At the "Webside'

(Modern Healthcare, By Erica Teichert; Published August 2016)

 

When Kaiser Permanente’s emergency room wait times began rising three years ago, Dr. Dennis Truong and a colleague launched a telemedicine program to provide faster access to care for their patients.

At the time, there weren’t many training programs for telemedicine or for developing good “webside” manner, which can greatly improve patients’ adherence to treatment. Instead, Truong had to learn on the fly.

“We essentially created our own webside manners through experience and through inter-regional sharing with our other KP regions,” said Truong, telemedicine director for the Mid-Atlantic Permanente Medical Group, McLean, Va.

Like its cousin “bedside manner,” webside manner is a key skill for clinicians involved in telemedicine, experts say. Physicians must proffer an empathetic and compassionate presence to calm fears and provide hope for patients who may be suffering from serious or even not-so-serious illness. Medical schools have always included training in bedside manner in their curricula.

And that’s not just because they want to make a patient feel better about an encounter with the healthcare system. According to a 2014 study published in PLOS One, bedside manner can have a statistically significant impact on patient health, affecting the incidence of obesity, asthma, diabetes, hypertension and osteoarthritis. It can also affect weight loss or blood sugar levels in patients.

But clinicians are going to have to rethink how they deliver this important element of their craft as medicine moves deeper into the digital age. Telemedicine is booming, with startups and new applications springing up constantly.

Approximately 71% of employers say they will offer telemedicine consults through their health plans by 2017. Investment is growing too; the telemedicine market was worth about $500 million in 2014, but that is expected to balloon to $13 billion in 2020, said Fletcher Lance, managing director and global healthcare lead of North Highland, an Atlanta-based global consulting firm.

That’s why experts and consultants are encouraging physicians to prepare for virtual visits with appropriate equipment and a well-developed “webside manner,” which includes all the same skills as bedside manner but has a number of its own requirements. Just like during a traditional office visit, clinicians must juggle paying attention to the patient with filling out electronic health records and other forms. It’s as important to put patients at ease in a virtual environment as it is in an office.

“I think that people forget sometimes in healthcare when we’re very focused on the profession, the data, the latest and greatest of science, we forget that healthcare has two words in it. One is health, one is care,” said Ron Gutman, CEO and founder of HealthTap.

HealthTap has amassed a network of 120,000 physicians providing virtual care via video visits, an online query center and answer library. The Palo Alto, Calif.-based company also developed a series of training programs to help physicians prepare to enter the telemedicine world, including a free certification class that offers a level 1 continuing medical education credit. The class started a couple months ago.

While HealthTap and other groups offer certification and training courses for physicians who want to use telemedicine, preparation classes are only starting to take hold at medical schools. The University of Arizona has incorporated some telemedicine into its medical school, according to Elizabeth Krupinski, a University of Arizona professor and associate director of evaluation for the Arizona Telemedicine Program. But there are no formal requirements for telemedicine education in medical school curricula yet.

It may not take considerable formal training to get comfortable with telemedicine practices, though. In many cases, it simply requires common sense. According to Gutman, starting a virtual visit off right with proper webside manner is a key element to a successful telemedicine episode. “Every consultation starts with a smile and ends with a checklist,” he said.

That checklist could involve using proper intake documentation and following a framework to determine whether a virtual visit diagnosis is appropriate or a follow-up in-person visit will be necessary. By making patients comfortable during their telemedicine appointments, physicians can improve patients’ confidence and the likelihood they’ll adhere to treatment regimens, Gutman said.

But doctors need to be confident in their own abilities, according to HealthTap’s chief medical officer, Geoff Rutledge. Rather than erring on the side of not diagnosing patients, Rutledge encourages physicians in telemedicine to follow their checklists. “There is a presence that you project through the virtual channel and you should be conscious of it,” he said.

That presence can be improved with good patient communication, whether it’s explaining that they’ll be looking at a patient’s record on a screen for a moment rather making eye contact or asking a patient to provide more information with a blood pressure cuff.

While good bedside manner easily translates into good webside manner for most doctors, experts encourage physicians to get some training before they start seeing virtual patients so they understand the differences between telemedicine and face-to-face consultations. Just as in the office, physicians should present themselves professionally in virtual settings, paying attention to their office layout, surrounding equipment and their dress.

HealthTap has amassed a network of 120,000 physicians providing virtual care via video visits, an online query center and answer library.“When you’re conducting a videoconference with a patient, it’s not the same thing as getting up Saturday morning, going on FaceTime and talking to your best buddy,” Krupinski said. “It’s not that simple.”

Lighting and background are key elements of getting webside manner right, Krupinski said. If a physician sets himself up in front of a window, he’ll look like a dark shadow. If he has a cluttered or shabby backdrop, it may not sit well with patients.

In addition, physicians should be aware of their internet connection, camera resolution and audio equipment to make sure their stream won’t cut out in midsession. “If someone has a first bad taste, that’s not good for anything,” said Dr. Jim Marcin, head of pediatric critical-care medicine at the UC Davis Health System, Sacramento, Calif.

In Northern California, Marcin and his colleagues use telemedicine to provide virtual support to other hospitals and physicians and curb unnecessary transfers in their emergency departments. Specialists can appear remotely in ICUs to speak with patients, their parents or their local doctors and help determine a treatment regimen.

So far, Marcin says specialists, patients and local doctors have appreciated the live interactive video consultations. Studies have shown they’re capable of providing the same care and diagnoses via telemedicine as they can deliver in person.

“It’s a win-win-win,” he said. Marcin believes telemedicine also performs well in delivering mental health, endocrinology and other specialty services that require more thinking and talking. It works less well for specialties that require more physical examinations.

According to Marcin, even 15 minutes of basic video etiquette training can help clinicians become comfortable with using telemedicine and develop a better webside manner. The UC Davis system provides training and does extensive equipment testing at its remote sites before setting up its virtual consultation systems.

“It’s just a different medium in providing care,” Marcin said. “Once they have basic pointers on what to do, those with good interpersonal skills are well-received, and it goes well.”

But Marcin and several other experts voiced concern over the direct-to-consumer model that some telemedicine providers have taken, which allows individuals to have one-off visits with doctors rather than build relationships with their medical providers.

“That’s the first problem in relationship-building or engagement,” said Arman Samani, chief technology officer at AdvancedMD, an EHR and practice-management software company. “If you don’t know somebody, if you’re going to have one transaction with them, how can you engage with them effectively?”

Samani and his AdvancedMD colleagues encourage physicians to start using telemedicine with their existing clients before considering expanding to new clients or a larger geographical market. Even then, doctors should discourage using telemedicine as a one-off solution in favor of developing relationships with their expanding clientele.

That could include sending marketing messages to patients to let them know about telemedicine offerings and making it as easy to set up a virtual visit as an in-house appointment, Samani said.

However, there’s a convenience factor—for both doctors and patients—who use broad telemedicine networks such as HealthTap. Dr. Dariush Saghafi, a neurologist in Parma, Ohio, has been using HealthTap’s virtual platform since 2013, first by answering questions on the platform’s public Q&A board before conducting full-fledged consultations.

