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    Dr. Marcinko is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; as well as Oglethorpe University and Emory University in Georgia, the Atlanta Hospital & Medical Center; Kellogg-Keller Graduate School of Business and Management in Chicago, and the Aachen City University Hospital, Koln-Germany. He became one of the most innovative global thought leaders in medical business entrepreneurship today by leveraging and adding value with strategies to grow revenues and EBITDA while reducing non-essential expenditures and improving dated operational in-efficiencies.

    Professor David Marcinko was a board certified surgical fellow, hospital medical staff President, public and population health advocate, and Chief Executive & Education Officer with more than 425 published papers; 5,150 op-ed pieces and over 135+ domestic / international presentations to his credit; including the top ten [10] biggest drug, DME and pharmaceutical companies and financial services firms in the nation. He is also a best-selling Amazon author with 30 published academic text books in four languages [National Institute of Health, Library of Congress and Library of Medicine].

    Dr. David E. Marcinko is past Editor-in-Chief of the prestigious “Journal of Health Care Finance”, and a former Certified Financial Planner® who was named “Health Economist of the Year” in 2010. He is a Federal and State court approved expert witness featured in hundreds of peer reviewed medical, business, economics trade journals and publications [AMA, ADA, APMA, AAOS, Physicians Practice, Investment Advisor, Physician’s Money Digest and MD News] etc.

    Later, Dr. Marcinko was a vital and recruited BOD  member of several innovative companies like Physicians Nexus, First Global Financial Advisors and the Physician Services Group Inc; as well as mentor and coach for Deloitte-Touche and other start-up firms in Silicon Valley, CA.

    As a state licensed life, P&C and health insurance agent; and dual SEC registered investment advisor and representative, Marcinko was Founding Dean of the fiduciary and niche focused CERTIFIED MEDICAL PLANNER® chartered professional designation education program; as well as Chief Editor of the three print format HEALTH DICTIONARY SERIES® and online Wiki Project.

    Dr. David E. Marcinko’s professional memberships included: ASHE, AHIMA, ACHE, ACME, ACPE, MGMA, FMMA, FPA and HIMSS. He was a MSFT Beta tester, Google Scholar, “H” Index favorite and one of LinkedIn’s “Top Cited Voices”.

    Marcinko is “ex-officio” and R&D Scholar-on-Sabbatical for iMBA, Inc. who was recently appointed to the MedBlob® [military encrypted medical data warehouse and health information exchange] Advisory Board.

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Understanding the Art of Selling Your Medical Practice

Part Two of Medical Practice Valuation

By Dr. David Edward Marcinko, MBA, CMP

By Prof. Hope Rachel Hetico, RN, MHA, CMP

www.CertifiedMedicalPlanner.org

In Part 1, we discussed how to establish fair market value (FMV) for a medical practice in the article, “Establish Your Practice’s Fair Market Value.” This time, we’ll review important terms and conditions for the sale transaction.

Valuation Types

Unfortunately, as a general rule, medical practice worth is presently deteriorating. A good medical practice is no longer a good business necessarily, and selling doctors can no longer automatically expect to extract a premium sale price. Nevertheless, appraising your medical practice on a periodic basis can play a key role in obtaining maximum value for it.

Competent practice valuation specialists typically charge a retainer to cover out-of-pocket expenses. Fees should not be based on a percentage of practice value, and may take 30-45 days to complete. Flat fees should be the norm because a sliding scale or percentage fee may be biased toward over-valuation in a declining marketplace. Fees range from $7,500-$50,000 for the small to large medical practice or clinic.

Expect to pay a retainer and sign a formal, professional engagement letter. Seek an unbiased and independent viewpoint. Buyer and sellers should each have their own independent appraisal done, using similar statistics, accounting measures, and economic assumptions.

At the Institute of Medical Business Advisors, Inc www.MedicalBusinessAdvisors.com we use three engagement levels that vary in intensity, purpose, and cost:

1. A comprehensive valuation provides an unambiguous value range. It is supported by most all procedures that valuators deem relevant, with mandatory onsite review. This gold standard is suitable for contentious situations. A written “opinion of value” is applicable for litigation support activities like depositions and trial. It is also useful for external reporting to bankers, investors, the public, Internal Revenue Service (IRS), etc.

2. A limited valuation lacks additional suggested Uniform Standards of Professional Appraisal Practice (USPAP) procedures. It is considered to be an “agreed upon engagement,” when the client is the only user. For example, it may be used when updating a buy/sell agreement, or when putting together a practice buy-in for a valued associate. This limited valuation would not be for external purposes, so no onsite visit is necessary and a formal opinion of value is not rendered.

3. An ad-hoc valuation is a low level engagement that provides a gross non-specific approximation of value based on limited parameters or concerns involved parties. Neither a written report nor an opinion of value is rendered. It is often used periodically as an internal organic growth/decline gauge.

Structure Sales Transactions

When the practice price has been determined and agreed on, the actual sales deal can be structured in a couple of ways:

(1) Stock Purchase v. Asset Purchase

In an asset transaction, the buyer will receive a tax amortization benefit associated with the intangible value of the business. This tax amortization represents a non-cash expense benefiting the buyer. In this case, the present value of those future tax benefits is added to the business enterprise value.

(2) Corporate Transactions

Typical private deals in the past involved some multiple (ratio) of earning before income taxes (EBIT)—usually a combination of cash, restricted stock, notes receivable, and possibly assumption of liabilities. For some physician hospital organizations, and public deals, the receipt of common stock can increase the practice price by as much as 40-50 percent (to accept the corresponding business risk, in lieu of cash).

Complete the Deal

The deal structure will vary depending on whether the likely buyer is a private practitioner, health system or a corporate partner. Some key issues to consider in the “art of the deal” include:

  • Working capital (in or out?): Including working capital in the transaction will increase the sale price.
  • Stock vs. asset transaction: Structuring the deal as an asset purchase will increase practice value due to the tax amortization benefits received by the buyer for intangible assets of the practice.
  • Common stock premium: The total sale price can be significantly higher than a cash equivalent price for accepting the risk and relative illiquidity of common stock as part of the payment.
  • Physician compensation: If your goal is to maximize practice value, take home a lower salary to increase practice sale price. The reverse is also true.

Understand Private Deal Structure

Assuming a practice sale is a private transaction, deal negotiations are based on the following pricing methodologies:

Seller financing: Many transactions involve an earn-out arrangement where the buyer puts money down and pays the balance under a formula based on future revenues, or gives the seller a promissory note under similar terms. Seller financing decreases a buyer’s risks (the longer the terms, the lower the risk). Longer terms demand premiums, while shorter terms demand discounts. Premiums that buyers pay for a typical seller-financed practice are usually more than what you would expect from a simple time value of money calculation, as a result of buyer risk reduction from paying over time, rather than up front with a bank loan or all cash. Remember to obtain a life insurance policy on the buyer.

Down payment: The greater the down payment for acquisition of a medical practice, the greater the risk is to the buyer. Consequently, sellers who will take less money up front can command a higher than average price for their practice, while sellers who want more down usually receive less in the end.

Taxation: Tax consequences can have a major impact on the price of a medical practice. For instance, a seller who obtains the majority of the sales price as capital gains can often afford to sell for a much lower price and still pocket as much or more than if the sales price were paid as ordinary income. Value attributed to the seller’s patient list, medical records, name brand, good will, and files qualifies for capital gains treatment. Value paid for the selling doctor’s continuing assistance after the sale and value attributed to a non-compete agreement are taxed at ordinary income. A buyer willing to allocate more for items with capital gains treatment, or a seller willing to take more in ordinary income, can frequently negotiate a better price. This is the essence of economically prudent practice transition planning.

Sidestep Common Buyer Blunders

Here are 10 blunders to avoid, as a buyer:

1. Believing the selling doctor’s attestations. Always verify data through an independent appraisal.

2. Wanting to change the culture of the practice. Be careful: Patients may not adjust quickly to change.

3. Using all available cash without keeping a reserve for potential contingencies.

4. Creating a conflict with the seller by recognizing a weakness and continually focusing on it for a bargain price.

5. Failing to realize that managed care plan contracts can be lost quickly or may not be always transferable.

6. Suffering from analysis paralysis. Money cannot be made by continually checking out a medical practice, only by actually running one.

7. Not appreciating the uniqueness of each practice, and using inaccurate “rules of thumb” from the golden age of medicine.

8. Not realizing that practice worth and goodwill value have plummeted lately and continue to decline in most parts of the country.

9. Not understanding that practice brokers may play both sides of the buy/sell equation for profit. Brokers usually are not obligated to disclose conflicts of interest, are not fiduciaries, and do not provide testimony as a court-approved expert witness.

10. Not hiring an appraisal professional who will testify in court, if need be, using the IRS-approved USPAP methods of valuation. Always assume that the appraisal will be contested (many times, it is).

After pricing and contracting due diligence has been performed, the next step in the medical practice sale process—as Donald Trump might say—is just good, old-fashioned negotiation.

Electronic Downloads

Part I: Part I

Part II: Part II

Additional Reading:

Cimasi, R.J., A.P. Sharamitaro, T.A. Zigrang, L.A.Haynes. Valuation of Hospitals in a Changing Reimbursement and Regulatory Environment. Edited by David E. Marcinko. Healthcare Organizations: Financial Management Strategies. Specialty Technical Publishers, 2008.

Marcinko, D.E. “Getting it Right: How much is a plastic surgery practice really worth?” Plastic Surgery Practice, August 2006.

Marcinko, D.E., H.R. Hetico. The Business of Medical Practice (3rd ed). Springer Publishing,New York,N.Y., 2011.

Marcinko, D.E. and H.R. Hetico. Risk Management and Insurance Planning for Physicians and Advisors. Jones and Bartlett Publishers, Sudbury, Mass., 2007.

Marcinko, D.E. and H.R. Hetico. Financial Planning for Physicians and Advisors. Jones and Bartlett Publishers, Sudbury, Mass., 2007.

Marcinko, D.E. and H.R. Hetico. Dictionary of Health Insurance and Managed Care. Springer Publishers, New York, N.Y., 2007.

Marcinko, D.E. and H.R. Hetico. Dictionary of Health Economics and Finance. Springer Publishers,New York,N.Y., 2007.

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On Accounting -VERSUS- Economic Profit

Yes – There is A Difference

[By staff reporters]

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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How to Compare Cost-of-Living Benefits?

On Career Advancements and New Jobs

By Rick Kahler MSFS CFP®

As a doctor, nurse or allied healthcare professional; suppose you’re ready to take your career up a step, and you’re exploring opportunities in various parts of the country. You may easily be misled by the money script that a higher salary equates to a higher standard of living; however this is not necessarily always true.

What can you do to expand and reframe this money script?

Here are a few things to consider:

1. If the salary isn’t published, ask the money question right up front. Many candidates leave the inquiry into salary and benefits until the last step when both they and the potential employer have invested time and perhaps money into the interview process. Asking earlier avoids this wasted time, as well as allowing you to do your research on the front end and avoid potentially passing up other opportunities.

2. Get a clear picture of the lifestyle the salary will buy.  One of the best ways to do this is at bestplaces.net, which offers a cost-of-living calculator to compare the relative locations and salaries you are considering. For example, if you compare Rapid City, SD, and Redwood City, CA, you will find the latter costs 259% more than the former. That means you need to multiply the Rapid City salary by 3.59 to find the equivalent salary in Redwood City.

The “City Compare” tab also allows you to compare specific categories. For example, health care is 10% more in Rapid City than Redwood City, while housing in Redwood City costs over eight times as much. You can also compare factors like crime rate, climate, air quality, and tax rates. Pay particular attention to taxes; needing to pay both state and city income taxes, for example, could make a significant difference in your cost of living.

3. Investigate surrounding areas that have a lower cost of living. A 45-minute to one-hour commute each way from La Honda to Redwood City would result in a 37% decrease in the cost of living. A salary of $140,000 would buy a lifestyle in La Honda equivalent to that provided by $222,222 in Redwood City.

4. Examine your own beliefs about various areas. Look beyond salary amounts to your perceptions and assumptions about factors such as amenities, city-vs-rural living, lifestyles, status, etc. Then investigate the realities of those factors—both their value to you and the probability that you could take advantage of them. If a city offers professional sports, theatre productions, and concerts, for example, could you realistically afford the time and money to attend regularly? Would available public transportation fit your lifestyle and work schedule?

5. Consider your short-term and long-term family circumstances. Is a big-city lifestyle what you want as a young adult but not for raising a family? Would a given location fit your spouse’s needs as well as your own? Are your kids toddlers or about to leave home? Do you have aging parents that might need help?

6. If you choose a job in an area with a high cost of living, consider ways to reduce your budget. Thesimpledollar.com has 40 great tips on how to save money on monthly expenses.

Assessment

Finally, put all your research together and do your best to imagine year-round daily living in various locations. Envision yourself in the different routines and possibilities, whether they might include a daily two-hour commute, a city apartment, or a home in the woods with your own snow blower. Look beyond the financial cost of living to the emotional benefits and costs of living in various places. The most important lifestyle factor is finding the place where you will feel most at home.

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Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements.

Book Marcinko: https://medicalexecutivepost.com/dr-david-marcinkos-bookings/

Subscribe: MEDICAL EXECUTIVE POST for curated news, essays, opinions and analysis from the public health, economics, finance, marketing, IT, business and policy management ecosystem.

