practice’s specialty, call or e-mail Deborah Helton at (719) 579-9090 or dhelton@biggskofford.com.

Don’t Be Surprised on April 15

How many of you met with your accountant this year on or before April 15th and were shocked by the amount due? How many of you did not plan for this in advance and had no idea what number you would end up with?

This is not a good feeling for anyone, and rest assured, there are ways to avoid this guessing game. Furthermore, in today’s challenging economic climate, cash flow planning is imperative. This includes planning for income tax payments (or refunds).

We have all heard of the under-payment penalties and interest that the IRS tacks on to your tax bill if you underpaid your taxes or did not pay enough early on in the year. You want to make sure that you have paid in enough in advance to avoid any of these penalties.

While these penalties and interest can add to your tax burden, nobody wants to overpay the IRS either. While the government charges penalties and interest if you underpay them, they don’t pay you any interest if you overpay them. So, good cash flow management will mean that you pay just enough to avoid penalties, but not too much to create an interest-free loan to the government.

To find the right balance, you need to understand the estimated tax and withholding rules. This starts with making sure estimated tax payments and withholding combined meet the safe harbor amount as determined by the IRS. There are two options for paying in your safe harbor amounts. The first option is to pay 100 percent or 110 percent (if your Adjusted Gross Income is above $150,000) of your prior year tax liability. This is usually done by making even estimated tax payments and withholding consistently throughout the year.

Now, since most accountants are not fortune tellers, your tax accountant has likely provided you with a schedule of estimated tax payments on the first safe harbor mentioned above to keep you protected from underpayment penalties.

However, throughout the year, if it looks like things are not going as well as the prior year with your business, you can choose the second option, which is to pay in 90 percent of your current year tax liability.

You are probably wondering how on Earth you are possibly going to know what 90 percent of your current year tax liability will be if you are only one quarter of the way through the year.

The great thing about this option is that you can annualize your payments. This means that you can look at the income that you earned each period and pay in your taxes accordingly. This option allows for you to plan for your taxes in a dynamic fashion, adjusting throughout the year, which optimizes your cash flow. Hence, you will not be giving Uncle Sam an interest-free loan throughout the year and you will be able to better manage your cash flow related to income taxes.

Of course to do this requires that you talk to your tax preparer/advisor throughout the year. There is no way to plan for the future if you do not have open communication with your accountant. Hopefully you still like that person after April 15.

Having these discussions frequently will allow you to discuss if business up or down this year, should you adjust your estimates, did you make any large purchases, are you planning to make large purchases, do you want to put a retirement plan in place, etc.?

All of these things have the potential to greatly impact your tax liability, and the sooner you discuss these with your accountant, the sooner you can start planning for your income taxes. This should also help you sleep better the first two weeks of April.

If you have any questions about how your business needs to prepare for this, please feel free to e-mail Deborah Helton, CPA, or call her at (719) 579-9090.

Payroll Updates

As the end of the year approaches, it is important to update your payroll systems for new payroll requirements.

Beginning 2011:

• EFTPS Mandate

Virtually all businesses will have to switch to the Electronic Federal Tax Payment System (EFTPS) for all federal tax payments starting in 2011. The familiar paper voucher deposit system is going away for any company with quarterly employment tax liability of $2,500 or more. The IRS penalties for non-compliance are 10 percent for taxes paid by check.

Beginning 2012:

• Expanded 1099 Reporting

Under a mandate of the Health Care Reform and Small Jobs Act, businesses will be required to report all payments made in 2012 in excess of $600 for services or merchandise to the IRS on Form 1099. Under current law, businesses send Form 1099 for payments in excess of $600 for rent, interest, dividends and non-employee services when these payments are made to entities other than corporations. The reporting expansion now includes corporations and payments for services, including services performed on rental properties owned by an individual. The expanded reporting requirements begin with payments made in 2012.

In order to file the required Form 1099, a business would have a vendor complete Form W-9. Business owners may chose to gather need information and update accounting systems now in preparation of these changes.

• W-2 Reporting of Health Care Coverage Costs

The health care reform legislation requires employers to include the aggregate cost of employer sponsored health care coverage on employees’ W-2s for tax years starting on or after January 1, 2012. The original deadline was pushed back a year from 2011 to allow employers to make changes to their payroll systems and procedures to comply with this rule. A penalty will be imposed for non compliance beginning with 2012 W-2s. The amount reported is informational only and will not be includable in employee earnings.

If you have any questions about how your business needs to prepare for this, please feel free to e-mail Deborah Helton, CPA, or call her at (719) 579-9090.

October Entrepreneurial Corner: Healthcare Law Follow Up

If you missed today’s Entrepreneurial Corner breakfast that highlighted updates from the Healthcare Law and how it could affect your business, please find the handouts below.