Saghafi acknowledged that doctor-patient relationships generally start with a physical visit since it can be difficult to adapt to a fully virtual relationship or refer far-flung patients to providers in their area for follow-up visits. “You kind of learn how to work around that,” he said. “You learn where the safe zones are to tread in when you’re recommending interventions, treatments and prescriptions.”

Kaiser’s Truong noted that his system encourages clinicians to “up-triage” patients for physical examinations when needed. Kaiser, which has made a major commitment to telehealth and projects it will log more telehealth visits than office visits within a few years, offers telemedicine training and live demonstrations for physicians.

“Remember that the patient on the other side, this may be their first time receiving care by video, too,” he said. “You’re both experiencing this newly together.”

Colorado voters have a momentous choice to make about their health care this fall. Amendment 69 would create ColoradoCare, a revolutionary system to pay for health care. It’s a response to concerns that the current system costs too much and fails to provide for everyone’s health needs. ColoradoCare would resemble some systems in Canada and Europe, where every resident has health coverage financed by taxes instead of private insurance premiums, but would be a first for an American state. To read more, click here.

If you have questions about ColoradoCare, BiggsKofford is here to help. Give us a call at (719) 579-9090.

(Colorado Health Institute; Published August 2016)

ColoradoCare, the proposed universal health care system on November’s ballot, would struggle to bring in enough revenue to cover its costs, according to an independent financial analysis released by the Colorado Health Institute.

The Colorado Health Institute is a nonpartisan source of independent and objective health information, data and analysis. The new study finds that:

  • ColoradoCare would nearly break even in its first year, but would slide into ever-increasing deficits in future years without additional tax increases.
  • On the plus side for ColoradoCare, it would be able to reach its goal of saving money in the health care system by cutting billions of dollars in administrative costs and insurance company profits. That money could be reallocated to provide health insurance to the 6.7 percent of Coloradans who remain uninsured, making Colorado the first state to achieve universal coverage.
  • However, the revenues for ColoradoCare — primarily from a new 10 percent income tax — wouldn’t be able to keep up with increasing health care costs, resulting in red ink each year of its first decade.

The analysis finds that ColoradoCare would face the same financial dilemma as the current health care system — the inability to tame rising health care costs. That would create a structural problem.

Although savings on administrative costs would grow over time, those savings would be overwhelmed by the increasing cost of health care, which is projected to grow faster than tax revenue. This is crucial because taxes would account for roughly two-thirds of ColoradoCare’s projected funding.

This is the second in a series of independent analyses by the Colorado Health Institute of Amendment 69, the proposed constitutional amendment that would create ColoradoCare. The first installment, published in April, focused on how ColoradoCare would work and posed key questions about its structure, financing and governance.

Michele Lueck, president and CEO of the Colorado Health Institute, said that these analyses of ColoradoCare fulfill an important part of the organization’s mission of bringing evidence-based information and rigorous analysis to key health care policy discussions.

“By mission and by charge, we do not take positions on legislative choices, policy options or proposed constitutional amendments,” she said. “Our job is to shed light on the issues, bring in disciplined analysis, often where there isn’t any, and allow educated voters and policymakers to make informed choices on matters of health and health care.”

An infographic detailing how the Colorado Health Institute conducted the analysis is available here.

Have questions about ColoradoCare? Give us a call at (719) 579-9090. We are here for you.

BiggsKofford is extremely selective when reviewing possible partnerships with other businesses. Because of this, when we find a fit, we know the quality of service and care for clients will closely match our firm values.

ADP seeks and negotiates partnerships with best-of-breed organizations to bring added value to our joint clients and to increase operating efficiencies. ADP’s Channel Alliance program partners with various types of companies to best address the needs of specific industries. Each partnership is created for synergy, value and new levels of success.

Although ADP offers much more than Affordable Care Act reporting help, if you are seeking assistance navigating ACA reporting, view their ACA Reporting Requirements Infographic to learn more about how they can help your business thrive. Click here to view your responsibilities as an employer before and after with ADP.

For questions about the BiggsKofford/ADP partnership, call us at 719-579-9090.

 

IRS Releases Final 2015 ACA Reporting Forms and Instructions

On September 16th, the Internal Revenue Service (IRS) published final Forms 1094-B and 1095-B, Forms 1094-C and 1095-C, and corresponding form instructions for tax year 2015. Forms 1094-C and 1095-C will be used by employers to report offers of health insurance coverage made to their full-time employees. The final forms did not include any major changes from the prior draft versions; however, the final instructions provide some clarification on reporting.

Background
Internal Revenue Code (IRC) Section 6056 under the Affordable Care Act (ACA) requires applicable large employers (ALEs) to report to the IRS whether they offer their full-time employees and their employees’ qualified dependents the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan.  An ALE is an employer that employed (any combination of workers within a controlled group) an average of at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year. Employees are considered full-time in any month that they are credited with at least 30 hours of service per week, on average, or 130 hours of service in the month.

Form 1094-C is the transmittal report which accompanies and summarizes Forms 1095-C.

Form 1095-C will identify each employee who was full-time for one or more months, and report for each month the details of any health care coverage offered. For self-insured plans, Form 1095-C will also be provided to covered individuals. The first Forms 1095-C must be furnished to employees by January 31, 2016 (covering 2015), and must be filed with the IRS in accordance with existing deadlines for Forms W-2. Electronic filing is required if at least 250 forms are filed.

Form 1095-B generally identifies each covered individual (including any spouse and qualified dependents) and their respective months of coverage. Insurers and other providers of health care coverage, including multiemployer plans, will file and furnish Forms 1095-B to report details of all individuals with insured health coverage to the IRS, as required by IRC Section 6055. Self-insured ALEs will issue and file a combined Section 6055/6056 report using Form 1095-C, Part III.

The ACA information on Form 1095-C is arranged in three rows of coded information, by month, for each full-time employee.

  • The first row (Line 14) on the form identifies whether the ALE offered minimum essential coverage (MEC) to the employee and any spouse and qualified dependents, and whether such coverage provided minimum value.
  • The second row (Line 15) reports the employee’s share of the lowest-cost monthly premium for self-only minimum value coverage.
  • The third row (Line 16) includes any information needed to determine whether the employer may be liable for a shared responsibility payment. For example, codes are entered to identify employees who were not employed or who were not full-time during a month, or who enrolled in coverage offered. Other codes identify transitional or “safe-harbor” relief (e.g., employees in limited non-assessment periods or coverage meeting affordability safe-harbor tests).

Revisions to Form Instructions
Using Multiemployer Arrangement Interim Guidance – The final instructions for Form 1095-C clarify that Codes 1H (no offer of coverage) and 2E (multiemployer interim rule relief) can be used on Lines 14 and 16, respectively, without regard to whether the employee was eligible to enroll or enrolled in coverage under the multiemployer plan for 2015. In future years, ALE members relying on the multiemployer arrangement interim guidance may be required to report offers of coverage made through a multiemployer plan in a different manner.

Reporting on Offers of COBRA – These final instructions removed the requirement to report an offer of COBRA on Form 1095-C made to a former employee upon termination, even when the employee enrolled in that coverage.  The requirement remains to report an offer of COBRA that is made to an active employee due to a reduction in hours.

Total Employee Count for ALE Member – A fifth option was added to the instructions for ALE members to use when calculating their total employees on a monthly basis for Form 1094-C, Part III, Column (c).  The option to use the 12th day of each month is now permitted in addition to the existing methods of using the first or last day of each month,  the first day of the first payroll period that starts during each month, or the last day of the first payroll period that starts each month.