DOCTORS:

“Insurance & Risk Management Strategies for Doctors” https://tinyurl.com/ydx9kd93

“Fiduciary Financial Planning for Physicians” https://tinyurl.com/y7f5pnox

“Business of Medical Practice 2.0” https://tinyurl.com/yb3x6wr8

HOSPITALS:

“Financial Management Strategies for Hospitals” https://tinyurl.com/yagu567d

“Operational Strategies for Clinics and Hospitals” https://tinyurl.com/y9avbrq5

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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2019 Tax Deductions and Credits

Update on Tax Reform

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Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements.

Book Marcinko: https://medicalexecutivepost.com/dr-david-marcinkos-bookings/

Subscribe: MEDICAL EXECUTIVE POST for curated news, essays, opinions and analysis from the public health, economics, finance, marketing, IT, business and policy management ecosystem.

DOCTORS:

“Insurance & Risk Management Strategies for Doctors” https://tinyurl.com/ydx9kd93

“Fiduciary Financial Planning for Physicians” https://tinyurl.com/y7f5pnox

“Business of Medical Practice 2.0” https://tinyurl.com/yb3x6wr8

HOSPITALS:

“Financial Management Strategies for Hospitals” https://tinyurl.com/yagu567d

“Operational Strategies for Clinics and Hospitals” https://tinyurl.com/y9avbrq5

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

“Triple Entry Accounting”

What it is – How it works?

[By staff reporters]

The term “Triple Entry Accounting,” was first used by Ian Grigg, financial cryptographer, and described in his paper published in 2005, three years before the emergence of Bitcoin and its underlying Blockchain protocol.

Here is the original historical article on “Triple Entry Accounting” by Grigg:

LINK: https://nakamotoinstitute.org/triple-entry-accounting/

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements.

Book Marcinko: https://medicalexecutivepost.com/dr-david-marcinkos-bookings/

Subscribe: MEDICAL EXECUTIVE POST for curated news, essays, opinions and analysis from the public health, economics, finance, marketing, IT, business and policy management ecosystem.

DOCTORS:

“Insurance & Risk Management Strategies for Doctors” https://tinyurl.com/ydx9kd93

“Fiduciary Financial Planning for Physicians” https://tinyurl.com/y7f5pnox

“Business of Medical Practice 2.0” https://tinyurl.com/yb3x6wr8

HOSPITALS:

“Financial Management Strategies for Hospitals” https://tinyurl.com/yagu567d

“Operational Strategies for Clinics and Hospitals” https://tinyurl.com/y9avbrq5

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

 

2018 HSA Contribution Limits

Inflation Adjustments for the Tax Cuts and Jobs Act

By Dr. David Edward Marcinko MBA

http://www.CertifiedMedicalPlanner.org

On March 5, 2018, the IRS released Revenue Procedure 2018-18 (as part of Bulletin 2018-10). Due to changes made in the Tax Cuts and Jobs Act, certain adjustments needed to be made to inflation amounts.

The includes a reduction in the maximum family HSA contribution for those with family coverage under an HDHP from $6,900 to a new limit of $6,850 for calendar year 2018. The single contribution limit remains unchanged at $3,450 per year.

This reduction affects employees participating in an HSA Plan who have elected to contribute more than $6,850 for family coverage in 2018.

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

About the Laffer Curve

What it is – How it works
By staff reporters

DEFINITION:

In economics, the Laffer curve is a representation of the relationship between rates of taxation and the resulting levels of government revenue.

The Laffer curve claims to illustrate the concept of taxable income elasticity—i.e., taxable income will change in response to changes in the rate of taxation. http://www.HealthDictionarySeries.org

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HISTORY:

The Laffer Curve is a theory developed by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments.

The curve is used to illustrate Laffer’s main premise that the more an activity such as production is taxed, the less of it is generated. Likewise, the less an activity is taxed, the more of it is generated.

MORE: https://www.investopedia.com/terms/l/laffercurve.asp

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. https://medicalexecutivepost.com/dr-david-marcinkos-bookings/

Contact: MarcinkoAdvisors@msn.com

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https://www.crcpress.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

On The Tax Cut and Jobs Act (TCJA)

The Tax Cut and Jobs Act (TCJA)

By Rick Kahler CFP®

The Tax Cut and Jobs Act (TCJA) has generated a lot of media hype, much of which is coming from the extreme wings of both political parties and much of which is simply not true.

Here is some perspective

When he signed the bill President Trump called it “the largest tax cuts in our history”. This is not so.

According to a November 2, 2017, article in Reuters, the largest personal tax cuts in U.S. history came from Presidents Warren Harding and Calvin Coolidge, both Republicans. In 1922, the top tax rate was 73 percent. By 1925, it was only 25 percent.

Under Presidents John Kennedy and Lyndon Johnson, both Democrats, the tax cuts of 1964 and 1965 cut the top rate from 91 percent to 70 percent. The 1986 Reagan cuts lowered the top rate from 70 percent to 28 percent.

In comparison, the Trump cuts reduced the top rate from 39.6% to 37%, a miniscule 6.6% drop.

The new tax rules do mean some significant changes 

The good news is that the standard deduction will nearly double and the maximum child tax credit will increase from $1000 to $2000. But almost nowhere do you read about the bad news: the current personal exemptions will go away.

For 2017, an individual can take the $6350 standard deduction plus the $4050 personal exemption for a total of $10,400 (plus $4050 for each dependent). For 2018, this is $12,000, only $1,600 more in deductions. This means a median tax savings of about $192 per person, and only if you don’t itemize.

The even worse news

Home office expenses, moving expenses to relocate for a new job, casualty and gambling losses, unreimbursed business expenses, tax preparation software, tax preparation fees, and investment advisory fees will no longer be deductible on Schedule A.

This tax act has been labeled as terrible for the middle class and wonderful for the uber-rich. I don’t see that either claim is true. It appears to me that the winners (not “big winners”) are the middle class. Yes, the uber-rich also get a small 6.6% reduction—hardly a big deal compared to the cuts of 23% to 73% under Kennedy, Reagan, Harding, and Coolidge.

Corporate taxes

The real impact of the TCJA is its reductions on corporate taxes, not personal taxes. Taxes on C-corporations are cut from 34% to 21% (a 38% reduction). What isn’t reported is that reducing America’s corporate income tax has had bipartisan support for several years. The current US rate of 34% is the highest in developed countries, when the average global corporate tax rate is 22.6%.

Those who attack “big corporations that will just pass tax savings on to investors” tend to forget that 43% of Americans invest in these same corporations, including those with 401(k), IRA, or 403(b) retirement plans.

You also probably haven’t read that the new law actually raises taxes on corporations with taxable incomes of under $50,000, from 15% to 21% (a 38% increase). These corporations are those most generally owned by the Main Street business person.

The TCJA helps tax payers that are sole proprietors, partners and shareholders of S-corporations, LLCs and partnerships, which pass profits or losses through to be taxed in the taxpayer’s personal tax brackets. The new law allows most of these pass-through entities to exclude 20% of their profit from taxes. However, if you are in the profession of law, accounting, medicine, or financial planning, or are a professional musician or athlete, the exclusion probably doesn’t apply.

Assessment-Irony

Finally, for the 51% of Americans who pay taxes, the TCJA adds an unbelievable amount of complexity to an already complex tax code.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements.

Book Marcinko: https://medicalexecutivepost.com/dr-david-marcinkos-bookings

Subscribe: MEDICAL EXECUTIVE POST for curated news, essays, opinions and analysis from the public health, economics, finance, marketing, IT, business and policy management ecosystem.

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The Tax Cuts and Jobs Act of 2018

The Tax Cuts and Jobs Act

By Robert Whirley CPA

Congress has enacted the biggest tax reform law in thirty years, one that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax you will pay. Since most of the changes will go into effect next year, there’s still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way.

Attached you will find summaries of the various provisions. We have tried to make sure these are final given the fact that the law changed three times in 24 hours.

Here’s a quick rundown of last-minute moves you should think about making

Lower tax rates coming. The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, many businesses, including those operated as pass-through, such as partnerships, may see their tax bills cut.

The general plan of action to take advantage of lower tax rates next year is to defer income into next year. Some possibilities follow:

• . . . If you are about to convert a regular IRA to a Roth IRA, postpone your move until next year. That way you’ll defer income from the conversion until next year and have it taxed at lower rates.

• . . . Earlier this year, you may have already converted a regular IRA to a Roth IRA but now you question the wisdom of that move, as the tax on the conversion will be subject to a lower tax rate next year. You can unwind the conversion to the Roth IRA by doing a recharacterization—making a trustee-to-trustee transfer from the Roth to a regular IRA. This way, the original conversion to a Roth IRA will be cancelled out. But you must complete the recharacterization before year-end. Starting next year, you won’t be able to use a recharacterization to unwind a regular-IRA-to-Roth-IRA conversion.

• . . . If you run a business that renders services and operates on the cash basis, the income you earn isn’t taxed until your clients or patients pay. So if you hold off on billings until next year—or until so late in the year that no payment will likely be received this year—you will likely succeed in deferring income until next year.

• . . . If your business is on the accrual basis, deferral of income till next year is difficult but not impossible. For example, you might, with due regard to business considerations, be able to postpone completion of a last-minute job until 2018, or defer deliveries of merchandise until next year (if doing so won’t upset your customers). Taking one or more of these steps would postpone your right to payment, and the income from the job or the merchandise, until next year. Keep in mind that the rules in this area are complex and may require a tax professional’s input.

• . . . The reduction or cancellation of debt generally results in taxable income to the debtor. So if you are planning to make a deal with creditors involving debt reduction, consider postponing action until January to defer any debt cancellation income into 2018.

Disappearing or reduced deductions, larger standard deduction. Beginning next year, the Tax Cuts and Jobs Act suspends or reduces many popular tax deductions in exchange for a larger standard deduction.

Here’s what you can do about this right now:

• Individuals (as opposed to businesses) will only be able to claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total of (1) state and local property taxes; and (2) state and local income taxes. To avoid this limitation, pay the last installment of estimated state and local taxes for 2017 no later than Dec. 31, 2017, rather than on the 2018 due date. But don’t prepay in 2017 a state income tax bill that will be imposed next year – Congress says such a prepayment won’t be deductible in 2017. However, Congress only forbade prepayments for state income taxes, not property taxes, so a prepayment on or before Dec. 31, 2017, of a 2018 property tax installment is apparently OK.

• The itemized deduction for charitable contributions won’t be chopped. But because most other itemized deductions will be eliminated in exchange for a larger standard deduction (e.g., $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many because they won’t be able to itemize deductions. If you think you will fall in this category, consider accelerating some charitable giving into 2017.

• The new law temporarily boosts itemized deductions for medical expenses. For 2017 and 2018 these expenses can be claimed as itemized deductions to the extent they exceed a floor equal to 7.5% of your adjusted gross income (AGI). Before the new law, the floor was 10% of AGI, except for 2017 it was 7.5% of AGI for age-65-or-older taxpayers. But keep in mind that next year many individuals will have to claim the standard deduction because many itemized deductions have been eliminated. If you won’t be able to itemize deductions after this year, but will be able to do so this year, consider accelerating “discretionary” medical expenses into this year. For example, before the end of the year, get new glasses or contacts, or see if you can squeeze in expensive dental work such as an implant.

IRS

Other year-end strategies

Here are some other last minute moves that can save tax dollars in view of the new tax law:

• The new law substantially increases the alternative minimum tax (AMT) exemption amount, beginning next year. There may be steps you can take now to take advantage of that increase. For example, the exercise of an incentive stock option (ISO) can result in AMT complications. So, if you hold any ISOs, it may be wise to postpone exercising them until next year. And, for various deductions, e.g., depreciation and the investment interest expense deduction, the deduction will be curtailed if you are subject to the AMT. If the higher 2018 AMT exemption means you won’t be subject to the 2018 AMT, it may be worthwhile, via tax elections or postponed transactions, to push such deductions into 2018.

• Like-kind exchanges are a popular way to avoid current tax on the appreciation of an asset, but after Dec. 31, 2017, such swaps will be possible only if they involve real estate that isn’t held primarily for sale. So if you are considering a like-kind swap of other types of property, do so before year-end. The new law says the old, far more liberal like-kind exchange rules will continue apply to exchanges of personal property if you either dispose of the relinquished property or acquire the replacement property on or before Dec. 31, 2017.

• For decades, businesses have been able to deduct 50% of the cost of entertainment directly related to or associated with the active conduct of a business. For example, if you take a client to a nightclub after a business meeting, you can deduct 50% of the cost if strict substantiation requirements are met. But under the new law, for amounts paid or incurred after Dec. 31, 2017, there’s no deduction for such expenses. So if you’ve been thinking of entertaining clients and business associates, do so before year-end.

• Under current rules, alimony payments generally are an above-the line deduction for the payor and included in the income of the payee. Under the new law, alimony payments aren’t deductible by the payor or includible in the income of the payee, generally effective for any divorce decree or separation agreement executed after 2017. So if you’re in the middle of a divorce or separation agreement, and you’ll wind up on the paying end, it would be worth your while to wrap things up before year end. On the other hand, if you’ll wind up on the receiving end, it would be worth your while to wrap things up next year.

• The new law suspends the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), and also suspends the tax-free reimbursement of employment-related moving expenses. So if you’re in the midst of a job-related move, try to incur your deductible moving expenses before year-end, or if the move is connected with a new job and you’re getting reimbursed by your new employer, press for a reimbursement to be made to you before year-end.

• Under current law, various employee business expenses, e.g., employee home office expenses, are deductible as itemized deductions if those expenses plus certain other expenses exceed 2% of adjusted gross income. The new law suspends the deduction for employee business expenses paid after 2017. So, we should determine whether paying additional employee business expenses in 2017, that you would otherwise pay in 2018, would provide you with an additional 2017 tax benefit.

