Tax Planning Strategies for Physicians in 2010-11

Ten Ways to Lower your Taxes

By Sean G. Todd, Esq., M. Tax, CFP®, CPA

1. Buy a home

You can take advantage of a buyer’s real estate market and buy a home at prices not seen for years. We are seeing prices discounted from 10-30%. First time buyers – doctors and other individuals – who haven’t owned a residence in the last three years – can claim up to the $8,000 tax credit. Current homeowners who’ve lived in their residence for five of the eight years before buying can get up to $6,500. Remember a tax credit is a dollar-for-dollar reduction in your tax liability. Taxpayers love tax credits. You must have a contract in place by April 30, 2010, and the deal closed by June 30th to qualify for this outstanding credit.

2. Avoid the Making Work Pay trap 

This is an accounting trick … timing. This tax break was designed to put more money in consumer hands quicker (by under-withholding), but if you work two jobs it may have a tax bite. If you work more than one medical job, check with a tax advisor, or the payroll department at your office to make sure your W-4 is filled out properly at each job.

3. Make a Roth Conversion

The $100,000 income limit has been eliminated in 2010. Now, anyone can now convert a traditional IRA to a Roth retirement account. But, review the numbers.  Everyone’s situation is unique and making the conversion may not be a smart financial decision. But, note that you will have to pay taxes on the previously untaxed amounts in your traditional IRA that you convert. The good news is you can choose to pay half the conversion costs on your 2011 taxes and the other half in 2012.  Beware, making the conversion might push you into the next tax bracket and could cause some deductions to be lost—so you have to run the numbers.

4. Gain tax benefits from improving your home’s energy efficiency

You might be eligible for more tax credits based on your improvements to the principal residence. Making such improvements might just make your home a bit more-cozy. Homeowners can claim up to 30 percent of the first $5,000 spent on qualifying residential energy upgrades, or up to $1,500 in tax credits. A solar home heating system can get you even bigger tax credits.  We are uncertain if these credits will be extended so if you need to make home repairs, consider energy-efficient upgrades now.

5. Buy a hybrid car now…but not just any hybrid

The hybrid credit is set to expire in 2010. The credit remains good only with manufacturers that have not sold 60,000 eligible cars. So shop carefully to make sure the hybrid you are looking at qualifies.  Be sure to get the salesman’s representation that this vehicle qualifies and the manufacturer has sold less than the above amount to qualify.

6. See an Estate Tax Professional

Right now–everyone is trying to figure this area out. Since Congress has really messed this area up by the lack of clarity and with our deficit spending, you can expect that money hungry legislators will want to reclaim more of your money they don’t deserve. Ask a licensed Tax Attorney or CPA to help you arrange your affairs to make sure you and your heirs do not give the IRS more than necessary.

7. You must take your Required Minimum Distributions for your retirement accounts

Many doctors utilize tax-deferred savings plans such as traditional IRAs or workplace 401(k)s or 403(b)s to save for retirement. Now, the IRS is again telling us you have to start taking money out of these accounts via required minimum distributions, or RMDs, once you turn 70 1/2.  You were given a reprieve in 2009 from taking RMDs.

8. Plan for rising income tax rates

By law, the Bush tax cuts expire at the end of 2010. Tax rates go up for higher income earners and the 10 percent rate is eliminated for lower earners. One can only speculate what Congress will do in the light of trillion dollar deficits, but keep an eye out and plan accordingly. Be proactive and not reactive. Do not be afraid to call your Senators and Congressperson and let them know how you feel about tax hikes.

9. Act now to take capital gains at lower rates

George W. Bush’s tax cuts included reductions in capital gains tax rates based on taxpayer adjusted gross income. Right now the highest rate is 15 percent for individuals in the 25 percent to 35 percent tax brackets.  Taxpayers in the 10 percent and 15 percent tax brackets pay no capital gains tax at all. Current law says this is scheduled to change in 2011.The top rate will return to 20 percent; the zero rate will revert to 10 percent. And with this administration and the party controlling Congress, this could get worse. Here is the wildcard: there is no guarantee they won’t make retroactive changes, either.

10. Watch out for health care changes

In light of the Massachusetts special election going to a Republican, health care changes could jump off the fast track; but nevertheless there could be ramifications for you tax wise if something does finally pass. Keep your eye on this and stay out from under the surgeon’s knife on this one!

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Assessment

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Conclusion

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Dangerous Healthcare Givers

Names Reported Missing from Federal Database

By Staff Reporters

Writing in ProPublica, and the Los Angeles Times, Tracy Weber and Charles Ornstein report that more than two decades ago, Congress set out to stop dangerous or incompetent caregivers from crossing state lines and landing in trouble again.

So, it ordered up a national database allowing hospitals to check for disciplinary actions taken anywhere in the country against licensed health professionals.

But, this database invoked no fear and dread, like the NPDB for physicians.

Ready for Hospital Use

Now On March 1, 2010– 22 years later – the federal government finally plans to let hospitals use it.  

Defective Database?

But, the database is missing serious disciplinary actions against what are probably thousands of health providers.

Link: http://www.propublica.org/feature/federal-health-professional-disciplinary-database-remarkably-incomplete

Division of Practitioner Data Banks (DPDB)

For physicians, the Division of Practitioner Data Banks (DPDB) is responsible for the implementation of the National Practitioner Data Bank (NPDB) and Healthcare Integrity and Protection Data Bank (HIPDB).  The NPDB and HIPDB are alert or flagging systems intended to facilitate a comprehensive review of the professional credentials of health care practitioners, providers, and suppliers.

One Doctor’s Opinion

“For doctors, the NPDB was always the “elephant in the room” regarding professional liability reporting, according to ME-P Publisher-in-Chief Dr. David Edward Marcinko, MBA. And so, I find this whole care-giver affair most disturbing. To think, this is the same government that wants to socialize medicine, or force implement eMRs. They should “clean their own house”,  first.” 

Conclusion

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