Applicable Large Employer (ALE) Definition – The definition of ALE was updated with regards to determining whether or not an employer is an ALE for a given year and therefore subject to IRC Section 4980H. Instructions clarify that employers may disregard an employee for any month in which the employee has coverage under a plan described in Section 4980H(c)(2)(F) – generally, TRICARE or Veterans Administration coverage.  However, if an employer qualifies as an ALE, such employees are treated as any other employee;  e.g., they should be included in full-time employee determinations, and subject to reporting on Forms 1095-C, etc.

Reporting Health Reimbursement Arrangements (HRA) as Minimum Essential Coverage (MEC) – The final instructions provided direction on when an HRA should be reported as MEC.  An ALE member with a self-insured major medical plan and an HRA is required to report the coverage of an individual enrolled in both types of MEC under only one of the arrangements.   An ALE member with an insured major medical plan and an integrated HRA is not required to report the HRA coverage, if the individual is eligible for the HRA because the individual enrolled in the insured major medical plan.  An ALE member with an HRA must report coverage under the HRA on Form 1095-C, Part III for any individual that is not enrolled in a major medical plan of the ALE member (for example, if the individual is enrolled in a group health plan of another employer, such as spousal coverage).

For more information on the changes discussed, please review the 2015 Instructions for Forms 1094-C and 1095-C at http://www.irs.gov/pub/irs-pdf/i109495c.pdf.

ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.

ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business. This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages readers to consult with appropriate legal and/or tax advisors. Please be advised that calls to and from ADP may be monitored or recorded.

For a complete infographic chart provided by ADP, click the following: ACA Reporting Requirements Infographic

For questions, call BiggsKofford at 719-579-9090. 

Although all the effects of the Affordable Care Act (ACA) are still unclear, it’s likely that health insurance costs will continue to increase in the future. Business owners may require greater health plan contributions from participating employees. In addition, this health care law already has made it more difficult for individuals to deduct medical outlays: For most taxpayers, only expenses over 10% of adjusted gross income (AGI) are tax deductible, versus a 7.5% hurdle under prior law. (The 7.5% rule remains in place through 2016 for individuals 65 and older and their spouses.)

In this environment, business owners stand to benefit substantially by offering a health flexible spending account (health FSA). These plans allow employees to set aside up to $2,500 per year that they can use to pay for health care expenses with pretax dollars.

Example 1: XYZ Corp. offers a health FSA to its employees. Harvey James, who works there, puts $2,400 into the plan at the beginning of the year. Each month, $200 will be withheld from Harvey’s paychecks, and he’ll owe no income tax on those amounts.

Going forward, Harvey can be reimbursed for his qualified medical expenses that are not covered by his health plan at XYZ. Possible examples include health insurance deductibles, copayments, dental treatments, eyeglasses, eye surgery, and prescription drugs. Such reimbursements are not considered taxable income. Thus, Harvey will pay those medical bills with pretax rather than after-tax dollars.

Health FSAs and the Affordable Care Act

Under the ACA, there are limitations on an employer offering a health FSA to their employees. Standalone health FSAs can only be offered to provide limited scope dental and vision benefits. An employer can only offer a health FSA that provides more than limited scope dental and vision benefits to employees if the employer also offers group major medical health coverage to the employees.

Additionally, an employer can make contributions to an employee’s health FSA. However, under the ACA, the maximum employer contribution the plan can offer is $500 or up to a dollar-for-dollar match of the employee’s salary reduction contribution.

Ultimately, these additional new rules can affect whether an employer can offer a health FSA and the amount of any optional employer match; our office can provide guidance for your specific situation.

Employer Benefits

A health FSA’s benefits to participating employees are clear. What will the business owner receive in return? Chiefly, the same advantages that come from offering any desirable employee benefit. Recruiting may be strengthened, employee retention might increase, and workers’ improved morale can make your company more productive.

There’s even a tax benefit for employers, too. When Harvey James reduces his taxable income from, say, $75,000 to $72,600 by contributing $2,400 to a health FSA, he also reduces the amount subject to Social Security and Medicare withholding by $2,400. Similarly, XYZ Corp. won’t pay its share of Social Security or Medicare tax on that $2,400 going into the health FSA.

Counting the Costs

However, drawbacks to offering an FSA to employees do exist. The plan, including reimbursements for eligible expenses, must be managed. Many companies save headaches by hiring a third-party administrator to handle a health FSA, but there will be a cost for such services.

In addition, companies offering health FSAs to employees should have enough cash to handle a large demand for reimbursement, especially early in the year.

Example 2: Kate Logan also works for XYZ and she chooses to contribute $1,800 to her health FSA at the beginning of the year: $150 a month, or $75 per each semimonthly paycheck. Just after her first contribution of the year, Kate submits paperwork for a $1,000 dental procedure. XYZ might not have trouble coming up with $1,000 for Kate, but there could be a problem if several employees seek large reimbursements after making small health FSA contributions.

Using It, Losing It

Employers also should be sure that employees are well aware of all the implications of health FSA participation. For years, these plans have been “use it or lose it.” Any unused amounts would be forfeited at year end.

Example 3: Mark Nash participated in an FSA offered by XYZ several years ago. He contributed $2,000 but spent only $1,600 during the year. The unspent $400 went back to XYZ.

In 2005, the rules changed. Now, if the FSA permits, participants have until mid-March of the following year to use up any excess. If XYZ had adopted this optional grace period, Mark Nash would have had an extra 2½ months to spend that leftover $400 on qualified medical costs.

Yet another change occurred in late 2013—a $500 option. Under this provision, FSA plans can be amended to allow each employee a carryover of up to $500, from one year to the next. Plans with this $500 carryover provision cannot allow a grace period as well. If your company now has an FSA with this optional grace period, it will have to amend the FSA to eliminate the grace period in order to add the $500 carryover provision. Our office can help with the necessary paperwork.

In addition to explaining all the rules on possible forfeitures, employers offering an FSA should be sure their employees know about a possible impact on Social Security benefits. As mentioned, FSA contributions aren’t subject to Social Security; those contributions aren’t included in official compensation, for Social Security purposes. Employees should know that reduced compensation today might reduce Social Security benefits tomorrow. Companies that spell out all the FSA implications to workers may reduce misunderstandings and future compla

For regular C corporations, “reasonable compensation” can be a troublesome tax issue. The IRS doesn’t want shareholder executives to inflate their deductible salaries while minimizing the corporation’s nondeductible dividend payouts.

For S corporation owners, the opposite is true. If owner employees take what the IRS considers “unreasonably low” compensation, the IRS may recast the earnings to reflect higher payroll taxes, along with interest and penalties.

One Pocket to Pick

Eligible corporations that elect S status avoid corporate income taxes. Instead, all income flows through to the shareholders’ personal tax returns.

Example 1: Ivan Nelson owns a plumbing supply firm structured as an S corporation. Ivan’s salary is $250,000 a year while the company’s profits are $400,000. The $650,000 total is reported on Ivan’s personal tax return.