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Also, now would be a good time to talk to your employer about changing your compensation arrangement—for example, your employer reimbursing you for the types of employee business expenses that you have been paying yourself up to now, and lowering your salary by an amount that approximates those expenses. In most cases, such reimbursements would not be subject to tax.

Assessment

Please keep in mind that I’ve described only some of the year-end moves that should be considered in light of the new tax law.

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The Home Office Tax Deduction Explained

What it is – How it works?

By Dr. David Edward Marcinko MBA CMP™
http://www.CertifiedMedicalPlanner.org

A taxpayer’s business use of his or her home may give rise to a deduction for the business portion of expenses related to operating the home.

The basic requirement:

1. There must be a specific room or area that is set aside for and used exclusively on a regular basis as:
a. The principal place of any business, or
b. A place where the taxpayer meets with patients, clients or customers in the normal course of their trade or business, or
c. A separate structure that is used in the taxpayer’s trade or business and is not attached to their house or residence.

2. An employee can take a home office deduction if he or she meets the regular and exclusive use test and the use is for the convenience of the employer.

Deductions

Deductible expenses include business portions of mortgage interest, property taxes, depreciation, repairs and maintenance to the overall home that help the business use area, janitorial services or maid, utilities, insurance as well as other expenses directly related to the operating the remainder of the home.

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Conclusion

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Why Medical Claims are Denied?

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By Eric Duchinsky

[Advertisement: BHM Healthcare Solutions, Inc.]

One Doctor’s POV

Hi Ann,

Dr. Nicholas Fogelson wrote a perspective article for KevinMD.com. He wrote about his experience as a peer reviewer for an independent review organization network. The observations hit to the heart of why third-party peer review (for payers) and physician advisor services (for providers) are vital for building efficiencies.

The categories

Here are the main categories Dr. Fogelson saw while reviewing:

  • Full-spectrum medicine
  • Poor documentation
  • Industry acceptance of something that cannot be supported in the literature or not evidence-based.

Assessment

The takeaway lessons, from Dr. Fogelson’s observations, point to two very fixable inefficiencies: better documentation and following evidence-based research for care.

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Click HERE for the follow-up blog on more reasons claims are denied. 

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Conclusion

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A Social Security Taxation Synopsis

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By Vanguard Services

Infographic on Social Security Taxation

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social_security_infographic_112016

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Conclusion

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The New Social Security Wage Base for 2017

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Social Security wage base increases to $127,200 for 2017

[By Robert Whirley CPA & Associates, LLC + ProActive Advisory]

The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2017 will increase to $127,200.

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).

For 2017, the FICA tax rate for employers is 7.65%—6.2% for OASDI and 1.45% for HI.

For 2017, an employee will pay:

  1. 6.2% Social Security tax on the first $127,200 of wages (maximum tax is $7,886.40 [6.2% of $127,200]), plus
  2. 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
  3. 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return). (Code Sec. 3101(b)(2))

For 2017, the self-employment tax imposed on self-employed people is:

  • 12.4% OASDI on the first $127,200 of self-employment income, for a maximum tax of $15,772.80 (12.40% of $127,200); plus
  • 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return), (Code Sec. 1401(a), Code Sec. 1401(b)), plus
  • 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return). (Code Sec. 1401(b)(2))
  • There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.

IRS

Conclusion

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What is Hospital WACC?

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By Calvin Weise CPA and Dr. David E. Marcinko MBA

http://www.CertifiedMedicalPlanner.org

The Weighted Average Cost of Capital 

It is critical to understand and to measure the total cost of capital. Lack of understanding and appreciation of the total cost of capital is widespread, particularly among not-for-profit hospital executives. The capital structure includes long-term debt and equity; total capital is the sum of these two. Each of these components has cost associated with it. For the long-term debt portion, this cost is explicit: it is the interest rate plus associated costs of placement and servicing.

Equity portion

For the equity portion, the cost is not explicit and is widely misunderstood. In many cases, hospital capital structures include significant amounts of equity that has accumulated over many years of favorable operations. Too many executives wrongly attribute zero cost to the equity portion of their capital structure. Although it is correct that generally accepted accounting principles continue to assign a zero cost to equity, there is opportunity cost associated with equity that needs to be considered. This cost is the opportunity available to utilize that capital in alternative ways.

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In general, the cost attributed to equity is the return expected by the equity markets on hospital equity. This can be observed by evaluating the equity prices of hospital companies whose equity is traded on public stock exchanges. Usually the equity prices will imply cost of equity in the range of 10% to 14%.

Almost always, the cost of equity implied by hospital equity prices traded on public stock exchanges will substantially exceed the cost of long-term debt. Thus, while many hospital executives will view the cost of equity to be substantially less than the cost of debt (i.e., to be zero), in nearly all cases, the appropriate cost of equity will be substantially greater than the cost of debt.

http://www.HealthDictionarySeries.org

Hospitals need to measure their weighted average cost of capital (WACC).

WACC is the cost of long-term debt multiplied by the ratio of long-term debt to total capital plus the cost of equity multiplied by the ratio of equity to total capital (where total capital is the sum of long-term debt and equity).

WACC is then used as the basis for capital charges associated with all capital investments. Capital investments should be expected to generate positive returns after applying this capital charge based on the WACC. Capital investments that don’t generate returns exceeding the WACC consume enterprise value; those that generate returns exceeding WACC increase enterprise value.

Assessment

Hospital executives need to be rewarded for increasing enterprise value. 

Conclusion

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Key Hospital Employee Benefits

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For KEY Hospital Employees

By PERRY D’ALESSIO; CPA

[D’Alessio Tocci & Pell LLP]

Dr. David E. Marcinko; MBA CMP®

http://www.CertifiedMedicalPlanner.org

Effective January 1st 2014, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) was increased from $205,000 to $210,000.

For a participant who separated from service before January 1st 2014, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2013, by 1.0155.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2014 from $51,000 to $52,000.

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). These dollar amounts and the adjusted amounts are as follows:

  • The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased to $17,500.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $255,000 to $260,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $165,000 to $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 $1,035,000 to $1,050,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $205,000 to $210,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from to $115,000.
  • 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 $5,000 to $5,500. 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 remains unchanged at $2,500.
  • 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 $380,000 to $385,000.
  • The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $500 to $550.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from to $12,000.
  • The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased to $17,500.
  • The compensation amounts under Section 1.61‑21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $100,000 to $105,000.  The compensation amount under Section 1.61‑21(f)(5)(iii) is increased from $205,000 to $210,000.
  • The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). These dollar amounts and the adjustments 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 $35,500 to $36,000; the limitation under Section 25B(b)(1)(B) is increased from $38,500 to $39,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $59,000 to $60,000.
  • 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 $26,6250 to $27,000; the limitation under Section 25B(b)(1)(B) is increased from $28,875 to $29,250; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $44,250 to $45,000.
  • 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 $17,750 to $18,000; the limitation under Section 25B(b)(1)(B) is increased from $19,250 to $19,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $29,500 to $30,000.
  • 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 $95,000 to $96,000. 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 $59,000 to $60,000. 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 $178,000 to $181,000.
  • The adjusted gross income limitation under Section 408A(c)(3)(C)(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 $178,000 to $181,000. The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $112,000 to $114,000.

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IRS

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Assessment

Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

Source: http://www.irs.gov/newsroom/article/0,,id=187833,00.html

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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On Corporate Taxes

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Erik Hare

[By Erik Hare]

What is a fair corporate tax?

It’s a hot political topic, but one loaded with a tremendous amount of mis-information. On the left, it’s common to cite “loopholes” which allow corporations to “offsh…

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Corporate Taxes

Conclusion

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Don’t forget 1st. Quarter Estimated Tax

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Andrew Schwartz

By Andrew Schwartz CPA

Doctors –Don’t forget 1st Quarter Estimated Tax payments for 2016; due April 18th.

‘Estimated Tax’

Estimated taxes are usually paid on a quarterly basis. If the estimated taxes that are paid do not equal at least 90% of the taxpayer’s actual tax liability (or 100% or 110% of the taxpayer’s prior-year liability, depending on the level of adjusted gross income), then interest and penalties are assessed against the delinquent amount.

Don’t forget- 1st Quarter Estimated Tax

IRS

Conclusion

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Tax Changes for 2015-16

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By Robert Whirley CPA

[Whirley & Associates, LLC]

Alpharetta, GA

Doctors – Be Aware!

As tax filing season rapidly approaches I wanted to provide you with a few key items to note for 2015 and 2016.  If you are interested I can send you my full list of tax changes for 2015 and 2016 – I warn you, it’s 19 pages long – and this is only my short list.

Welcome to the New Year 2016! 

  • For 2015, the standard mileage rate for business travel is 57.5¢ (54¢ for 2016).
  • The simplified per diem rates for post-Sept. 30, 2015 travel are $275 for high-cost areas and $185 for all other localities (up from $259 and $172).
  • For 2015 and 2016, a HDHP for health savings account (HSA) purposes is a health plan with an annual deductible that is not less than $1,300 for individual coverage and $2,600 for family coverage. Maximum out-of-pocket expenses can’t exceed $6,450 for individual coverage for 2015 ($6,550 for 2016) and $12,900 for family coverage for 2015 ($13,100 for 2016). The maximum annual HSA deductible contribution is the sum of the monthly contribution limits, based on eligibility and health plan coverage on the first day of the month. The monthly limit is 1/12 of the indexed amount for self-only coverage ($3,350 for 2015 and 2016) and for family coverage ($6,650 for 2015 and $6,750 for 2016).
  • Enhanced expensing—in the form of increased limitations and treatment of certain real property as Code Sec. 179 property—was made permanent, as was the ability to revoke a Code Sec. 179 election without IRS’s consent.
  • The mileage rate for use of a car for qualified medical transportation is 23¢ per mile for expenses paid or incurred in 2015 (19¢ for 2016).
  • Bonus first-year depreciation was retroactively extended through 2019 with a number of modifications, including a gradual reduction over that time (50% for qualified property placed in service in 2015 through 2017, 40% for 2018, and 30% for 2019).
  • The de minimis safe harbor for taxpayers that don’t have an applicable financial statement was raised from $500 to $2,500. – For items expensed as miscellaneous supplies.
  • For contributions by individuals (including ranchers and farmers), the increased charitable deduction for qualified conservation easements was made permanent.
  • 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements was made permanent.
  • Education Tax Breaks:
  • The American Opportunity tax credit (AOTC) was made permanent. It was also made subject to heightened verification processes and paid-preparer due diligence requirements in order to reduce the number of improper payments.
  • The up-to-$250 above-the-line deduction for teachers’ out-of-pocket classroom-related expenses was made permanent.

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IRS

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The above-the-line deduction for qualified tuition and related expenses was retroactively extended through 2016.

  • Starting in 2015, the definition of “qualified higher education expenses” for Sec. 529 qualified tuition programs includes certain computer and technology-based costs.
  • For tax years beginning after June 29, 2015, taxpayers must receive a Form 1098-T from the educational institution containing all required information in order to claim the AOTC, the above-the-line deduction for higher education expenses, or the Lifetime Learning Credit.
  • For 2015 and 2016, the AOTC phases out at the same level of modified AGI—over $80,000 ($160,000 for a joint return).
  • For 2015 and 2016, the maximum AOTC/Hope Scholarship Credit is $2,500.
  • For 2015, the Lifetime Learning credit phases out for taxpayers with modified AGI in excess of $55,000 ($110,000 for a joint return). For 2016, the corresponding figures are $55,000 and $111,000.
  • For 2015, the higher education exclusion for savings bond income phases out ratably for taxpayers with modified AGI between $77,200 and $92,200 ($115,750 to $145,750 for joint filers). For 2016, the corresponding ranges are $77,550 to $92,550, and $116,300 to $146,300.
  • For 2015 and 2016, the deduction for interest paid on qualified higher education loans phases out ratably for taxpayers with modified AGI between $65,000 and $80,000 ($130,000 and $160,000 for joint filers).

Assessment

Just days into 2016 and you’re also facing pressures bearing down on your payroll operations. Are you ready to meet them? For example:

  • You’re not done with tax year 2015 … yet. There are FUTA credit reductions to determine and budget for, the impact of tax extenders legislation to consider (including retroactive reinstatement of parity between mass transit benefits and parking benefits), and more.
  • Major tax reform is probably off the table for now. But don’t let that fool you. New federal laws increase payroll tax penalties, change the due dates for your corporate returns and yank passports from individuals with tax debts. Of course, Payroll will bear the brunt of these new laws.
  • The IRS has issued a raft of payroll tax regulations, and proposed regulations from the Department of Labor will ratchet up the amount employees must earn to be exempt from overtime. Finally, the IRS and its sister agencies continue to issue guidance on compliance with the Affordable Care Act.
  • There’s a key FLSA case pending before the U.S. Supreme Court. Word on the street is that it may continue to permit class action lawsuits for unpaid overtime.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Congress Passes Permanent Tax Provisions

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By Cindy Freking CPA

[Tax Manager ]

cfreking@whirleyproactive.com

Late on December 15th, a bipartisan agreement was reached on tax extenders—i.e., the 50 or so temporary tax provisions that are routinely extended by Congress on a one- or two-year basis—and numerous other tax provisions in the “Protecting Americans from Tax Hikes (PATH) Act of 2015” (the Act). This agreement makes permanent many of the individual and business extenders and contains provisions on Real Estate Investment Trusts (REITs), IRS administration and the Tax Courts and miscellaneous other provisions.