BiggsKofford, P.C. Entrepreneurial Series, October 28, 2010

Panelists:
Deborah Helton, CPA, Manager, BiggsKofford
George Martin, President and CEO, Benefit Resources
Dan Karpel, Founder and CEO, Peak Medical Management

If you are interested in attending or sponsoring a future Entrepreneurial Corner, please contact Stephanie Johnson at (719) 579-9090.

How a Good Accountant Can Save Your Business Big Money

Most of us have heard a story or two about “hot shot” accountants that save their clients untold mountains of cash by reorganizing sole proprietors into churches, or moving trust funds into double-secret offshore accounts. While these are usually tall tales that stretch the truth as much as the tax code, what lots of small business owners might not realize is that a good accountant really can save them big money – and without bending the law.

In fact, there are a lot of ways that an accounting professional can help you see an improvement in the bottom line. Here are four of the biggest:

Smoothing out your cash flow

If there’s one challenge that’s universal to nearly every small business on the planet, it’s keeping the receivables coming in at a steady enough rate. Payroll, utilities, vendor invoices and estimated tax payments all have to be paid regularly, even though your deposits might not.

A strong accountant can help you keep tabs on what you have coming in and out on a weekly basis, as well as help you anticipate upcoming expenses. This should be reason enough for any business owner to retain one.

Helping with the fine print

Lots of businesses are set up incorrectly; they’re established as sole proprietors when limited liability corporations would make more sense, for example, or arranged as S corporations when there’s no reason to justify the extra paperwork.

If you suspect your business isn’t set up as profitably as it could be, a good accountant can help you find out. Not only will they know the ins and outs of the current laws, but they can even help you transition into a format that better suits your short and long term goals.

Saving you money on taxes

While this is the most well-known benefit to using an accountant – April 15 is to many CPAs what Valentine’s Day is to florists – it would be hard to overstate its importance. Millions of business owners in this country routinely miss out on tax credits and deductions they could claim, simply because they don’t know to look for them.

Having someone who knows the tax code, and your business, can easily make a five or six-figure difference in your profit and loss sheet; that’s something few businesses can afford to overlook.

Making strong connections

Accountants don’t just know about taxes and payroll. They also know the names and numbers of top lawyers and financial planners. If your accounting professional has been in business for more than a few years, it’s likely he or she can connect you to other professionals in the area, not to mention coordinating with them to make sure your business and money are being well cared for.

It might be fun to hear about crooked accountants bending the law to hide millions, but the truth is that a hardworking professional can save you quite a bit – in time, stress, and the bottom line.

What is your Triple Bottom Line?

Sustainability has become the newest buzz word in business, but what is a sustainable business? A truly sustainable business considers its triple bottom line or impact on economic, social and environmental resources. What is the value of making your business sustainable? The overall goal is to reduce the negative impact and improve the positive impact to all three areas.

As a member of the Pikes Peak Sustainable Business Network (PPSBN), BiggsKofford recently formed a green team within our office. The green team met with the PPSBN’s assistant director, Jackie Rockwell to assess our triple bottom line. Being CPAs and entrepreneurs, we were fully aware of our financial status and what we previously believed to be the double bottom line that mattered most.

Our social impact was fairly strong as well. BiggsKofford has always been involved in the community and we are extremely involved in the non-profit arena. Employees are able use work time to volunteer, sit on numerous non-profit boards, and both the company and employees contribute monetarily within the community. Not to mention the heavily discounted services we offer to non-profits.

However, the environmental line of our triple bottom line had not been as seriously addressed. Although our audit department was already paperless, surely there was more that could be done to lessen our environmental impact. During this process we found was that making changes to reduce our negative impact did not require not mind bending concepts or even invasive changes. There were a number of small changes that were easily made without much cost or inconvenience to clients and employees. Some of those small improvements include serving clients water from a filtered water system as opposed to buying bottled water, stocking the break room with dishes and utensils purchased from Goodwill as opposed to buying disposable, turning off computer screens at the end of the day, and of course recycling aluminum, paper, plastic and cardboard.

Larger initiatives do require some employee time to implement and adjustments to policies and procedures, but overall the changes made have actually improved efficiency and either didn’t incur additional cost or actually saved money. We started by evaluating our larger cost areas, paper and printing transitioning many internal processes paperless. We continue to working toward more paperless processes such as paperless billing, increasing the number of tax returns filed electronic ally, and electronic delivery of tax returns where applicable and accepted by clients.

One of the unexpected side effects of these changes is the strong buy in from employees and their enthusiasm to participate and share ideas. Taking steps toward sustainability are beneficial for all involved. A sustainable business can create value for clients, employees, owners and the community using the triple bottom line concept.