In 2015, Ivan pays 12.4% as the employer and employee shares of Social Security tax on $118,500 of earnings. He also pays 2.9% Medicare tax on his $250,000 of salary. As a result of recent tax legislation, Ivan—who is not married—owes an additional 0.9% Medicare tax on $50,000, the amount over the $200,000 earnings threshold (the threshold is $250,000 on a joint tax return). Altogether, Ivan pays well over $20,000 in these payroll taxes.

Going Low

Often, S corporation owners have a great deal of leeway in determining their salary and any bonus. Holding down these earnings may reduce payroll taxes.

Example 2: Jenny Maxwell owns an electrical supply firm across the street from Ivan’s business. Jenny’s company also is an S corporation. She reports the same $650,000 of income from the business but Jenny classes only $75,000 as salary and $575,000 as profits from the business. Thus, she pays thousands of dollars less than Ivan pays for Social Security and Medicare taxes.

Proving Your Payout

As mentioned, the IRS might target S corporation owners suspected of lowballing earned income. Therefore, all S corporation shareholders should take steps to justify the reasonableness of their compensation.

If you own an S corporation, consider spelling out your salary level in your corporate minutes. Where possible, give examples and quote industry statistics that show your compensation is in line with the amounts paid to executives at similar firms.

Other explanations also might help. Depending on the situation, you might say that business is slow, in the current economy, so the minutes will report that you are keeping your salary low to provide working capital for the company. If your business is young, the minutes could explain that you’re holding fixed costs down, so the company can grow, but you expect to earn more in the future. In still another scenario, you might say that you are nearing retirement and making an effort to rely more on valued employees, so a modest level of earnings reflects the actual work you’re now contributing.

As illustrated above, holding down S corporation compensation can result in sizable payroll tax savings. Our office can help you establish a reasonable, tax-efficient plan for your salary and bonus.

 Calculating Coverage

Beyond compensation, health insurance also may affect the payroll tax paid by an S corporation owner. Special rules apply to anyone owning more than 2% of the company’s stock.

If the company has a health plan and pays some or all of the costs for coverage of such a so-called “2% shareholder,” the payments will be reported to the IRS as taxable income. However, that amount will not be subject to payroll taxes, including those for Medicare and Social Security. The company can take a deduction for these payments, effectively reducing corporate profits passed through as taxable income for the shareholder.

In addition, the S corporation shareholder may be able to deduct the premiums paid by the company—this deduction can be taken on page 1 of his or her personal tax return, which may provide other tax benefits. However, such an “above-the- line” deduction cannot be taken in any month when the shareholder or spouse is eligible to participate in another employer-sponsored health plan. Also, this deduction can’t exceed the amount of the shareholder’s earned income for the year.

This can be a complicated issue, especially if your state law prevents a corporation from buying group health insurance for a single employee. If you own an S corporation, our office can help you decide the best way to hold down payroll tax as well as income tax from your he

Champagne and caviar on the IRS? Typically, the answer is no. Nevertheless, there are times when you can go out to eat—perhaps to the best restaurant in town—and recoup some of your costs through tax savings.

Business as Usual

Perhaps the most obvious way to deduct dining costs is to buy a meal for someone with whom you do business or would like to do business. The good news is that everything counts: food, drinks, tax, and tip.  The bad news? Meal costs typically are considered entertainment expenses, which generally have a 50% cap on deductions.

Example 1: Nora Peters has dinner with a potential client for her landscaping business. They both have full-course meals with wine, and the tab comes to $100 with tax and tip. If Nora pays the bill, she can take a $50 tax deduction.

The IRS explicitly frowns on so-called “taking turns” deductions. Thus, if the potential client is Nora’s neighbor and they dine together every month, alternating as to who pays the bill, the IRS won’t allow either party to take tax deductions.

However, that may not always be the case.

Example 2: Nora and her neighbor dine together throughout the year, discussing possible ideas for the latter’s garden, and Nora picks up the tab every other time, paying a total of $600. Eventually, the neighbor hires Nora to landscape her garden; Nora ultimately earns $2,000 from that job, reported as taxable income. Can Nora take a $300 (50% of $600) tax deduction, despite the alternate bill paying? Our office can help you determine the answer to such difficult questions.

Beyond Reasonable Doubt

The IRS also asserts that meal outlays that are “lavish or extravagant” won’t qualify for a tax deduction. Unfortunately, the agency doesn’t provide a dollar limit or any tangible guideline, only that the cost must be “reasonable,” considering the “facts and circumstances.” Merely dining at a deluxe restaurant or a pricey resort won’t automatically rule out a 50% deduction.

One way to approach this issue is to put things into perspective.

In a major city with a steep cost of living, spending $100 on a dinner for two may not be considered lavish, if there’s a valid business purpose for the excursion. Conversely, spending hundreds of dollars on a meal with someone who has only a peripheral connection to your company and little chance of providing meaningful revenues in the future might not pass muster.

One U.S. Commerce Department website provides an example of spending $200 for a business-related meal. If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Thus, the tax deduction could be $45 (50% of $90).

Going Solo

You should be aware that the 50% limit also applies to business meals away from home, not just to meals where you’re entertaining someone.

Example 3: Ron Sawyer travels from his Dallas home to Tucson on a sales trip. He does no entertaining but spends $140 eating his meals in restaurants. Ron’s meal deduction is $70 (50% of $140).

Filling out a Foursome

Generally, you can’t claim a 50% deduction for buying your spouse a meal. There are exceptions, though, if including your spouse at the table serves a business purpose, rather than one that’s personal or social.

Example 4: Tim Walker invites a customer to dinner. The customer is visiting from out of town, so the spouse is also invited because it is impractical to entertain the customer without the spouse. Tim can deduct 50% of the cost of the meal for the customer’s spouse. What’s more, if Tim’s wife joins the group because the customer’s spouse is present, the cost of the meal for Tim’s wife is also deductible.

Taking the Deduction

For self-employed individuals and business owners, taking 50% deductions for business meals may be straightforward. For employees, though, those deductions might be harder to obtain. Unreimbursed expenses are included in miscellaneous itemized deductions, which are deductible only to the extent they exceed 2% of adjusted gross income (AGI).

Example 5: Lynn Knox, who is an employee, spends $500 on business meals in 2015 and is not reimbursed. When she prepares her tax return for the year, she includes $250 as a miscellaneous itemized deduction. Her AGI is $100,000, so her 2% threshold is $2,000. If Lynn’s miscellaneous deductions add up to $2,400, she is entitled to deduct the $400 excess. Without her business meals, Lynn’s miscellaneous deductions would have been only $2,150, generating a $150 deduction, so Lynn effectively gets a $250 deduction for her $500 of business meal expenses. If Lynn’s miscellaneous deductions were under $2,000, she would have no tax benefit from her business meals.

Trusted Advice

Meal Plans

  • In order to support a deduction for buying someone a meal, you must be present.
  • The purpose of the meal must be the active conduct of business, you must engage in business during the meal, and you must have more than a general expectation of getting income or some specific business benefit in the future; or the meal must be associated with the active conduct of business and come directly before or after a substantial business discussion.
  • You should keep a record of all these meal expenses. Note the “who, where, when, and how much” details along with an explanation of the business purpose of your mealtime conversation.
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What would you say if I could get you a 500 percent return on your money over the next two years with little to no risk?  Sound too good to be true?  Unfortunately, it is but that doesn’t stop thousands of investors in losing money in bad investments every year.