Below are some provisions that have been made permanent:

DEPRECIATION & EXPENSING PROVISIONS

  • The Act makes permanent the $500,000 expensing limitation and $2 million phase out amounts under Code Section 179
  • For property placed in service after Dec 31, 2015, the Act provides that air conditioning and heating units are now eligible for expensing
  • Assets for which the De Minimis election applies are not counted in determining the Code Section 179 expensing election or the ceiling
  • 15 Year Write off for Qualified Leasehold , Retail Improvements & Restaurant Property

INDIVIDUALS

  • American Opportunity Credit
  • Enhanced Earned Income Tax Credit
  • Above the line Educator Expenses
  • Exclusion for Employer Provided Mass Transit & Parking
  • State and Local Sales deduction
  • Liberalized rules for Qualified Conservation Contributions
  • Nontaxable IRA transfers to eligible charities

BUSINESSES

  • Research & Development credit & offset now available against taxes in addition to income taxes
  • Reduction in S-Corporation recognition period for Built in Gains Tax
  • Exclusion of 100% Gain on certain small business stock
  • Enhanced deduction for Food Inventory
  • Differential Wage Payment Credit (active duty employees)

Assessment

The above provides a brief overview of the Act. There are various provisions that have been extended through 2016 and 2019 and other miscellaneous provisions. If you need additional information or have questions, please contact your CPA.

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IRS

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Conclusion

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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Beware these “Old-School” Medical Practice Embezzlement Schemes!

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2 Doctors and 2 CPAs Discuss Office Internal Controls

  • Perry D’Alessio CPA
  • Dr. Gary L. Bode MSA CPA LLC
  • Dr. David Edward Marcinko MBA CMP

Internal controls are simply those systems, processes, procedures, and mechanisms controlled by management that make it possible for a medical practice, clinic or any health entity to successfully achieve its goals and objectives.

Internal controls designed and implemented by the practice physician-owner, help prevent bad things from happening. Embezzlement protection is the classic example.

However, internal controls also help ensure good things happen, at least most of the time. A procedural manual that teaches employees how to deal effectively with common patient complaints is one example.  Operating efficiency, safeguarding assets, quality patient care, compliance with existing laws, and accuracy of financial transactions are common goals of internal controls.

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Common Office Schemes

  • The physician-owner pocketing cash “off the books”. To the IRS, this is like embezzlement to intentionally defraud it out of tax money.
  • Employee’s pocketing cash from cash transactions. This is why you see cashiers following protocol that seems to take forever when you’re in the grocery check out line. This is also why you see signs offering a reward if he/she is not offered a receipt. This is partly why security cameras are installed.
  • Bookkeepers or your accountant writing checks to themselves. This is easiest to do in flexible software programs like QuickBooks, Peachtree Accounting and financial software [www.Peachtree.com]. It is one of the hardest schemes to detect. The bookkeeper self-writes and cashes the check to their own name; and then the name on the check is changed in the software program to a vendor’s name. So a real check exists which looks legitimate on checking statements unless a picture of it is available.
  • Accountants or bookkeepers paying bills of others and posting the disbursements as if they were for a practice obligation. Checks payable to the Internal Revenue Service for example can bill used to pay tax obligations of another and are described in the bookkeeping as practice taxes due.
  • Employees ordering personal items on practice credit cards.
  • Bookkeepers receiving insurance company checks or patient checks, demonstrating the receipt of such in the EMR software and not posting in the practice bookkeeping software. Instead checks are illegally depositing them in an unauthorized, pseudo practice checking account, set up by them-selves in a bank different from yours. They then withdraw funds at will. If this scheme uses only a few patients, who are billed outside of the practice’s accounting software, this is hard to detect. Executive-management must have a good knowledge of existing patients to catch the ones “missing” from practice records. Monitoring the bookkeeper’s lifestyle might raise suspicion, but this scheme is generally low profile, but protracted. Checking the accounting software “audit trail”, this shows the required original invoice deletions or credit memos in a less sophisticated version of this scheme.
  • Bookkeepers writing payroll checks to non-existent employees. This scheme works well in larger practices and medical clinics with high seasonal turnover of employees, and practices with multiple locations the physician-owner doesn’t visit often.
  • Bookkeepers writing inflated checks to existing employees, vendors or subcontractors. Physician-owners should beware if romantic relationships between the bookkeeper and other practice related parties.
  • Bookkeepers writing checks to false vendors. This is another low profile, protracted scheme that exploits the physician-owner’s indifference to accounts payable.

More:

  1. Understanding the Healthcare Fraud and Abuse Control Program

Assessment

Beware these “od-school” schemes that are making a comeback, today.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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About the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015”

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Changes and Updates in Tax Return Due Dates

By Bobby Whirley CPA, Alpharetta, GA

[Whirley & Associates, LLC + Proactive Advisory]

On July 31st, 2015, President Obama signed into law P.L. 114-41, the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015.”

Although this new law was primarily designed as a 3-month stopgap extension of the Highway Trust Fund and related measures, it includes a number of important tax provisions, including revised due dates for partnership and C corporation returns and revised extended due dates for some returns. This letter provides an overview of these provisions, which may have an impact on you, your family, or your business.

Revised Due Dates for Partnership and C Corporation Returns

Domestic corporations (including S corporations) currently must file their returns by the 15th day of the third month after the end of their tax year. Thus, corporations using the calendar year must file their returns by March 15 of the following year. The partnership return is due on the 15th day of the fourth month after the end of the partnership’s tax year. And, partnerships using a calendar year must file their returns by April 15th of the following year. Since the due date of the partnership return is the same date as the due date for an individual tax return, individuals holding partnership interests often must file for an extension to file their returns because their Schedule K-1s may not arrive until the last minute.

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Under the new law, in a major restructuring of entity return due dates, effective generally for returns for tax years beginning after December 31st, 2015:

  • Partnerships and S corporations will have to file their returns by the 15th day of the third month after the end of the tax year. Thus, entities using a calendar year will have to file by March 15th of the following year. In other words, the filing deadline for partnerships will be accelerated by one month; the filing deadline for S corporations stays the same. By having most partnership returns due one month before individual returns are due, taxpayers and practitioners will generally not have to extend, or scurry around at the last minute to file, the returns of individuals who are partners in partnerships.
  • C corporations will have to file by the 15th day of the fourth month after the end of the tax year. Thus, C corporations using a calendar year will have to file by April 15th of the following year. In other words, the filing deadline for C corporations will be deferred for one month.
  • Keep in mind that these important changes to the filing deadlines generally won’t go into effect until the 2016 returns have to be filed. Under a special rule for C corporations with fiscal years ending on June 30th, the change is deferred for ten years — it won’t apply until tax years beginning after December 31st, 2025.

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Veterans Day 2015

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Revised Extended Due Dates for Various Returns

  • Taxpayers who can’t file a tax form on time can ask the IRS for an extension to file the form. Effective for tax returns for tax years beginning after December 31st, 2015, the new law directs the IRS to modify its regulations to provide for a longer extension to file a number of forms, including the following:
  • Form 1065 (U.S. Return of Partnership Income) will have a maximum extension of six-months (currently, a 5-month extension applies). The extension will end on September 15th for calendar year taxpayers.
  • Form 1041 (U.S. Income Tax Return for Estates and Trusts) will have a maximum extension of five and a half months (currently, a 5-month extension applies). The extension will end on Sept. 30th for calendar year taxpayers.
  • The Form 5500 series (Annual Return/Report of Employee Benefit Plan) will have a maximum automatic extension of three and a half months (under currently law, a 2½ month period applies). The extension will end on November 15 for calendar year filers.

FinCEN Report Due Date Revised

  • Taxpayers with a financial interest in or signature authority over certain foreign financial accounts must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Currently, this form must be filed by June 30 of the year immediately following the calendar year being reported, and no extensions are allowed.

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Assessment

Under the new law, for returns for tax years beginning after December 31, 2015, the due date of FinCEN Report 114 will be April 15 with a maximum extension for a 6-month period ending on October 15th. The IRS may also waive the penalty for failure to timely request an extension for filing the Report, for any taxpayer required to file FinCEN Form 114 for the first time.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

[PHYSICIAN FOCUSED FINANCIAL PLANNING AND RISK MANAGEMENT COMPANION TEXTBOOK SET]

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

 Front Matter with Foreword by Jason Dyken MD MBA

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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Year End Tax Planning for Physicians

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And … Business Owners

By Robert Whirley CPA

[Alpharetta, GA 30009]

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Factors that compound the challenge include turbulence in the stock market, overall economic uncertainty, and Congress’s failure to act on a number of important tax breaks that expired at the end of 2014. Some of these tax breaks ultimately may be retroactively reinstated and extended, as they were last year, but Congress may not decide the fate of these tax breaks until the very end of 2015 (or later). These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70- 1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence. For businesses, tax breaks that expired at the end of last year and may be retroactively reinstated and extended include: 50% bonus first-year depreciation for most new machinery, equipment and software; the $500,000 annual expensing limitation; the research tax credit; and the 15-year writeoff for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.

Higher-income earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax. The latter tax applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of an unindexed threshold amount ($250,000 for joint filers, $125,000 for married couples filing separately, and $200,000 in any other case).

The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than NII, and other individuals will need to consider ways to minimize both NII and other types of MAGI.

The 0.9% additional Medicare tax also may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. For example, if an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year, he would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s combined income won’t be high enough to actually cause the tax to be owed.

We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make. 

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IRS

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Year-End Tax Planning Moves for Individuals

  • Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
  • Postpone income until 2016 and accelerate deductions into 2015 to lower your 2015 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2015 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2015. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2016 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.
  • If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2015.
  • If you converted assets in a traditional IRA to a Roth IRA earlier in the year and the assets in the Roth IRA account declined in value, you could wind up paying a higher tax than is necessary if you leave things as is. You can back out of the transaction by recharacterizing the conversion—that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA.
  • It may be advantageous to try to arrange with your employer to defer, until 2016, a bonus that may be coming your way.
  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2015 deductions even if you don’t pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2015 if you won’t be subject to the alternative minimum tax (AMT) in 2015.
  • Take an eligible rollover distribution from a qualified retirement plan before the end of 2015 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2015. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2015, but the withheld tax will be applied pro rata over the full 2015 tax year to reduce previous underpayments of estimated tax.
  • Estimate the effect of any year-end planning moves on the AMT for 2015, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses of a taxpayer who is at least age 65 or whose spouse is at least 65 as of the close of the tax year, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. If you are subject to the AMT for 2015, or suspect you might be, these types of deductions should not be accelerated.
  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
  • You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
  • You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70- 1/2. That start date also applies to company plans, but non-5% company owners who continue working may defer RMDs until April 1 following the year they retire. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2015, you can delay the first required distribution to 2016, but if you do, you will have to take a double distribution in 2016—the amount required for 2015 plus the amount required for 2016. Think twice before delaying 2015 distributions to 2016, as bunching income into 2016 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2016 if you will be in a substantially lower bracket that year.
  • Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
  • If you can make yourself eligible to make health savings account (HSA) contributions by Dec. 1, 2015, you can make a full year’s worth of deductible HSA contributions for 2015.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 made in 2015 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

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Tax

 

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Year-End Tax-Planning Moves for Medical Practices, & Business Owners 

  • Businesses should buy machinery and equipment before year end and, under the generally applicable “half-year convention,” thereby secure a half-year’s worth of depreciation deductions in 2015.
  • Although the business property expensing option is greatly reduced in 2015 (unless retroactively changed by legislation), making expenditures that qualify for this option can still get you thousands of dollars of current deductions that you wouldn’t otherwise get. For tax years beginning in 2015, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.
  • Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of inexpensive assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit of property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $500. Where the UNICAP rules aren’t an issue, purchase such qualifying items before the end of 2015.
  • A corporation should consider accelerating income from 2016 to 2015 if it will be in a higher bracket next year. Conversely, it should consider deferring income until 2016 if it will be in a higher bracket this year.
  • A corporation should consider deferring income until next year if doing so will preserve the corporation’s qualification for the small corporation AMT exemption for 2015. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn’t qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.
  • A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2015 (and substantial net income in 2016) may find it worthwhile to accelerate just enough of its 2016 income (or to defer just enough of its 2015 deductions) to create a small amount of net income for 2015. This will permit the corporation to base its 2016 estimated tax installments on the relatively small amount of income shown on its 2015 return, rather than having to pay estimated taxes based on 100% of its much larger 2016 taxable income.
  • If your business qualifies for the domestic production activities deduction (DPAD) for its 2015 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2015 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2015, even if the business has a fiscal year.
  • To reduce 2015 taxable income, if you are a debtor, consider deferring a debt-cancellation event until 2016.
  • To reduce 2015 taxable income, consider disposing of a passive activity in 2015 if doing so will allow you to deduct suspended passive activity losses.
  • If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year. These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. We also will need to stay in close touch in the event that Congress revives expired tax breaks to assure that you don’t miss out on any resuscitated tax-saving opportunities.  

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Tax

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Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

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PERSONAL FINANCIAL ACCOUNTING AND INCOME TAXATION FOR DOCTORs

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A SPECIAL ME-P REPORT

[The Ethical Pursuit of Tax Reduction and Avoidance]

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[By Perry D’Alessio CPA]

The objective of tax planning is to arrive at the lowest overall tax cost on the activities performed.  In as much as physicians constitute 14% of the so-called and maligned “one-percenters” [$388,905 earned-not passive income/year]; this essay will address some methods and strategies to reduce federal and state income taxes. It is applicable to all physicians and medical professionals; as independent practitioners or employees.

So, how much in income taxes do the wealthy pay? The top 10 percent of taxpayers paid over 70 percent of the total amount collected in federal income taxes in 2010, the latest year figures are available, according to the Tax Foundation, a think tank that advocates for lower taxes. That’s up from 55 percent in 1986. The remaining 90 percent bore just under 30 percent of the tax burden. And, 47 percent of all Americans pay hardly anything at all.

