Physician Groups

(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.

The Internal Revenue Service (IRS) has announced that the due date for providing the following 2015 forms have been extended from February 1, 2016 to March 31, 2016:

  • 2015 Form 1095-B – Health Coverage
  • 2015 Form 1095-C – Employer Provided Health Insurance Offer and Coverage

Also, the IRS has announced that the due date for the following forms are extended from Feb. 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016, if filing electronically:

  • 2015 Form 1094-B – Transmittal of Health Coverage Information Returns,
  • 2015 Form 1095-B –Health Coverage
  • 2015 Form 1094-C – Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
  • 2015 Form 1095-C –Employer-Provided Health Insurance Offer and Coverage

If you have any questions regarding this, please to not hesitate to contact Greg Gandy or Mike McDevitt at (719) 579-9090, and we will be happy to serve you.

The IRS has announced the official mileage rates for 2016.   The IRS mileage rates for 2016 for the use of a vehicle are:

  • 54 Cents per mile for business use down from 5 cents in 2015.
  • 19 cents per mile for medical reasons or moving purposes down from 23 cents in 2015.
  • 14 cents per mile for charitable purposes which is the same rate as in 2015.

We hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please do not hesitate to call Greg Gandy or Michael McDevitt at our office at 719-579-9090.

From Canton, Ohio, where the Pro Football Hall of Fame Weekend takes place in August, to Los Angeles, which has Haunted Hayrides to celebrate Halloween throughout October, cities small and large host special events throughout the year. Moreover, oceanfront communities attract millions of tourists in the summer while mountain regions offer winter sports each winter.

What is the common denominator? If you live in an area popular with tourists, for a season or a month or even a day, you can rent your home for a sizable amount. According to some reports, homes in the Augusta, Georgia area rent for as much as $20,000 for the week of the Masters Golf Tournament in April.

Moreover, income from such rental activity is legitimately tax-free: you don’t have to report it on your tax return. You can’t deduct any expenses incurred for the rental, but you still can take applicable mortgage interest and property tax deductions for your home with no reduction for the profitable rental period.

Fortune’s Fortnight

As you might expect, you have to clear some hurdles to qualify for this tax-free income. Perhaps most important, you must rent the home for no more than 14 days during the year. If you go over by even one day, tax-free taxation will vanish. In that case, you will have to report your rental income, and you may take appropriate deductions, but the process can become very complicated.

In addition to the 14-day limit, the IRS says that you must use the “dwelling unit as a home.” This means that you must use the property for personal purposes more than (a) 14 days or (b) 10% of the days it is rented to others at a fair price, whichever is greater.

Example 1: Jan Harrison lives in Charlotte, North Carolina, throughout the year but rents her home for a week when the Bank of America 500 race is in town. She moves in with her sister and then goes home after the weeklong rental ends. Jan lives in her home well over 300 days in the year, so claiming the tax-free rental income won’t be a problem.

You also can claim this tax break for a vacation home as long as there are at least 15 days of personal use and you keep rentals under 15 days a year. With either a primary residence or a second home, keep careful records to show that you observed the 14-day rental limit.

Proceed Prudently

Tax-free income is certainly welcome, but it shouldn’t be your only concern. Keep in mind that you are letting other people occupy your home, perhaps during a time when parties may occur. Make sure you have a formal rental agreement in place and that you collect the rent upfront, along with a deposit for possible property damage. Check with your homeowners insurance agent to see if you need special coverage, and check with local officials to find out if you need a permit for a short-term rental.

If you decide to use a service to handle the rental and save you some aggravation, ask what fees you’ll owe. In addition, ask if the rental income will be reported to the IRS. Such reports may complicate what can be a straightforward tax benefit; our office can explain the possible problems and solutions.

As the world shrinks, business owners may find themselves traveling to foreign destinations. Often, such trips are vital, leading to personal visits with suppliers and potential customers. Ideally, you’ll be able to deduct all your travel costs, but that may not be the case if you venture beyond the 50 states and Washington, D.C.


The Seven-Day Rule

If you travel outside the U.S. for a week or less, your trip will be considered entirely for business, even if you combine business and nonbusiness activities. Then, you can deduct all of your travel costs. A week, for this purpose, is seven consecutive days, not counting the day you leave the U.S.


Example 1: Denise Edwards has a clothing import business in Chicago. She travels to San Francisco on Tuesday, then flies to Hong Kong on Wednesday. After spending Thursday and Friday in business discussions, Denise spends Saturday through Tuesday sightseeing. She flies back to San Francisco on Wednesday and returns to Chicago on Thursday.