Early-stage investment in companies used to be reserved for the wealthy industry players, however in recent years it has become more common for mainstream investors to find early-stage investment opportunities.  As a result, we are seeing more clients come to us for advice on investing in small privately held companies ranging from startups to existing businesses.  The potential upsides from these investments can be very large and can become very intriguing for investors looking to outperform the public markets.  However, in most cases the rewards still do not represent the risks being undertaken in a private investment. Remember, while private investments may have become easier to find, the underlying risks of those investments has not changed.

While there are stories of massive returns on small investments, they are few and far between and usually the result of good timing and excellent execution.  But if an investment opportunity is touting great returns from the get-go then the likelihood is it’s either a scam (think Pyramid, Ponzi, etc) or just a very bad idea.  Either way, the investor will be the one losing out.

So where does that leave the mainstream investor?  Should they stay away from private company investments altogether and potentially miss a home run opportunity or can they also participate?

The answer is yes, provided they have their wits about them and can objectively assess an opportunity.

So how do you find out about investment opportunities in the private markets?  Below is a summary of the typical ways to find an opportunity:

  • Sourced through an investment group – This is by far the best way to source private investments; they typically require an investor to meet certain wealth and income levels (making sure you can afford to lose your investment without going broke) and they will typically vet any opportunities so only real deals are presented.
  • Presented by a professional – Typically these are presented to clients by wealth managers or other professionals such as lawyers or CPAs. The quality of these opportunities varies greatly. A good professional will ensure sufficient due diligence is done prior to making a presentation and that the guidelines set by the SEC are followed. In order to assess if this is a good opportunity always seek a second opinion, make sure the presenter has done suitable due diligence and understand the financial (if any) relationship between the presenter and the opportunity (i.e. do they get commission if you invest? If so, is it clearly stated up front?)
  • Presented by a friend or family member – This can result in great opportunities as you have an early look at something before other investors, but it also comes with an emotional tie that may sway an investor into doing a risky deal. Care and attention need to be taken here to ensure the opportunity is objectively assessed.
  • Online crowdfunding (i.e. Kickstarter) – Generally high risk as most opportunities are ‘ideas’, however, the investment levels can be very low. Many product-based investments will just return you a copy of the product not an actual share of the company so the upside is limited if they are successful. There are some property-related opportunities in this space that can be somewhat interesting. This is still an evolving concept and the requirement for good due diligence is firmly in the hands of the investor at this time.

So once you find an opportunity what then?  Below are 10 questions to ask yourself when presented with an investment opportunity:

  1. Has the lead operator(s) been successful in the past in the same or similar industry?
  2. What is the industry? How big of an impact can the business have? For example, software generally has much higher upside than a restaurant as the customer base is likely to be much larger.
  3. Is there a well-documented investment presentation that includes discussion around the market, competitors (and how the company will differentiate itself) and significant risks associated with the company?
  4. Does the company in question have a thought out and documented business plan and strategy to execute on its objectives?
  5. What stage is the company in and does the value represent this stage? For example, is the company an idea/concept or does it have a proven product with supporting revenues and customers?
  6. How and when will your investment start to return profits and/or principal? What is the annual return on your investment and how does this compare with your other investments? For reference, a private investment in a small company should command annual returns of 25 to 35 percent due to the level of risk typically taken on.
  7. What is the risk of failure? Are the investors in any way obligated to provide additional funding and/or will there be saleable assets in the event the business fails to recoup some of your investment?
  8. Do the presented financial projections use aggressive or conservative assumptions? For example, in the case of a restaurant what is the average expected spend per customer and the number of customers per night and how does this compare to industry norms?
  9. Can you afford to lose the money you plan to invest?
  10. How do you exit your investment? Is there a clear plan to realize a return to all investors and is this reasonable?

Once you have identified a good opportunity and it ticks all the right boxes, it is critical to hire a professional with experience in private company investments to make sure your interests are protected and the necessary legal paperwork is completed.  A good advisor will ensure:

  • The financial presentations use reasonable assumptions.
  • All legal documents are reviewed to ensure you are protected and that any shareholder, member or note agreements are drafted suitably and in line with any presentations made.
  • You fully understand your commitment going forward (i.e. will you be contacted for additional funds down the road or will the company likely have a need to bring in additional investors at a later stage).
  • Any proprietary knowledge or technology is owned by the company and included in the investment.

Finally, below are red flags that should make you run fast in the opposite direction:

  • The opportunity does not come with a thought-out business model and strategy.
  • Financial presentations use best case scenarios only.
  • There is no contingency plan if things do not occur as planned.
  • The opportunity is in a low performing industry or has stiff competition in place (i.e. very limited upside).
  • The person presenting the opportunity has a history of poor performance or ‘excuses’ for prior failures.
  • The opportunity requires you to commit and sign on the spot or in a short window that does not allow for sufficient due diligence.
  • The person presenting insists on representing your interests and is against you utilizing an independent professional to help in your analysis.

Overall, private company investments can provide significant returns to investors but they also carry significantly increased risks.  So if you have enough wealth to stomach a small percentage being invested in high risk / high return investments then investing in private companies may be something to consider.  Just remember to be diligent and careful in your approach and always get a second opinion from an unrelated party.

Austin Buckett, ACA, CM&AA, is a Manager at BiggsKofford Capital and specializes in helping clients acquire, grow and exit their businesses as a licensed investment banker within Mergers and Acquisition arm of the company.

Deborah Helton, CPA, is a Director at BiggsKofford, CPAs, a Colorado Springs-based accounting and consulting firm, and a member of the National CPA Health Care Advisors Association. Mrs. Helton specializes in assisting physicians align their goals with simple tax strategies and business coaching to eliminate surprises and assess risk.

(PlasticSurgeryPractice.com InDepth By Gregory Michael Dell, Esq)

Beware the “medical occupation” definition of total disability

A well-known insurer recently introduced the “Medical Occupation” definition of disability to the marketplace. While the “Medical Occupation” definition appears to be an innovative method to sell physicians a new long-term disability product, I still think there is nothing better than an “Own-Occupation” definition of disability.

Physicians are researchers by nature, and when supplied with enough information they will make informed, educated decisions that will allow them to sleep comfortably. So listen to the arguments, do your homework, and don’t take the purchase of disability insurance lightly. Your entire financial future may one day depend on it.

As a plastic surgeon, you have probably been told that you should make sure that you purchase an insurance policy with a true “Own-Occupation” or “Own Specialty” definition of disability for the entire benefit period (to age 65 or longer).

Now, this well-known disability insurance company is challenging this “conventional wisdom”—but should it be?

THE “OWN-OCCUPATION” DEFINITION OF TOTAL DISABILITY

A disability insurance policy with a true “Own- Occupation” definition of total disability typically states that you are totally disabled if solely due to injury or sickness you are not able to perform the “material and substantial” duties of your occupation.

Some companies will even state that if you have limited your occupation to the performance of the material and substantial duties of a single medical specialty, that specialty will be deemed to be your occupation.

Translation: If due to injury or sickness you cannot perform your duties as a plastic surgeon, and provided your predisability practice was solely limited to the duties of that specialty, then you would be considered totally disabled—even if you decide to work in another occupation or medical specialty.