Realize, that’s just federal income tax and doesn’t include payroll tax for Social Security and Medicare (which the vast majority of people pay), plus state taxes and all of the other taxes we face. When you add them all together; using figures from the Tax Policy Center and the Institute on Taxation and Economic Policy. Earners in the top 1 percent pay about 43 percent of their incomes in tax. People in the middle quintile pay 25 percent while the poorest fifth pays 13 percent.

Finally, before you assume these one- and 10-percenters are living on luxury yachts and in million-dollar mansions, consider how little money it takes to be a top wage earner.

According to 2011 IRS data, the top 1 percent have adjusted gross incomes of $388,905 per year or more. To be in the top 10 percent, you need an adjusted gross income of just $120,136 or more. These are good incomes to be sure, but definitely not enough to be out work, or the medical office, for more than a few weeks each year.

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

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Now consider the following more specifically:

  • 42 percent of all federal tax revenue came from individual income taxes in 2010 and it has been the largest single source of revenue since 1950.
  • Individuals paid more than $2.2 trillion in 2010.
  • Bush-era tax cuts have finally expired, giving us the 20th century tax rates with the top income tax rate of 39.6%, we have not seen rates this high in almost 15 years.
  • 39.6% tax rate kicks in at $400,000 for individual taxpayers and $450,000 for married couples filing jointly.
  • Taxpayers who make over $200,000 ($250,000 for married taxpayers) will be subject to the Medicare surtax. If that’s you, Medicare surtax will be tacked on to your wages, compensation, or self-employment income over that amount. The amount of the surcharge is .9%. 
  • Net Investment Income Tax (NIIT) new as of 2013; if you have both net investment income and modified adjusted gross income (MAGI) of at least $200,000 for an individual taxpayer and $250,000 for taxpayers filing as married an additional 3.8 percent of the net investment income is an added tax. 

ASSESMENT

So, where do you fall on this schematic, doctor?

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Perry D’Alessio has twenty years’ experience in public accounting. He specializes in the taxation of closely held businesses and their owners, as well as high wealth individuals. He has a broad range of experience that includes individual, corporate, partnership, fiduciary, estate, and gift taxation. Business development has also been a focus. Particularly in the Healthcare and Fitness Industry, he worked with successful entities whose emphasis was on growth through development of strategic relationships and unit building.  Mr.  D’Alessio received his Bachelor of Business Administration degree in Accounting from Baruch College. He is a Certified Public Accountant in New York. He is a member of the American Institute of Certified Public Accountants (AICPA), the New York State Society of Certified Public Accountants (NYSSCPA). He served on several New York State Society tax committees including: PCAOB and HealthCare. Mr. D’Alessio presents at financial and medical associations throughout the region, and authored a book chapter in the “Financial Management Strategies for Hospitals and Healthcare Organizations” for the Institute of Medical Business Advisors, Inc.

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Understanding 1031 Exchanges

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The Ultimate Infographic Guide

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In this infographic you will learn how to defer your capital gains taxes utilizing a 1031 exchange, what kinds of properties qualify for 1031, what the basic 1031 rules and time limits are, and how to benefit your heirs by stepping up your basis.

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1031Exchange

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

 

Taxing the Rich … and Doctors?

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The Effect of Taxing America’s Wealthy

By blog.turbotax.intuit.com.

The wealth difference between states demonstrates that certain states had much stronger increases in affluent taxpayers.

For example, Warren Buffett recently called to raise tax rates on taxpayers making more than $1 million and proposed an additional increase on taxpayers whose income exceeds $10 million.

So, where do the “super-rich live and what would it look like if they were given additional taxes?”

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rich

[Click to Enlarge]

Assessment

But, what about the “rich” doctors? Are they even rich, merely affluent or new members of the holloi polloi working class? Do tell.

More:

Even More:

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM) 

18 Financial Planning Tips For Physicians from a DR-CPA

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For Personal and Medical Practice Management Modernity

Dr. Gary Bode; CPA, MSA, CMP

By Dr. Gary L. Bode CPA MSA CMP [Hon] PA

http://garybodecpa.com/

http://www.CertifiedMedicalPlanner.org

1. Consider establishing an employee stock ownership plan (ESOP).

If you own a clinic or medical practice or business and need to diversify your investment portfolio, consider establishing an ESOP. ESOP’s are the most common form of employee ownership in the U.S. and are used by companies for several purposes, among them motivating and rewarding employees and being able to borrow money to acquire new assets in pretax dollars. In addition, a properly funded ESOP provides you with a mechanism for selling your shares with no current tax liability. Consult a specialist in this area to learn about additional benefits.

2. Make sure there is a succession plan in place.

Have you provided for a succession plan for both management and ownership of your medical practice, clinic or business in the event of your death or incapacity? Many business owners or physician-executives wait too long to recognize the benefits of making a succession plan. These benefits include ensuring an orderly transition at the lowest possible tax cost. Waiting too long can be expensive from a financial perspective (covering gift and income taxes, life insurance premiums, appraiser fees, and legal and accounting fees) and a non-financial perspective (intra-family and intra-company squabbles).

3. Consider the limited liability company (LLC) and limited liability partnership (LLP) forms of ownership.

These entity forms should be considered for both tax and non-tax reasons.

4. Avoid nondeductible compensation.

Compensation can only be deducted if it is reasonable. Recent court-decisions have allowed physician executives or business owners to deduct compensation when (1) the corporation’s success was due to the shareholder-employee, (2) the bonus policy was consistent, and (3) the corporation did not provide unusual corporate prerequisites and fringe benefits.

5. Purchase corporate owned life insurance (COLI).

COLI can be a tax-effective tool for funding deferred executive compensation, funding clinic or company redemption of stock as part of a succession plan, and providing many employees with life insurance in a highly leveraged program. Consult your insurance and tax advisers when considering this technique.

6. Consider establishing a SIMPLE retirement plan.

If you have no more than 100 employees and no other qualified plan, you may set up a Savings Incentive Match Plan for Employees (SIMPLE) into which an employee may contribute up to $12,500 per year if you’re under 50 years old and $15,500 a year if you’re over 50 in 2015. As an employer, you are required to make matching contributions. Talk with a benefits specialist to fully understand the rules and advantages and disadvantages of these accounts.

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7. Establish a Keogh retirement plan before December 31st.

If you are self-employed and want to deduct contributions to a new Keogh retirement plan for this tax year, you must establish the plan by December 31st. You don’t actually have to put the money into your Keogh(s) until the due date of your tax return. Consult with a specialist in this area to ensure that you establish the Keogh or Keoghs that maximize your flexibility and your annual contributions.

8. Section 179 expensing.

Businesses and medical practices may be able to expense up to $25,000 in 2015 for equipment purchases of qualifying property placed in service during the filing year, instead of depreciating the expenditures over a longer time period. The limit is reduced by the amount by which the cost of Section 179 property placed in service during the tax year 2015 exceeds $200,000.

9. Don’t forget deductions for health insurance premiums.

If you are self-employed (or are a partner or a 2-percent S corporation shareholder-employee) you may deduct 100 percent of your medical insurance premiums for yourself and your family as an adjustment to gross income. The adjustment does not reduce net earnings subject to self-employment taxes, and it cannot exceed the earned income from the business under which the plan was established. You may not deduct premiums paid during a calendar month in which you or your spouse is eligible for employer-paid health benefits.

10. Review whether compensation may be subject to self-employment taxes.

If you are a sole proprietor, an active partner in a partnership, or a manager in a limited liability company, the net earned income you receive from the entity may be subject to self-employment taxes.

11. Don’t overlook minimum distributions at age 70½ and rack up a 50 percent penalty.

Minimum distributions from qualified retirement plans and IRAs must begin by April 1 of the year after the year in which you reach age 70½. The amount of the minimum distribution is calculated based on your life expectancy or the joint and last survivor life expectancy of you and your designated beneficiary. If the amount distributed is less than the minimum required amount, an excise tax equal to 50 percent of the amount of the shortfall is imposed.

12. Don’t double up your first minimum distributions and pay unnecessary income and excise taxes.

Minimum distributions are generally required at age seventy and one-half, but you are allowed to delay the first distribution until April 1 of the year following the year you reach age seventy and one-half. In subsequent years, the required distribution must be made by the end of the calendar year. This creates the potential to double up in distributions in the year after you reach age 70½. This double-up may push you into higher tax rates than normal. In many cases, this pitfall can be avoided by simply taking the first distribution in the year in which you reach age 70½.

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buckets cash

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13. Don’t forget filing requirements for household employees.

Employers of household employees must withhold and pay social security taxes annually if they paid a domestic employee more than $1,900 a year in 2015 (same as 2014). Federal employment taxes for household employees are reported on your individual income tax return (Form 1040, Schedule H). To avoid underpayment of estimated tax penalties, employers will be required to pay these taxes for domestic employees by increasing their own wage withholding or quarterly estimated tax payments. Although the federal filing is now required annually, many states still have quarterly filing requirements.

14. Consider funding a nondeductible regular or Roth IRA.

Although nondeductible IRAs are not as advantageous as deductible IRAs, you still receive the benefits of tax-deferred income. Note, the income thresholds to qualify for making deductible IRA contributions, even if you or your spouse is an active participant in a employer plan, are increasing.

The $100,000 income test for converting a traditional IRA to a ROTH IRA was permanently eliminated in 2010, allowing anyone to complete the conversion.

You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. If properly (and timely) rolled over, the 10 percent additional tax on early distributions will not apply. However, a part or all of the distribution from your traditional IRA may be included in gross income and subjected to ordinary income tax.

Caution: You must roll over into the Roth IRA the same property you received from the traditional IRA. You can roll over part of the withdrawal into a Roth IRA and keep the rest of it. However, the amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions) and may be subject to the 10 percent additional tax on early distributions.

15. Calculate your tax liability as if filing jointly and separately.

In certain situations, filing separately may save money for a married couple. If you or your spouse is in a lower tax bracket or if one of you has large itemized deductions, filing separately may lower your total taxes. Filing separately may also lower the phase out of itemized deductions and personal exemptions, which are based on adjusted gross income. When choosing your filing status, you should also factor in the state tax implications.

16. Avoid the hobby loss rules.

If you choose self-employment over a second job to earn additional income, avoid the hobby loss rules if you incur a loss. The IRS looks at a number of tests, not just the elements of personal pleasure or recreation involved in the activity.

17. Review your will and plan ahead for post-mortem tax strategies.

A number of tax planning strategies can be implemented soon after death. Some of these, such as disclaimers, must be implemented within a certain period of time after death. A number of special elections are also available on a decedent’s final individual income tax return. Also, review your will as the estate tax laws are influx and your will may have been written with differing limits in effect. In 2015, estates of $5,430,000 (up from $5,340,000 in 2014) are exempt from the estate tax with a 40 percent maximum tax rate (made permanent starting in tax year 2013).

18. Check to see if you qualify for the Child Tax Credit.

A $1,000 tax credit is available for each dependent child (including stepchildren and eligible foster children) under the age of 17 at the end of the taxable year. The child credit generally is available only to the extent of a taxpayer’s regular income tax liability. However, for a taxpayer with three or more children, this limitation is increased by the excess of Social Security taxes paid over the sum of other nonrefundable credits and any earned income tax credit allowed to the taxpayer. For 2015 (as in previous years), the income threshold is $3,000.

For more information concerning these financial planning ideas, please call or email us.

More: Enter the CMPs

ABOUT  DR. GARY L. BODE MSA CPA CMP [Hon]

Dr. Gary L. Bode was Chief Executive Officer of Comprehensive Practice Accounting, Inc., a firm specializing in providing tax solutions to medical professionals. Originally, he was a board certified podiatrist and managing partner of a multi-office medical practice for a decade before earning his Master of Science degree in Accounting from the University of North Carolina. He then served as Chief Financial Officer [CFO] for a private mental healthcare facility. Today, Dr. Bode is a nationally known Certified Public Accountant, financial author, educator, and speaker. Areas of expertise include producing customized managerial accounting reports, practice appraisals and valuations, restructurings, and innovative financial accounting as well as proactive tax positioning and tax return preparation for healthcare facilities. He has been quoted in Newsweek.

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)* 8

Product DetailsProduct DetailsProduct Details

Understanding MD Employee Accident and Health Benefits

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Tax-free benefits provided to employees

[By Perry D’alessio CPA]

perry-dalessio-cpaMore and more physicians are employees; not employers.

So, here are the most common types of tax-free benefits provided to employees.

They include payments for health care insurance, payment to a fund that provides accident and health benefit directly to the employee, company direct reimbursements for employee medical expenses and contributions to an Archer MSA (medical savings account).

The IRS definition of employee, for health care benefit purposes, is very broad

Health benefits are exempt from income, FICA and FUTA (Federal Unemployment Tax).    This saves the employer 7.65% that would otherwise be the “matching” 6.2% Social Security tax and the 1.45% Medicare Tax components due if these were true wages.  The employer also saves the 0.8% FUTA tax, but since FUTA taxes only the first $7,000 of calendar year wages, per employee, this usually doesn’t factor in.

Calculation:

If you pay the full state unemployment tax, then your FUTA tax = Gross Salary * .08% – The maximum amount is $56 per employee:

  • $50,000 Salary = ($7,000)*(.8%) = $56.00
  • $5,000 Salary = ($5,000)*(.8%) = $40.00

The hospital employee saves federal income taxes on health benefits received, at their marginal tax rate, and, their components of FICA taxes. Depending on the coverage provided, these plans, when fully funded by the employer, can save the employee thousands of dollars in taxes each year.

IRS restrictions include:

  • Certain payments to S Corporation employees who are 2% shareholders are subject to FICA taxes.
  • Certain long term care benefits.
  • Certain payments for highly compensated employees.