Here, Denise was not outside the U.S. for more than a week. (The day she departed from San Francisco does not count as a day outside the U. S.) Therefore, she can deduct all of her travel costs. She also can deduct the cost of her stay in Hong Kong for the days she worked there but not her costs for her sightseeing days.


More than One Week

Business trips longer than one week trigger another set of rules. As long as 75% or more of the trip’s total days are business days, you can deduct all your travel costs. Days traveling to and from your destination count as business days, for the purpose of reaching the 75% mark. Again, your costs for nonbusiness days are not tax deductible.


If your trip is primarily for business, but you fail both the one week and the 75% tests for the travel, calculating your deduction becomes more complicated. You can only deduct the business portion of your cost of getting to and from your destination and must allocate your travel time on a day-to-day basis between business days and nonbusiness days.

Example 2: Henry Jackson owns a restaurant supply business in Boston. He flies to Berlin on March 7 for a conference and spends time there on business until March 17. That day, Henry flies to Brussels to see friends and tour the local museums. On March 24, he returns to Boston from Brussels.

As the IRS looks at Henry’s itinerary, it appears that Henry could have returned to Boston on March 17, after completing his business. Thus, 11 days of the trip (March 7–17) count as business days while the other seven days (March 18–24) are nonbusiness days.

With this reasoning, 7 out of 18 days of the trip were nonbusiness days, so 7/18 of what it would have cost him to travel roundtrip between Boston and Brussels is not tax deductible.

Assume Henry’s total airfare costs were $2,000, whereas roundtrip airfare between Boston and Brussels would have been $1,500. Henry must subtract 7/18 of this roundtrip fare ($1,500 x 7/18 = $583) from his actual travel expenses. Because Henry spent $2,000, subtracting $583 gives him a $1,417 deduction for his airfare. He can deduct his costs while in Berlin on business but not his costs while in Brussels for other purposes.

As you can see, calculating foreign business travel deductions can be complex. If you will be outside the United States for business, our office can help you set up a schedule for optimal tax benefits. Call BiggsKofford at (719) 579-9090 wit any questions you may have.

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.

(IRS Newswire, Issue Number IR-2014-99; Published 2014)

Taxpayers May Contribute up to $18,000 to their 401(k) plans in 2015

The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015.  Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.  However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.  Highlights include the following:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014.  For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000; and $30,500 for married individuals filing separately and for singles, up from $30,000.

Below are details on both the adjusted and unchanged limitations.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.  Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415.  Under Section 415(d), the adjustments are to be made under adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective January 1, 2015, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000.  For a participant who separated from service before January 1, 2015, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2014, by 1.0178.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2015 from $52,000 to $53,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).  After taking into account the applicable rounding rules, the amounts for 2015 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $17,500 to $18,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $260,000 to $265,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $1,050,000 to $1,070,000, while the dollar amount used to determine the lengthening of the 5 year distribution period remains unchanged at $210,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $115,000 to $120,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $5,500 to $6,000.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $2,500 to $3,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $385,000 to $395,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $550 to $600.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,000 to $12,500.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $17,500 to $18,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $105,000.  The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $210,000 to $215,000.

The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3).  After taking the applicable rounding rules into account, the amounts for 2015 are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $36,000 to $36,500; the limitation under Section 25B(b)(1)(B) is increased from $39,000 to $39,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $60,000 to $61,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $27,000 to $27,375; the limitation under Section 25B(b)(1)(B) is increased from $29,250 to $29,625; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $45,000 to $45,750.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $18,000 to $18,250; the limitation under Section 25B(b)(1)(B) is increased from $19,500 to $19,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $30,000 to $30,500.

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $96,000 to $98,000.  The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $60,000 to $61,000.  The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.  The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $181,000 to $183,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $181,000 to $183,000.  The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $114,000 to $116,000.  The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,084,000 to $1,101,000.

For questions, contact BiggsKofford at (719) 579-9090.

Deborah Helton

Deborah Helton


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Austin Buckett

Austin Buckett


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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.

( 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?


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.


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.


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.



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.

During your lifetime, donating appreciated assets to charity can make sense. As long as you have held those assets for more than one year, you’ll get a deduction for the assets’ current value. The paper gain will avoid income tax.

Example 1: Ava Brown wants to donate $10,000 to her favorite charity this year. Instead of writing a check, Ava donates $10,000 of stock that she bought years ago for $4,000. Ava receives a $10,000 tax deduction for the donation and the $6,000 gain is never taxed.