THE “MEDICAL OCCUPATION” DEFINITION OF TOTAL DISABILITY

Northwestern Mutual Life is heavily marketing the “Medical Occupation” definition of total disability. The argument for this definition of total disability compared to the true “Own-Occupation” definition of total disability is that plastic surgeons have nonsurgical patient care duties in addition to performing surgery.

The company selling the “Medical Occupation” definition of total disability believes that the “Own-Occupation” definition requires a plastic surgeon to be unable to perform all of their surgical and nonsurgical duties in order to be considered totally disabled. So, this argument says that since most doctors will not satisfy the “Own- Occupation” definition of total disability, the “Medical Occupation” definition may provide greater clarity and flexibility at the time of claim.

The “Medical Occupation” definition of total disability states that if more than 50% of your time was spent providing direct patient care and services and you are unable to perform the principal procedures of your procedure based, board-certifiable medical specialty, you have the flexibility to continue working and receive benefits proportionate to your loss of income or to stop working entirely and receive your full monthly benefit.

Can a surgeon be deemed “totally disabled” if he is unable to operate? There is no black letter law that defines the material and substantial duties of an individual’s occupation. Courts have used various tests to determine if an insured’s occupational duties are material and substantial versus incidental or peripheral.

Whether or not a certain occupational duty is material depends on the duty’s importance to that profession, the amount of time the duty consumes, and its qualitative importance to the professional mission.

A duty will be deemed material when it is so important that an inability to complete the duty equates to the insured being unable to practice his or her “regular occupation.”

In Dowdle v Nat’l Life Ins Co, the court addressed the issue of whether a surgeon is entitled to total disability benefits under the terms of his disability policy where he is unable to perform surgery but able to conduct office consultations and perform other nonsurgical tasks.

In this case, John A. Dowdle, Jr, MD, purchased a long-term disability policy with an “Own-Occupation” definition of disability. On his application for coverage, Dowdle identified his occupation as an orthopedic surgeon and listed his specific duties as seeing patients, performing surgery, reading x-rays, interpreting data, and promoting referrals.

Prior to his disability he worked 50 to 60 hours per week, plus call duties. In an average week, Dowdle devoted 5 half-days to surgery and 5 half-days to office consultations, seeing 15 to 20 patients in each half-day session.

In all, surgery and surgery related care comprised 85% of his practice. In addition to his orthopedic practice, Dowdle performed on average seven independent medical evaluations (IMEs) per week for a company he cofounded. He devoted an average of 1 1/2 hours to an IME: a half-hour for discussion and examination and 1 hour for review of medical records and preparation of the report.

Dowdle often completed IMEs at his home during evening hours, as these were not part of his normal duties as an orthopedic surgeon.

Years later, Dowdle suffered injuries, including a closed head injury and a right calcaneal fracture, when the private aircraft he was piloting crashed shortly after takeoff. As a result of the injuries, he was unable to stand at an operating table for an extended period of time. Thus, he could not perform orthopedic surgery.

He filed a claim for total disability and was awarded benefits. Months later, he resumed performing office visits and working 6 half-days per week, as an independent contractor seeing 15 to 20 patients during each half-day session. Dowdle also resumed performing IMEs for the independent company he cofounded.

Dowdle admitted that he could not perform orthopedic surgery and, instead, if surgery was needed he referred patients to two of his partners. He argued that he was totally disabled because he could no longer perform surgery—the main duty of an orthopedic surgeon. His disability carrier argued that he was not totally disabled because he could still care for patients with spinal injuries and illnesses and manage their rehabilitation and injections, as he had done previously.

Agreeing with Dowdle, the court held that he was entitled to total disability benefits and stated that the duties of office consultation and nonsurgical tasks are manifestly secondary or supplementary tasks incident to the primary function of an orthopedic surgeon.

The court also noted that a determination of total disability does not require a state of absolute helplessness or inability to perform any task relating to one’s employment.

HOW IT DIFFERS

Under the “Medical Occupation” definition of disability, Dowdle would have had to either discontinue his work as an orthopedic surgeon—along with any other gainful employment— or continue working and earn less than 20% of his predisability earnings in order to qualify to receive his full disability benefit.

With a true “Own-Occupation” definition of disability, Dowdle had the ability to continue working and earn unlimited income, so long as his disability rendered him “unable to perform with reasonable continuity the substantial and material acts necessary to pursue his or her occupation in the usual and customary way.”

It is also important to note that while

Dowdle v Nat’l Life Ins Co is widely accepted  in the 8th Circuit, and similar outcomes have occurred in other jurisdictions, the legal interpretation of an “Own-Occupation” definition of disability varies in different courts throughout the country.

 

References

1. ”Procedure-based” means more than 50% of medical charges come from performing surgical interventions and non-surgical invasive interventions.

2. Lasser v Reliance Standard Life Ins Co, 146 F Supp 2d 619, 636 (DNJ 2001), judgment aff’d, 344 F3d 381 (3d Cir 2003).

3. Dowdle v National Life Ins Co, 407 F3d 967 (8th Cir 2005).

4. California Settlement Agreement between UNUM and the California Department of Insurance.

The Healthcare industry has become a hotspot for cybercrime due to the wealth and value of the knowledge held in Electronic Health Records (EHRs).  “With its storehouse of patient personal information and financial data, including credit card numbers and health insurance identification numbers, your practice is a tempting target for those who want to use or sell this type of data – and the criminals need only one weak link, such as an under-secured computer or portable device, to gain access.”[1]

Laws governing the privacy of patient’s healthcare records are contained in the Health Insurance Portability and Accountability Act (HIPAA).  They require healthcare organizations to implement administrative, physical and technical safeguards to guarantee integrity and privacy of their patient’s records.  Despite the rigorous rules defined by HIPAA, Healthcare providers are subject to more and more attacks.  Compliance is not enough to ensure the safety of EHRs.

The value of a credit card in the underground market is around $1 USD, but when combined into a full identity profile, to fair value of that same card is dramatically increased to roughly $500. [2]  This makes EHRs a hot item for cyber criminals.

Financial services and retail organizations have learned over the years the true costs of data breaches, and have taken steps to help ensure security.  In 2012, HHS’ Offices for Civil Rights has entered into several major settlements of HIPAA enforcement actions.  Major healthcare providers have settled their data breach cases for between $1.5 and $1.7 million dollars. [3]   A cardiac surgery practice in Phoenix settled a case for $100,000 with OCR for having an appointment calendar publicly accessible over the internet.  State attorneys have pursued smaller cases, which have resulted in over six figure settlements.  Smaller physician practices are at risk for lawsuits and should take care and have extensive safeguards to protect their patients.

This is clearly a challenge that must be overcome by healthcare organizations that traditionally has not been subject to this threat, and has not had to accommodate for cybercrime.  Risks that need to be addressed as more and more information is at risk to cybercrime include [2]:

  • Securing enrollment to ensure that first-time users to a portal are who they say they are before granting access to various applications
  • Securing access to online portals to prevent the loss of patient’s personal and healthcare information
  • Securing access for physicians to clinical applications that contain patient data
  • Securing access for payees and other third parties to sensitive data required to perform their job
  • Securing the web session both before and after login
  • Educating employees on the risks of phishing and malware

Contact your healthcare attorney to ensure you are HIPAA-compliant and what steps you should take once aware of a potential breach of information.  Also, contact your IT provider on better ways to technically safeguard your practice.  If you have any questions regarding cyber security, please contact your BiggsKofford representative at (719) 579-9090, and we will be happy to serve you.