Example 1: Let’s say the annual cost of providing medical coverage for an employee, age 50, with a spouse and two minor children is $7,500. An employee in the 30% tax bracket who received this amount in cash each year and then paid for his or her own medical coverage would be liable for as much as $2,250 in income taxes. In addition, FICA taxes save another 7.65% or $574, for a total savings to the employee of $2,824. The employer saves $574 in FICA taxes.

Benefits

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Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

Year End MEGA Tax Planning “Tips” for Physicians

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For Medical Professionals … and Us All

[By PERRY D’ALESSIO CPA] http://www.dalecpa.com

A SPECIAL ME-P REPORT

perry-dalessio-cpaYear-end tax planning is especially challenging this year, for EVERYONE, because Congress has yet to act on a host of tax breaks that expired at the end of 2013. Some of these tax breaks may be retroactively reinstated and extended, but Congress may not decide the fate of these tax breaks until the very end of this year (and, possibly, not until next year).

For Individuals

These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70- 1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence.

For Businesses

For businesses, tax breaks that expired at the end of last year and may be retroactively reinstated and extended include: 50% bonus first year depreciation for most new machinery, equipment and software; the $500,000 annual expensing limitation; the research tax credit; and the 15-year write-off for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

Bigger Earners

Higher-income-earners, like some doctors, have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).

The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an un-indexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears; a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and net investment income (NII) for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than NII, and other individuals will need to consider ways to minimize both NII and other types of MAGI.

The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward year end to cover the tax.

For example, an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year. He would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000.

Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be over-withheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s income won’t be high enough to actually cause the tax to be owed.

The Checklist[s]

I’ve have compiled a checklist of additional actions, for ME-P readers, based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them.

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Next-Gen Physicians

[Future High Income-Earners?]

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Year-End Tax Planning Moves for Individual Medical Providers 

Realize losses on stock while substantially preserving your investment position. There are several ways this can be done.

For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.

Let’s consider the following:

  • Postpone income until 2015 and accelerate deductions into 2014 to lower your 2014 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2014 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2014. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2015 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.
  • If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2014. If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by re-characterizing the conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA, if doing so proves advantageous.
  • It may be advantageous to try to arrange with your PHO, medical group, clinic, hospital or employer to defer a bonus that may be coming your way until 2015.
  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2014 deductions even if you don’t pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2014 if doing so won’t create an alternative minimum tax (AMT) problem.
  • Take an eligible rollover distribution from a qualified retirement plan before the end of 2014 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding isn’t viable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2014. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2014, but the withheld tax will be applied pro rata over the full 2014 tax year to reduce previous underpayments of estimated tax.
  • Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2014, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes in the case of a taxpayer who is over age 65 or whose spouse is over age 65 as of the close of the tax year. As a result, in some cases, deductions should not be accelerated.
  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions (i.e., certain deductions that are allowed only to the extent they exceed 2% of adjusted gross income), medical expenses and other itemized deductions.
  • You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
  • You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70- 1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2014, you can delay the first required distribution to 2015, but if you do, you will have to take a double distribution in 2015-the amount required for 2014 plus the amount required for 2015. Think twice before delaying 2014 distributions to 2015-bunching income into 2015 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2015 if you will be in a substantially lower bracket that year.
  • Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
  • If you are eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2014. This is so even if you first became eligible on Dec. 1st, 2014.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $14,000 in 2014 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

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Target MD

[Future IRS Targets?]

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Year-End Tax-Planning Moves for Medical Practices & Physician Executives 

  • Medical practices, clinics and businesses should buy machinery and equipment before year end and, under the generally applicable “half-year convention,” thereby secure a half-year’s worth of depreciation deductions for the first ownership year.
  • Although the business property expensing option is greatly reduced in 2014 (unless legislation changes this option for 2014), don’t neglect to make expenditures that qualify for this option. For tax years beginning in 2014, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.
  • Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of inexpensive assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit-of-property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $500. Where the UNICAP rules aren’t an issue, purchase such qualifying items before the end of 2014.
  • A corporation should consider accelerating income from 2015 to 2014 where doing so will prevent the corporation from moving into a higher bracket next year. Conversely, it should consider deferring income until 2015 where doing so will prevent the corporation from moving into a higher bracket this year.
  • A corporation should consider deferring income until next year if doing so will preserve the corporation’s qualification for the small corporation alternative minimum tax (AMT) exemption for 2014. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn’t qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.
  • A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2014 (and substantial net income in 2015) may find it worthwhile to accelerate just enough of its 2015 income (or to defer just enough of its 2014 deductions) to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100% of its much larger 2015 taxable income.
  • If your business qualifies for the domestic production activities deduction for its 2014 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2014 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2014, even if the business has a fiscal year.
  • To reduce 2014 taxable income, consider disposing of a passive activity in 2014 if doing so will allow you to deduct suspended passive activity losses. If you own an interest in a partnership or S corporation consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

Assessment

These are just some of the year-end steps that you can take to save taxes. So, contact your CPA to tailor a particular plan that will work best for you. We also will need to stay in close touch in the event Congress revives expired tax breaks, to assure that you don’t miss out on any resuscitated tax saving opportunities.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Financial Planning MDs 2015

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants

Income Tax Brackets and Rates for 2014

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An ME-P Update

[By Internal Revenue Service]

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Tax Brackets

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More:

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Financial Planning MDs 2015

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

 

More on Medical Professional Job Hunting Expenses

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How to deduct some job hunting costs?

By Andrew Schwartz, CPA

Andrew SchwartzMany people change their job in the mid to late summer; especially doctors, nurses and medical professionals.

So, if you look for a new job in the same line of work, you may be able to deduct some of your job hunting costs.

Key Facts

Here are some key tax facts you should know about if you search for a new job:

  • Same Occupation.  Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.
  • Résumé Costs.  You can deduct the cost of preparing and mailing your résumé.
  • Travel Expenses.  If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
  • Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
  • First Job.  You can’t deduct job search expenses if you’re looking for a job for the first time.
  • Work-Search Break.  You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
  • Reimbursed Costs.  Reimbursed expenses are not deductible.
  • Schedule A.  You usually deduct your job search expenses on Schedule A, Itemized Deductions. You’ll claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.
  • Premium Tax Credit.  If you receive advance payment of the premium tax credit in 2014 it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

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Healthcare Center

More:

For more on job hunting refer to Publication 529, Miscellaneous Deductions on IRS.gov. You can also call 800-TAX-FORM (800-829-3676) to get it by mail.

IRS YouTube Videos:

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ALERT – Phone Call Scammers Claiming to be IRS Agents

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Doctors – Beware!

By Andrew Schwartz, CPA

Andrew SchwartzYikes!  I got the call.

As I’ve noted before; identity theft in connection with federal tax filings is on the rise.

One specific fraud involves people receiving phone calls from scammers posing as IRS agents and then being aggressively instructed to wire money directly to the scammer to pay off a fictitious tax debt.

The Transcript

Here is a transcript of the automated voicemail message left on my home phone last month by someone trying to commit this fraud on me:

You received this message.  I need you or your retained attorney to return this call.  The issue at hand is extremely time sensitive.  I’m officer Hannah Gray from the Internal Revenue Service and the hot line to my position is 415-251-9813.  I repeat, it’s 415-251-9813.  Don’t disregard this message and return this call before we take any legal allegation against you.  Goodbye and take care.

If I weren’t aware that this scam existed, my initial reaction would have been to call the number left by the scammer as soon as possible.  But remember, the IRS does not send e-mails or make phone calls like these to taxpayers. Instead, the IRS is continually warning taxpayers about scams like this; including the following press release issued last Halloween:

IRS Warns of Pervasive Telephone Scam

IR-2013-84, Oct. 31, 2013

WASHINGTON — The Internal Revenue Service today warned consumers about a sophisticated phone scam targeting taxpayers, including recent immigrants, throughout the country.

Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

“This scam has hit taxpayers in nearly every state in the country.  We want to educate taxpayers so they can help protect themselves.  Rest assured, we do not and will not ask for credit card numbers over the phone, nor request a pre-paid debit card or wire transfer,” says IRS Acting Commissioner Danny Werfel. “If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.” Werfel noted that the first IRS contact with taxpayers on a tax issue is likely to occur via mail.

Other characteristics of this scam include:

  • Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
  • Scammers may be able to recite the last four digits of a victim’s Social Security Number.
  • Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
  • Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
  • Victims hear background noise of other calls being conducted to mimic a call site.
  • After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

  • If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
  • If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.
  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov.  Please add “IRS Telephone Scam” to the comments of your complaint.

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Calling

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Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure. The IRS does not initiate contact with taxpayers by email to request personal or financial information.  This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

Assessment

More information on how to report phishing scams involving the IRS is available on the genuine IRS website, IRS.gov.

More:

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Understanding Healthcare Employment Benefits that are NOT Taxed at Full Economic Value

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On Entirely Legal AUTOMOBILE Employment Fringe Benefit Strategies 

[By Perry Dalessio CPA]

perry-dalessio-cpaWhen an employment fringe benefit does not qualify for exclusion under a specific statute or regulation, the benefit is considered taxable to the recipient.  It is included in wages for withholding and employment-tax purposes, at the excess of its fair market value over any amount paid by the employee for the benefit.

Examples:

For example, hospitals often provide automobiles for use by employees. Treasury regulations exclude from income the value of the following types of vehicles’ use by an employee:

  • Vehicles not available for the personal use of an employee by reason of a written policy statement of the employer
  • Vehicles not available to an employee for personal use other than commuting (although in this case commuting is includable)
  • Vehicles used in connection with the business of farming [in which case the exclusion is equal to the value of an arbitrary 75% of the total availability for use, and the value of the balance may be includable or excludable, depending upon the facts (Treas. Regs. § 1.132-5(g)) involved)]
  • Certain vehicles identified in the regulations as “qualified non-personal-use vehicles,” which by reason of their design do not lend themselves to more than a de minimus amount of personal use by an employee [examples are ambulances and hearses].
  • Vehicles provided for qualified automobile demonstration use
  • Vehicles provided for product testing and evaluation by an employee outside the employer’s work place

If the employer-provided vehicle does not fall into one of the excluded categories, then the employee is required to report his personal use as a taxable benefit. The value of the availability for personal use may be determined under one of several approaches.

jag346_SWHT

Assessment

Under any of the approaches, the after-tax cost to the employee is substantially less than if the employee used his or her own dollars to purchase the automobile and then deducted a portion of the cost as a business expense.

Conclusion

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Why You Should [Still] Know Your Marginal Tax Rate?

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And … Other Financial Planning Topics of Import

Lon JefferiesBy Lon Jefferies MBA CFP®

In 2014, the federal tax brackets are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. For a taxpayer who is married and files jointly, regardless of how much the household makes, the first $18,150 of income after accounting for deductions and exemptions will only be taxed at the 10% rate.

Similarly, any income the household makes that is more than $18,150 but less than $73,800 is taxed at the 15% rate. At that point, the next $75,050 is taxed at 25%, and so on.

Consequently, not all income a household makes during the course of the year is taxed at the same rate. A marginal tax bracket is the tax rate that applies to the last dollar the household made.

It is crucial for all taxpayers to know their marginal tax rate. This information can help a client identify which type of investment accounts fits their situation best, how to structure an investment portfolio, and how to determine the value of certain deductions when filing their tax return.

Roth or Traditional Retirement Accounts

Contributions to traditional retirement accounts like IRAs and 401(k)s allow taxpayers to avoid recognizing income earned during the tax year and push the need to acknowledge the revenue into a future year. This is valuable because many people are in a higher tax bracket during their working years than they are during retirement. For instance, for a person who is currently in the 25% marginal tax bracket, it may be advantageous to delay recognizing the income until the investor retires and has less income, causing him to be in only the 15% marginal tax bracket. Doing this would enable the taxpayer to pay taxes at only 15% as opposed to 25%.

Alternatively, a Roth IRA or Roth 401(k) allows an investor to pay taxes on contributed income during the year it was earned but the money then grows tax-free. Consequently, a Roth retirement account is great for someone who believes they may be in a higher marginal tax bracket in the future. For example, a young employee in the early stages of his career who is in the 15% tax bracket but believes he may be in the 25% or 28% bracket in the future would benefit from paying all taxes on the income at his current rate of 15% and then getting tax-free investment growth. This would prevent the investor from having to pay the higher future tax rate of 25% or 28% on the invested dollars.

Knowing your marginal tax bracket can help you determine if you would favor paying taxes on your invested dollars at your current tax rate or if you believe you may benefit from pushing the need to recognize the income into a future tax year. This is a critical decision when planning for retirement and it can’t accurately be made without knowing your marginal tax rate.

Capital Gains Rate

A long term capital gains tax rate is the rate that applies to the growth of any asset held for longer than a year that is not within a tax-advantaged account. If you buy stock outside a tax-advantaged account, or purchase investment property, any growth in the value of the investment will be taxed as capital gains when sold.

An investor’s capital gains tax rate is determined by the investor’s marginal tax rate. For most taxpayers the long term capital gains tax rate is 15%. However, if a taxpayer is in the 10% or 15% marginal tax bracket, the long term capital gains tax rate is an amazing 0%! Additionally, many taxpayers in either the 35% or 39.6% tax bracket may end up paying capital gains at a rate of 20%.

Clearly, knowing your marginal tax bracket will help you analyze the appeal of making investments outside of tax-advantaged accounts. People who qualify for the 0% capital gains tax should actively search for ways to take advantage of this benefit.