At the same time, Ava leaves her traditional IRA untouched, for ongoing tax deferral.

Reversing course
When Ava prepares her estate plan, she decides to switch tactics. Ava intends to make a much larger bequest to her favorite charity, but she will not use appreciated assets for this donation from her estate. Instead, she will make this large bequest from her traditional IRA.

Why the change? Consider the following scenario, which would have been the case without a switch.

Example 2: At Ava’s death, her only assets are a $100,000 traditional IRA and $100,000 in appreciated stocks. She leaves her traditional IRA to her son Brad and her $100,000 of appreciated assets to charity. After Brad inherits the traditional IRA, he will have to pay income tax on all distributions from that IRA. If his effective income tax rate is 40%, Brad’s net inheritance will be only $60,000 (60% of $100,000) after tax.

Instead, Ava could make the switch mentioned previously, leaving her $100,000 traditional IRA to charity and the $100,000 of appreciated assets to Brad. The tax-exempt charity would not be affected because it can withdraw all the money from Ava’s IRA and not owe any income tax.

Brad, on the other hand, would be much better off inheriting the appreciated assets. Under current law, those assets would get a basis step-up to fair market value on the date of Ava’s death. Brad could sell those assets for $100,000 and owe no tax.

Return to reality
Of course, it’s unlikely that Ava will die with only those two assets, of equal value. Nevertheless, the principle generally applies to estate planning. When your traditional IRA passes to a taxpaying beneficiary, you are leaving an income tax obligation as well as that IRA. It is better to make charitable bequests from the IRA because a charity won’t pay the deferred income tax.

Meanwhile, you should consider holding onto appreciated assets (and other low basis assets, such as depreciated property) until your death, if that’s practical. Your heirs will get a basis step-up, so capital gains tax can be avoided. ?

According to the Investment Company Institute, 68% of households with IRAs have mutual funds in those accounts. That’s followed by individual stocks (41%), annuities (35%), and bank deposits (25%). Therefore, annuities are among the most common IRA holdings; they are also among the most controversial because many observers assert that annuities don’t belong in an IRA.

Defining the terms
To understand this seeming contradiction, you should know some terminology. Generally, the most heated debate does not involve immediate annuities, which also may be known as income or payout annuities. Here, you give a sum of money to an insurance company in return for a specified flow of cash over a specified time period, perhaps the rest of your life.

Deferred annuities are a different story. With these investments, the money you contribute can grow inside the annuity contract. Different types of deferred annuities offer various ways that the amounts

invested can grow over the years. Regardless of the method or the amount of accumulation, earnings inside the annuity aren’t taxed until money is withdrawn.

Critics of holding deferred annuities inside an IRA say that they are redundant. Any investment inside an IRA is tax deferred or tax-free (with a Roth IRA), so you don’t get any tax benefit by investing IRA money in a deferred annuity. Why pay the costs that come with a deferred annuity when you get the same tax deferral with mutual funds or individual securities or bank accounts held inside your IRA?

Because there might be advantages as well as drawbacks. Deferred annuities offer various guarantees, which might include certain death benefits and certain amounts of cash flow during the investor’s life, regardless of investment performance. These guarantees may be a valid reason to include a deferred annuity in an IRA, some annuity issuers and sellers contend.

Among different deferred annuities, death benefits and so-called “living benefits” vary widely. Some can be extremely complicated. If you are interested in a deferred annuity, our office can explain the guarantees in the contract, so you can make an informed decision.

 Verifying value
Another thing to consider when deciding whether to hold a deferred annuity in your IRA, is that these annuities must be valued for purposes such as Roth IRA conversions and required minimum distributions (RMDs). This also will arise if you already have such an annuity in your IRA. The reported value of the annuity contract may not be the appropriate number.

Example: Sarah Thomson invests $50,000 of her IRA money in a deferred annuity that offers several investment options. After this outlay, Sarah’s investments decline, so her annuity account is now reported at $40,000. Sarah decides this reduced value would generate a lower tax cost on a conversion to a Roth IRA.

However, Sarah’s deferred annuity also contains a rider guaranteeing to pay her a certain amount per year for the rest of her life. Such a rider has some value, which Sarah must include in valuing the annuity inside the IRA if she does a Roth conversion. The same problem will arise when Sarah must take RMDs. Sarah’s best course of action may be to ask the annuity issuer for help with the valuation because insurers typically have actuaries and software designed to perform these intricate calculations.

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.







Article written by Nick Phillips, Associate at BiggsKofford.

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