 

Sources:

[1] http://www.threattracksecurity.com/getmedia/c2723f16-71de-44ec-8b31-e5d2984833bb/business-antivirus-white-paper-healthcare-security.pdf.aspx

[2] http://www.emc.com/collateral/white-papers/h12105-cybercrime-healthcare-industry-rsa-wp.pdf

[3] http://www.physicianspractice.com/blog/why-your-medical-practice-may-have-exposure-cybercrime

 

Article written by Nick Phillips, Associate at BiggsKofford.

 

What is cyber security?

Cyber security is the process of protecting an organization’s network and computer systems from the unauthorized access and use for the purpose of stealing or destroying vital company information or individual personal identification information and personal health information.

Why has cyber security become such an important topic for businesses?

  • The top three causes for a data breach are:
    1. Lost or stolen computing devices.
    2. Third-party snafu.
    3. Unintentional employee action.
  • Average time to notify data breach victims is approximately seven weeks.

What is the impact on an organization when a breach occurs?

  • When an organization experiences a breach there is an instant loss of customer loyalty and confidence.
  • An organization is now in damage control mode to protect its brand and reputation.
  • Employees are forced to divert their focus from core activities to crisis management.
  • There are unnecessary and lingering expenses like credit monitoring, litigation expenses and potentially fines.

How can an organization protect itself?

There are three main components to protecting your business.

  • First is to implement a risk management process that includes having a documented risk assessment and response matrix, a clearly defined response strategy with defined roles for all team members, and a communication plan.
  • Second is to ensure the organization is compliant with state and federal laws, rules and regulations like HIPAA, FACTA and breach notification laws.
  • Third is to purchase a cyber-liability policy that covers both 1st and 3rd party losses. These policies cover losses that are excluded from general liability and umbrella policies.

What kind of coverage can be purchased?

There are four types of coverages an organization can purchase.

  •  Network Security/Privacy Breach – This covers liability from unauthorized access to digital records and negligence or failure to protect or safeguard confidential data.
  • Cyber Extortion – covers the threat to incapacitate your network or website.
  • Internet Media liability – covers claims of libel, slander, copyright infringement or other electronic advertising or personal injury.
  • First Party Internet Liability – this is business interruption coverage that provides for loss of income and extra expenses due to a network or system shut down.

The types of coverage needed for each organization will vary depending upon the existing exposures and your appetite for risk. We recommend that every organization sit down with their advisor to discuss employing a risk management strategy.

 

Article by Jill Webb, Vice President of CB Insurance, Colorado Springs. See Jill and her colleague, Todd Morris, present at this month’s Entrepreneurial Corner event.

(AccountingWeb, By Terry Sheridan; Published June 2014)

Employers who figure they’ll pay workers upfront for health insurance on the state or federal exchanges rather than provide coverage themselves are going to run smack into the Internal Revenue Service juggernaut.

The agency made clear in its Notice 2013-54 that such maneuvers, considered employer payment plans, are tantamount to an end run around the intent of the Affordable Care Act (ACA).

In a recently updated Q&A advisory, the IRS said that these employer payment plans generally don’t include arrangements where employees either can have an after-tax amount applied to health coverage or can take that amount in cash. These plans are considered group health plans subject to the market reforms under the ACA. Those reforms ban annual limits on essential health benefits and require that certain preventative measures, such as mammograms, are free.

And employers’ group plans can’t merge with individual coverage to satisfy the ACA provisos.

The upshot is a fine of $100 per day excise tax per employee, or $36,500 a year per employee under Section 4980D of the Internal Revenue Code.

The Department of Labor (DOL) issued Technical Release 2013-03 that is almost identical to the IRS notice, and the Department of Health and Human Services (HHS) is expected to release a similar proviso.

Andrew R. Biebl, a partner at accounting firm CliftonLarsonAllen in Minneapolis, Minn., told the New York Times late last month that the IRS ruling could upend tactics used in many businesses.

“For decades, employers have been assisting employees by reimbursing them for health insurance premiums and out-of-pocket costs,” Biebl said. “The new federal ruling eliminates many of those arrangements by imposing an unusually punitive penalty.”

Here are highlights from the IRS notice about employer payment plans and reimbursement accounts. (The ruling also covers flexible spending accounts.)

  • According to Ruling 61-146, an employer who pays an employee’s premiums for non-employer sponsored insurance must exclude the payments from the employee’s gross income. Same goes if the payments are made to the insurer.
  • Employers can forward post-tax employee wages to an insurer at the employee’s direction without establishing a group health plan, if certain DOL regulations are met.
  • The IRS, DOL and HHS will amend three regulations to allow that benefits under an employee assistance program will be considered excepted benefits—only if the program doesn’t provide benefits like medical care and treatment. Excepted benefits aren’t subject to the ACA’s market reforms and aren’t considered minimum essential coverage. Until final rules are in place and likely through the remainder of this year, the agencies will consider employee assistance plans to mean excepted benefits only if they don’t provide medical care or treatment. It’s up to employers to use a “reasonable, good faith interpretation” of whether their plans provide that care or treatment.
  • An employer’s health reimbursement account (HRA) can’t be merged with individual coverage or with the employer’s individual policies. So, an HRA used to buy individual coverage violates the ACA’s ban on annual dollar limits.

(Journal of Accountancy, By Thomas M. Brinker Jr., CPA/PFS, J.D. and W. Richard Sherman, CPA, J.D.; Published June 2013)

As the number of children diagnosed with autism, Asperger’s syndrome, and other neurological disorders continues to skyrocket, the disruption it causes in the lives of all those concerned is unmistakable—as are the costs of providing care for the special needs child. As reported by the Autism and Developmental Disabilities Monitoring (ADDM) Network in March 2012, as many as 1 out of 88 children born today has an autism spectrum disorder or ASD. And a report by the Centers for Disease Control and Prevention (CDC) has estimated that rate is as high as 1 in 50. Other disabilities are also becoming more prevalent, according to the CDC. Between 1997–1999 and 2006–2008, there was an 18.2% increase in blindness/sight impairment among children age 3 to 17, a 9.1% increase in seizures, and a 24.7% increase in “other developmental delay” (which excludes autism, attention deficit hyperactivity disorder, and learning disabilities).

Further complicating the situation, parents with special needs children are often unaware of possible tax benefits that are available and forgo hundreds, if not thousands, of dollars in potential tax deductions and credits. Michael A. O’Connor, an attorney who has written extensively on this topic, believes that 15% to 30% of families with a disabled child have one or more unclaimed tax benefits. Among these potential tax benefits are deductions or credits for the dependency exemption, medical expenses, special instruction, capital expenditures for medically required home improvements, impairment-related work expenditures, and the earned income tax credit.

 Tax Benefit Checklist for Families Caring for Special Needs Children

Deducting the cost of a special school or institution

What is a special school?

  • A school is a special school if the ordinary education it furnishes is incidental to the special services it furnishes. Thus, the curriculum of a special school may include some ordinary education, but this must be incidental to the school’s primary purpose to enable the student to compensate for or overcome a handicap, to prepare him or her for future normal education and living.