Additionally, knowing your marginal tax rate can help you determine the best time to recognize long-term capital gains. If your marginal tax rate will be 25% in 2014 — leading to a capital gains tax rate of 15% — but you believe your marginal rate will be 15% in 2015 — leading to a capital gains tax rate of 0% — it would save you money and lower your tax bill to defer recognizing long-term capitals gains until next year.

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FP

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Annuities

Annuities are promoted as a way for invested dollars to obtain tax-deferred growth. However, when money is withdrawn from an annuity it is taxed at the investor’s marginal tax rate as opposed to his long term capital gains tax rate. Knowing your marginal tax bracket can help determine whether an annuity adds any value to your portfolio, or whether it could actually be detrimental.

Suppose an investor is in the 15% marginal tax bracket. If this person invests in an annuity, he will avoid paying taxes on any of the investment’s growth until the funds are withdrawn from the annuity. However, at that point the investment’s growth will be taxed at the taxpayer’s marginal income tax bracket of 15%. Alternatively, if this same investor utilized a taxable investment account rather than an annuity, the investment’s growth would be taxed at the investor’s capital gains tax rate of 0% when sold. In this case, investing in an annuity actually created a tax bill for this investor!

Clearly, knowing your marginal tax rate and your resulting capital gains tax rate can help you determine the best type of investment accounts for your personal situation.

Itemized Deductions

The value of your itemized deductions is essentially determined by your marginal tax bracket. For a simplified example, consider a taxpayer who could generate an additional $10,000 of deductions. Doing so would mean the individual would pay taxes on $10,000 of income less than he would without the deduction. If the individual is in the 15% tax bracket, generating the deduction would lower the person’s tax bill by $1,500 dollars ($10,000 x 15%). However, if the individual is in the 25% tax bracket, the same deduction would lower the person’s tax bill by $2,500 ($10,000 x 25%).

Consequently, knowing your marginal tax bracket can help determine when large itemized deductions should be taken. If you would like to donate funds to your favorite charitable institution, knowing which year you will be in the highest marginal tax bracket can help you determine the best time to make the contribution.

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FA

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Marginal Tax Rates Change

Many people’s income is relatively constant year-after-year. For these people, there may not be much fluctuation in their marginal tax bracket. However, any time you have a significant increase or decrease in income recognized during a year, your marginal tax rate may change. Whenever possible, it is best to anticipate how your current marginal tax rate might compare to your future marginal tax rate.This is another strong factor that can impact all the key financial decisions effected by your marginal tax rate.

Conclusion

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Does the Method of Tax Filing Change IRS Audit Potential?

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Will that be a Paper or Electronic Tax Return?

[By Dr. David Edward Marcinko MBA CMP™]

dr-david-marcinko5I’ve prepared and filed personal, medical practice as well as PC, S and C corporate tax returns for many years now. I bought my first computer in 1988, participated on dial-up bulletin boards with modem soon thereafter, and have been on the internet since 1995.

But, I do to have a definitive answer to this question.

Two Competing Theories

Some CPAs suggest filing the old-school way if you’re worried about an audit. Why? Paper filing means more work for the IRS to access all the information in your return. Others disagree:

Philosophy in Favor of Paper Returns

Some suggest that a paper tax return might reduce your chance of an audit because the IRS must transcribe your information into a computer by hand. The IRS does not transfer all of the information in your return as a result of the prohibitive cost of transcribing returns. When you file a return electronically, a computer instantly analyzes your return for errors and discrepancies.

Source: http://www.ehow.com/info_8488086_filing-increase-chances-irs-audit.html#ixzz2yh9m8pEy

Philosophy in Favor of Electronic Returns

Filing an electron tax return reduces the number of math mistakes on your return and the chance that the IRS makes a mistake when it transfers data by hand. Overall, electronic returns contain fewer errors than paper returns which increase the chance of audits. Also, the IRS may perform an automatic audit when its electronic scanning system cannot read your handwriting.

Source: http://www.taxdebthelp.com/tax-problems/tax-audit/irs-audit-statistics#ixzz2yLVTp0l1

Tax

Assessment

Remember, your duty as a taxpayer is to be truthful and accurate, but you don’t have to make it easy for the IRS.

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Three New Medical Management and Retirement Planning Videos

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Watch These Channel Presentations

By Andrew Schwartz CPA

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Andrew SchwartzRetirement Plan Basics for Practice Owners

Wondering which type of retirement plan makes the most sense for your practice? Here, you’ll also learn why it makes sense to set up and begin to max out your retirement plan savings as soon as possible.

Million Dollar Metrics for General Dentists

General dentists can learn which metrics to generate to gauge how their practice is doing, and compare those metrics with other practices, including a sample of practices that routinely collect one million dollars or more each year.

SIBS: Implementing a Simple Incentive Bonus System

Learn to increase revenues and profits at your practice by implementing a Simple Incentive Bonus System [SIBS]. We’ve seen a lot of clients implement a SIBS and experience immediate results within their practices.

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Even More 2013 Year End Tax Planning Tips for Physicians

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Last Minute Considerations for Medical Professionals … and Us All

By Robert Whirley CPA

2500-190 North Winds Parkway

Alpharetta GA 30009-2245

Dear ME-P Readers:

Year-end tax planning could be especially productive this year because timely action could nail down a host of tax breaks that won’t be around next year unless Congress acts to extend them, which, at the present time, looks doubtful. I have tried to keep this brief but, as typical, the changes this year are voluminous.

High-Income Earners

High-income-earners have other factors to keep in mind when mapping out year-end plans. For the first time, they have to take into account the 3.8% surtax on unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).

Medicare Tax

The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimate tax. There could be situations where an employee may need to have more withheld toward year end to cover the tax.

For example, an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year. He would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000.

Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be over-withheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s income won’t be high enough to actually cause the tax to be owed.

Checklist

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

Tax

[Year-End Tax Planning Moves for Individuals]

• Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.

• If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2013.

• Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.

• Postpone income until 2014 and accelerate deductions into 2013 to lower your 2013 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2013 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, the above-the-line deduction for higher-education expenses, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2013. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2014 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.

• If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2013.

• If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as-is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the rollover or conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA.

• It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2014.

• Consider using a credit card to prepay expenses that can generate deductions for this year.

• If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2013 if doing so won’t create an alternative minimum tax (AMT) problem.

• Take an eligible rollover distribution from a qualified retirement plan before the end of 2013 if you are facing a penalty for underpayment of estimated tax and the increased withholding option is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2013. You can then timely roll over the gross amount of the distribution, as increased by the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2013, but the withheld tax will be applied pro rata over the full 2013 tax year to reduce previous underpayments of estimated tax.

• Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2013, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes (or state sales tax if you elect this deduction option), miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes in the case of a taxpayer who is over age 65 or whose spouse is over age 65 as of the close of the tax year. As a result, in some cases, deductions should not be accelerated.

• Accelerate big ticket purchases into 2013 in order to assure a deduction for sales taxes on the purchases if you will elect to claim a state and local general sales tax deduction instead of a state and local income tax deduction. Unless Congress acts, this election won’t be available after 2013.

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

• If you are a homeowner, make energy saving improvements to the residence, such as putting in extra insulation or installing energy saving windows, or an energy efficient heater or air conditioner. You may qualify for a tax credit if the assets are installed in your home before 2014.

• Unless Congress extends it, the up-to-$4,000 above-the-line deduction for qualified higher education expenses will not be available after 2013. Thus, consider prepaying eligible expenses if doing so will increase your deduction for qualified higher education expenses. Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014.

• You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.

• You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.

• If you are age 70-1/2 or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve important tax savings.

• Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70-1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70-1/2 in 2013, you can delay the first required distribution to 2013, but if you do, you will have to take a double distribution in 2014-the amount required for 2013 plus the amount required for 2014. Think twice before delaying 2013 distributions to 2014-bunching income into 2014 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2014 if you will be in a substantially lower bracket that year, for example, because you plan to retire late this year.

• Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $14,000 in 2013 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

US capitol

[Year-End Tax-Planning Moves for Businesses & Business Owners]

• Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2013, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. And a limited amount of expensing may be claimed for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2014, the dollar limit will drop to $25,000, the beginning-of-phaseout amount will drop to $200,000, and expensing won’t be available for qualified real property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities.

• Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year. This bonus writeoff generally won’t be available next year unless Congress acts to extend it. Thus, enterprises planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.

• Nail down a work opportunity tax credit (WOTC) by hiring qualifying workers (such as certain veterans) before the end of 2013. Under current law, the WOTC won’t be available for workers hired after this year.

• Make qualified research expenses before the end of 2013 to claim a research credit, which won’t be available for post-2013 expenditures unless Congress extends the credit.

• If you are self-employed and haven’t done so yet, set up a self-employed retirement plan.

• Depending on your particular situation, you may also want to consider deferring a debt-cancellation event until 2014, and disposing of a passive activity to allow you to deduct suspended losses.

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

Assessment

These are just some of the year-end steps that can be taken to save taxes.

Conclusion

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What All Doctors Need to Know About the Expiring Tax Provisions‏

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Avoid Losing Out on these Tax Breaks

By Bobby Whirley CPA and Kim Dore

Whirley & Associates, LLC

Certified Public Accountants

2500 Northwinds Parkway

Suite 190 – Alpharetta, GA 30009

770.932.1919 (ph) and 770.932.1192 (fax)

Dear ME-P Subscribers,

We wanted to let ME-P readers know about several important tax provisions affecting individuals and businesses that are slated to expire at the end of this year. While a budget conference is underway between the House and Senate, there is no way to know whether any agreement resulting from these negotiations will extend any expiring tax provisions. Because of this uncertainty, where possible, you should take action now to avoid losing out on tax breaks.

· Above-the-line deduction for certain higher education expenses – An above-the-line deduction is allowed for an individual taxpayer’s qualified tuition and related expenses. For 2013, the maximum deduction is $4,000 for taxpayers with modified AGI of not more than $65,000 ($130,000 for joint filers), and $2,000 for taxpayers with modified AGI that is equal to or more than the above amount but not more than $80,000 ($160,000 for joint filers). In general, the deduction is allowed for any tax year only to the extent the expenses are in connection with enrollment at an institution of higher education during that tax year. However, the deduction is allowed for qualified tuition and related expenses paid during a tax year if they are in connection with an academic term beginning during that tax year or during the first three months of the next tax year. The deduction does not apply for tax years beginning after 2013.

So, you may want to prepay in 2013 tuition due for an academic term beginning in Jan., Feb. or Mar. 2014 if that would increase your 2013 tax savings from the expiring deduction.

· Non-business energy credit –  Subject to limits (listed below), a taxpayer may be able to take a credit under Code Sec. 25C equal to the sum of: (1) 10% of the amount paid or incurred for qualified energy efficiency improvements, such as insulation material, exterior windows and skylights, and exterior doors, installed during 2013; and (2) any residential energy property costs, such as electric heat pumps, central air conditioners, natural gas, propane, or oil water heaters, or qualified natural gas, propane, and oil hot water boilers, paid or incurred in 2013. The expenses must be for property originally placed in service by the taxpayer and located in the U.S., and used as a principal residence at the time of installation. However, the credit is limited as follows:

·        A total combined credit limit of $500 for all tax years after 2005.

·        A combined credit limit of $200 for windows for all tax years after 2005.

·        A credit limit for residential energy property costs for 2013 of $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property.

So, if you have not made full use of the credit and are contemplating making such energy efficient improvements in the near future, you should do so before year-end to take advantage of the credit.

Tax

· Home mortgage debt forgiveness relief – For indebtedness discharged before Jan. 1, 2014, taxpayers generally may exclude up to $2 million of mortgage debt forgiveness on their principal residence. Gross income doesn’t include any discharge of qualified principal residence indebtedness. Generally, this relief allows the exclusion of income realized as a result of modification of the terms of the mortgage, foreclosure on a principal residence, or where the mortgage loan is not fully satisfied (e.g., in a short sale) and a lender cancels the unsatisfied debt. The basis of the taxpayer’s principal residence is reduced by the excluded amount, but not below zero.

So, if you are in the process of attempting to secure such relief from your lender you should take all possible steps to ensure that the discharge occurs before January 1st. of next year.

· Mortgage insurance premiums treated as deductible interest  – Mortgage insurance premiums paid or accrued by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer’s qualified residence are treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer’s AGI. However, this provision does not apply to premiums paid or accrued after Dec. 31, 2013 or properly allocable to any period after that date.

Thus, prepaying 2014 premiums this year won’t yield a deduction.

·  Above-the-line deduction for expenses of elementary and secondary school teachers. An eligible educator is allowed an above-the-line deduction, not in excess of $250, for otherwise allowable trade or business expenses paid or incurred by him in connection with books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used by him in the classroom. The deduction is allowed only to the extent the expenses exceed the amount excludable for the tax year. This provision does not apply for tax years beginning after 2013.

So, a teacher who is not over the limit and who plans to purchase items in 2014 that would qualify for the deduction if it remained in effect should consider accelerating the purchases to 2013 to gain a deduction this year.

More:

Conclusion

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Update on Estate and Probate Law

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INCREASING TRUST INCOME TAX EFFICIENCY AFTER ATRA WITH BETTER BYPASS TRUST OPTIONS [Ohio]

By Edwin P. Morrow III; JD LL.M, MBA CFP® RFC® CMP® [Hon]

Ed Morrow III JDDave, Ann and ME-P Readers,

Many doctors are flummoxed with whether they need any “AB” trust in light of the new tax laws.  

I’ve written quite a lot on this and have attached a short and a long version to review:

VIEW: Ohio Law

VIEW: Optimal Basis Increase Trust Sept 2013

You could delete the outdated ME-P sections on EGTTRA and replace them with some of this (although it may be too much for doctors and laypeople, so I’ve also toned-it-down similar to the shorter version above).