What are some examples of a special school?

  • Schools with programs to “mainstream” children with neurological disabilities (e.g., autism spectrum disorders) and schools that teach Braille, lip reading, or sign language.

What costs of a special school are deductible?

  • Lodging;
  • Meals;
  • Transportation;
  • Incidental educational costs provided by the institution; and
  • Costs of supervision, care, treatment, and training.

When can regular schools be classified as a “special school” for an individual?

  • A school that has a special curriculum for the disabled individual can be classified as a special school for that individual (Rev. Rul. 70-285).

What private tutoring by a specially trained teacher is deductible?

  • The costs for tutoring by a teacher who is specially trained and qualified to deal with severe learning disabilities are deductible, provided the child’s doctor recommended such tutoring (Rev. Rul. 78-340).

When is special education for dyslexic children deductible?

  • Dyslexia is a medical condition that handicaps the child’s ability to learn. Therefore, if a child is diagnosed with dyslexia, the costs of special education to overcome dyslexia are deductible medical care expenses (Letter Ruling 200521003).

Deduction for medical conferences and seminars

  • Both transportation and admission fees to qualifying medical conferences or seminars are deductible, but lodging and meals are not (Rev. Rul. 2000-24).

Prescribed vitamin therapy; hyperbaric oxygen therapy; chelation therapy; equestrian therapy; individualized or group art, dance, music, and play therapies; summer camps, etc.

Medical travel and transportation

  • For 2013 tax returns: 24 cents per mile.
  • For 2012 tax returns: 23 cents per mile.
  • Lodging costs (but not meals) up to $50 per day are deductible for the taxpayer and one additional person      if an overnight stay is necessary.

Consider FSA health care plan if ineligible for medical expense deduction

Impairment-related work expenses

  • Business deduction for attendant care services at place of employment (ordinary and necessary expense to help in performing job).
  • Not subject to 2%-of-AGI limitation imposed on unreimbursed employee business expenses.

Qualifying child

  • Special needs individual can be any age and claimed as a dependent.
  • No gross income limitation for a “qualifying child.”
  • Prior to 2009, a taxpayer could claim a dependency exemption for an older sibling. This option is not available for tax years beginning in 2009 and later unless the older sibling is permanently and totally disabled (Fostering Connections to Success and Increasing Adoptions Act of 2008, P.L. 110-351).

Credit for special needs adoption expenses

  • $12,970 for a special needs child ($12,650 in 2012), regardless of adoption expenses.
  • Must be a U.S. citizen or resident who requires adoption assistance.
  • Qualifying expenses include legal fees, court costs, and other adoption-related costs.
  • The limit is per child, not per year (the credit was refundable for 2010 and 2011 only; for pre-2010 credits and post-2011 credits, the credit is nonrefundable with a carryover of five years).
  • Credit phases out for taxpayers with AGI exceeding $194,850 ($189,710 in 2012); the credit is phased out      completely at $40,000 above the threshold.

EXECUTIVE SUMMARY

  • The number of disabled children has increased in recent years as has the cost of caring for them.
  • Practitioners should know about the tax benefits available to parents or other qualifying relatives for some of these costs, a number of which are deductible as medical expenses, above a certain floor.
  • The costs of modifying a house to be handicapped-accessible as well as the cost of attending a special school are examples of costs deductible as medical expenses.
  • Disabled children qualify for dependency exemptions and other tax benefits (e.g., child tax credits, earned income tax credit) no matter how old they are as long as they live at home with their parents or other qualifying relative.
  • Disabled adults can deduct impairment-related work expenses for the cost of attendant care services and other expenses that permit them to work at their place of employment. These expenses are not subject to the 2%-of-AGI floor on itemized deductions.

Thomas M. Brinker Jr. is a professor of accounting at Arcadia University in Glenside, Pa. W. Richard Sherman is a professor of accounting at Saint Joseph’s University in Philadelphia.

If your business had made an investment to increase accessibility or otherwise enable disabled persons access to your building and services, you may qualify for a tax credit.

The Disabled Access Credit is designed to help businesses comply with the Americans with Disabilities Act (ADA). The ADA credit is available to eligible small businesses with less than $1 million in gross receipts for the preceding taxable year or who employed no more than 30 full-time employees during the preceding year. The tax credit is equal to 50 percent of the “eligible access expenditures” that exceed $250 but do not surpass $10,250 for a taxable year.

Eligible Access Expenditures include expenditures for:

  1. Removing barriers that prevent a business from being accessible to or usable by individuals with disabilities;
  2. Providing qualified interpreters or other effective methods of making audio materials available to individuals with hearing impairments;
  3. Providing qualified readers, taped texts, and other methods of making visual materials available to individuals with visual impairments;
  4. Acquiring or modifying equipment or devices for individuals with disabilities.

All expenditures must be reasonable and necessary and must meet the standards issued by the Secretary of the Treasury in concurrence with the Architectural and Transportation Barriers Compliance Board. Expenses incurred for new construction are not eligible. Eligible expenditures do not include those to remove barriers that prevent a business from being accessible to or usable by individuals with disabilities that are paid or incurred in connection with any facility first placed in service after November 5, 1990. Other terms and conditions may apply.

For the purposes of this tax credit, disability is defined exactly as in the ADA. A full-time employee is defined as one who is employed at least 30 hours per week for 20 or more calendar weeks in the taxable year. In general, all members of a controlled group of corporations are treated as one person for purposes of credit eligibility, and the dollar limitation among the members of any group will be apportioned by regulation. In the case of a partnership, the expenditure limitation requirements will apply to the partnership and to each partner. Similar rules will apply to S corporations (see Internal Revenue Code sections 1361 through 1379, Subchapter S of Chapter 1) and their shareholders.

Deborah Helton

Deborah Helton

Director

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The Colorado Enterprise Zone Program creates a business friendly environment in economically distressed areas by offering incentives to businesses and projects in such areas. If your business is located in one of the 17 different Colorado Enterprise Zones you may be eligible to claim various Colorado tax credits based on your purchases of qualified equipment, facility expansion, the hiring new employees and many other business activities.

In 2013 the State of Colorado implemented a precertification process.  Starting in 2014, a few additional changes have been implemented, including electronic contact information and noting your accountant/CPA.  Pre-certification can be filed at any time prior to commencing the activity.  In order to ensure that our clients don’t miss the opportunity to claim these beneficial credits, we suggest that anyone located within a Colorado Enterprise zone file for pre-certification for the 2014 tax year before the end of 2013.  The process is very simple and takes less than 15 minutes.  In addition, if you don’t perform activities during the year that would earn you any of the respective credits you have no further commitments.

To search your business address to determine if you are located within one of the zones:

http://www.advancecolorado.com/funding-incentives/incentives/enterprise-zone-tax-credits/zone-territory-map

To complete the pre-certification online application system as well as additional information on enterprise zones and the specifics of the credits that you may qualify for can be found below (If you do not already have an account set up, please click on New User under the Login button):

http://www.advancecolorado.com/funding-incentives/incentives/enterprise-zone-tax-credits/ez-pre-certfication-and-certification

If you determine that you are located within an enterprise zone and would like BiggsKofford to assist in the pre-certification process please contact BiggsKofford at 719-579-9090.