Assessment

Also, you should cover captive insurance companies if you have not already. Which physician/practice owners should consider it?  How do you start? How do you choose a captive manager and attorney?  What should you watch out for?  I could do that too, I think I have some material.

More on Alternative Insurance Companies:

More on Asset Protection:

ABOUT THE AUTHOR:

Mr. Edwin P. Morrow III, a friend of the Medical Executive-Post, is a Wealth Specialist and Manager, Wealth Strategies Communications Ohio State Bar Association Certified Specialist, Estate Planning, Probate and Trust Law Key Private Bank Wealth Advisory Services. 10 W. Second St., 27th Floor Dayton, OH 45402. He is an ME-P “thought leader”.

This essay is based on presentation by the author at the Wealth Management Conference at Columbus on June 13, 2013.

Conclusion

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Some US Federal Budget Proposals

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Government Shutdown Hoopla for Retirees, Inheritors and Savers

By Rick Kahler CFP® http://www.KahlerFinancial.com

Rick Kahler CFPLost in the hoopla over the government shutdown, defunding Obamacare, and raising the debt ceiling are some proposals contained in President Obama’s budget that will have a significant impact on retirees, inheritors, and savers.

Most of the President’s proposals are aimed at enforcing higher taxes on savers who maximize their retirement plans. This is a way to raise revenue for government entitlement programs, like subsidies for health insurance, Medicare, and Social Security.

Retirement and Retirees

Back from last year is his proposal to cap contributions to IRA’s and 401(k)’s when the balance reaches a level determined by a set formula which is tied to interest rates. The proposal sets the cap at $3.4 million initially. As interest rates rise, the cap will lower. When a saver’s IRA balance hits the cap, he or she will not be allowed to make further contributions to any retirement plan.

This will mostly affect savers who terminate employment and roll large accumulations from profit-sharing plans and lump-sum distributions from defined benefit plans into their IRA’s. It will shut down their ability to save into the future.

Taxes and Inheritors

The President has yet another plan to end tax-deductible contributions for upper income earners. Only 28% of a contribution would be deductible for any taxpayer whose bracket exceeds 28%. For a taxpayer in the highest bracket, this means a tax increase of about 50%.

Another of the President’s proposals would end the ability of anyone other than a spouse to inherit a tax-deferred IRA. Under the proposal, all non-spouses inheriting an IRA would have five years to terminate the IRA and pay income taxes on the distributions. This proposal really impacts Roth IRA conversions, as most parents convert traditional IRA’s to Roths with the intention of leaving their children a non-taxable sum of money that can continue to grow tax free during their lifetime. If the President’s proposal passes, many older savers will discover that the intentions behind their Roth conversions have been nullified.

Forced Savings and Savers

While President Obama wants to cap what successful savers can stash away in retirement plans, he also wants to force employees to save for retirement. Employers will be required to open IRA’s for every employee and to fund the plan at a minimum of 3% of the employee’s pay, unless the employee specifically opts out. The employee can contribute more than 3%, up to the $5,000 cap for those under 50 and $6,000 for those over 50.

Of course, savvy savers and ME-P readers know most of us need to be saving 20% to 50% of our salaries, depending on our ages, so saving just 3% of pay won’t amount to much in the way of retirement income.

Good News

On the positive side, the President wants to end required minimum distributions on IRA balances under $75,000. This will reduce some paperwork for savers with smaller IRA’s who are not making withdrawals.

Typically, most retirees with small IRA’s are those with less savings anyway, who need to take withdrawals from their IRA’s to make ends meet. So it’s doubtful this rule change will have much impact.

Finally, the President proposes letting inherited non-spousal IRA’s enjoy the same benefit of a 60-day rollover window on any distribution, similar to what they can do with a non-inherited IRA. This will simply eliminate a lot of confusion, as most people don’t understand the 60-day rollover provision does not include inherited IRA’s.

Shutdown[US Federal Government Shut-Down]

Assessment

Of course, whether any or all of these proposals make it into law is anyone’s guess. Anyone whose retirement and estate planning includes saving in IRA’s will want to keep an eye on these provisions as the budget moves through Congress.

Conclusion

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Affordable Care Act HIEs at Launch

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Some Important Launching Information for Doctors and Business Owners

By Bobby Whirley CPA

[Whirley & Associates LLC – Alpharetta, GA]

Dear ME-P Readers,

The ACA (Affordable Care Act) requires employers to provide their workers with a notice about the state health insurance exchanges.

Today October 1st is the deadline for providing these notices.

These exchanges will sell insurance to individuals who don’t get coverage through their employers. The exchanges are also available to medical practices and small businesses, which may or may not currently offer heath care coverage.

The Fines?

Some doctors or business owners are concerned about paying a fine of up to $100 per day under the general non-compliance penalty provisions.

The recent notice of the Affordable Health Care Act states that there will be no penalty.  Please refer to http://www.dol.gov/ebsa/faqs/faq-noticeofcoverageoptions.html

If your medical practice, clinic or company is covered by the Fair Labor Standards Act (you have one or more employees, sales of over $500,000, and deal in interstate commerce), you must provide a written notice to your employees about the Health Insurance Marketplace by Oct 1, 2013.

Model Notices

The U.S. Department of Labor has two model notices to help employers comply. There is one model for employers who do not offer a health plan and another model for employers who offer a health plan or some or all employees.

More:

The model notices are also available in Spanish and MS Word format at http://www.dol.gov/ebsa/healthreform/

###

Health-Information-Exchange

###

Assessment

Employers may use one of these models, as applicable, or a modified version. More compliance assistance information is available in a Technical Release issued by the US Department of Labor.

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What is Denial Management?

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Of Healthcare Claims [What it is – How it works]

Dr. David Edward Marcinko MBA

[Editor-in-Chief]

NEU Dr. MarcinkoTypically, denied and rejected healthcare claims quickly surface as a source of multi-millions in revenue leakage and unnecessary expense for doctors, clinics and hospitals, etc.

Why?

Payers have been struggling with increased costs.  They thoroughly inspect claims for errors and have become adept at using their rules to deny and delay claims.

For example, Zimmerman reported the denied percentage of gross charges climbed from 4% in 2000 to 11% in 2011.  In contrast, providers typically lack the tools to aggressively manage current denied claims and prevent future ones.

Financial Recognition

Without denial tracking, an organization may not recognize the heavy financial impact of denied claims.

A HARA [Hospital Accounts Receivable Analysis] report indicates that bad debt and gross days are declining. However, a majority of providers write off denials as contractual allowance, distorting the numbers but not the resulting lower margins and reduced cash.

H*Works reported that the typical 350-bed hospital loses between $4 million and $9 million each year in earned revenue from denials and underpayments (assume $103 million annual gross revenue and 40% contractual allowance). Recouping lost revenue from denials and underpayments will, according to H*Works, increase an organization’s operating margin by 2.6%.

Industry estimates report that at least 50% of denials are recoverable and 90% are preventable with the appropriate workflow processes, management commitment, strong change leadership, and the correct technology. H*Works estimates that for a revenue capture of $3 million from denials and underpayments, the recovery infrastructure costs are only about 3%.

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Assessment

With all this in mind, better management of rejections and denials, as well as the information necessary to resolve and prevent them, surfaces as probably the best strategy to improving financials. By streamlining the revenue cycle, managing rejections and denials proves to be less expensive and to provide faster returns than initiating new services.

Conclusion

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How the IRS’s Nonprofit Division Got So Dysfunctional

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The IRS Controversy

By Kim Barker and Justin Elliott

ProPublica, May 17, 2013, 5:14 p.m.

The IRS division responsible for flagging Tea Party groups has long been an agency afterthought, beset by mismanagement, financial constraints and an unwillingness to spell out just what it expects from social welfare nonprofits, former officials and experts say.

The controversy that erupted in the past week, leading to the ousting of the acting Internal Revenue Service commissioner, an investigation by the FBI, and congressional hearings that kicked off Friday, comes against a backdrop of dysfunction brewing for years.

Moves launched in the 1990s were designed to streamline the tax agency and make it more efficient. But they had unintended consequences for the IRS’s Exempt Organizations division.

Checks and balances once in place were taken away. Guidance frequently published by the IRS and closely read by tax lawyers and nonprofits disappeared. Even as political activity by social welfare nonprofits exploded [1] in recent election cycles, repeated requests for the IRS to clarify exactly what was permitted for the secretly funded groups were met, at least publicly, with silence.

All this combined to create an isolated office in Cincinnati, plagued by what an inspector general this week described [2] as “insufficient oversight,” of fewer than 200 low-level employees responsible for reviewing more than 60,000 nonprofit applications a year.

A Major Mistake

In the end, this contributed to what everyone from Republican lawmakers to the president says was a major mistake: The decision by the Ohio unit to flag for further review applications from groups with “Tea Party” and similar labels. This started around March 2010, with little pushback from Washington until the end of June 2011.

“It’s really no surprise that a number of these cases blew up on the IRS,” said Marcus Owens, who ran the Exempt Organizations division from 1990 to 2000. “They had eliminated the trip wires of 25 years.”

Of course, any number of structural fixes wouldn’t stop rogue employees with a partisan ax to grind. No one, including the IRS [3] and the inspector general [4], has presented evidence that political bias was a factor, although congressional and FBI investigators are taking another look.

But what is already clear is that the IRS once had a system in place to review how applications were being handled and to flag potentially problematic ones. The IRS also used to show its hand publicly, by publishing educational articles for agents, issuing many more rulings, and openly flagging which kind of nonprofit applications would get a more thorough review.

All of those checks and balances disappeared in recent years, largely the unforeseen result of an IRS restructuring in 1998, former officials and tax lawyers say.

“Until 2008, we had a dialogue, through various rulings and cases and the participation of various IRS officials at various ABA meetings, as to what is and what is not permissible campaign intervention,” said Gregory Colvin, the co-chair of the American Bar Association subcommittee that dealt with nonprofits, lobbying, and political intervention from 1991 to 2009.

“And there has been absolutely no willingness in the last five years by the IRS to engage in that discussion, at the same time the caseload has exploded at the IRS.”

IRS

Stone Walling

The IRS did not respond to requests for comment on this story.

Social welfare nonprofits, which operate under the 501(c)(4) section of the tax code, have always been a strange hybrid, a catchall category for nonprofits that don’t fall anywhere else. They can lobby. For decades, they have been allowed to advocate for the election or defeat of candidates, as long as that is not their primary purpose. They  also do not have to disclose their donors.

Social welfare nonprofits were only a small part of the exempt division’s work, considered minor when compared with charities. When the groups sought IRS recognition, the agency usually rubber-stamped them. Out of 24,196 applications for social welfare status between 1998 and 2009, the exempt organizations division rejected only 77, according to numbers compiled from annual IRS data books.

Into this loophole came the Supreme Court’s Citizens United decision in January 2010, which changed the campaign-finance game [5] by allowing corporate and union spending on elections.

Sensing an opportunity, some political consultants started creating social welfare nonprofits geared to political purposes. By 2012, more than $320 million in anonymous money poured into federal elections.

A couple of years earlier, beginning in 2010, the Cincinnati workers had flagged applications of tiny Tea Party groups, according to the inspector general, though the groups spent almost no money in federal elections.

Main Question

The main question raised by the audit is how the Cincinnati office and superiors in Washington could have gotten it so wrong. The audit shows no evidence that these workers even looked at records from the Federal Election Commission to vet much larger groups [6] that spent hundreds of thousands and even millions [7] in anonymous money to run election ads.

The IRS Exempt Organizations division, the watchdog for about 1.5 million nonprofits, has always had to deal with controversial groups. For decades, the division periodically listed red flags that would merit an application being sent to the IRS’s Washington, D.C., headquarters for review, said Owens, the former division head.

In the 1970s, that meant flagging all applications for primary and secondary schools in the south facing desegregation. In the 1980s, during the wave of consolidation in the health-care industry, all applications from health-care nonprofits needed to be sent to headquarters. The division’s different field offices had to send these applications up the chain.

“Back then, many more applications came to Washington to be worked — the idea was to have the most sensitive ones come to Washington,” said Paul Streckfus, a former IRS lawyer who screened applications at headquarters in the 1970s and founded the industry publication EO Tax Journal [8] in 1996.

Because this list was public, lawyers and nonprofits knew which cases would automatically be reviewed.

“We had a core of experts in tax law,” recalled Milton Cerny, who worked for the IRS, mainly in Exempt Organizations, from 1960 to 1987. “We had developed a broad group of tax experts to deal with these issues.”

In the 1980s, the division issued many more “revenue rulings” than issued in recent years, said Cerny, then head of the rulings process. These revenue rulings set precedents for the division. Revenue rulings along with regulations are basically the binding IRS rules for nonprofits.

“We would do a revenue ruling, so the public and agents would know,” Cerny said. “Over the years, it apparently was felt that a revenue ruling should only be published at an extraordinary time. So today you’re lucky if you get one a year. Sometimes it’s less than that. It’s amazing to me.”

Other checks and balances had existed too. Not only were certain kinds of applications publicly flagged, there was another mechanism called “post-review,” Owens said. Headquarters in Washington would pull a random sample every month from the different field offices, to see how applications were being reviewed. There was also a surprise “saturation review,” once a year, for each of the offices, where everything from a certain time period needed to be sent to Washington for another look.

So internally, the division had ways, if imperfect, to flag potential problems. It also had ways of letting the public know what exactly agents were looking at and how the division was approaching controversial topics.

For instance, there was the division’s “Continuing Professional Education,” or CPE, technical instruction program. These articles were supposed to be used for training of line agents, collecting and putting out the agency’s best information on a particular topic — on, say, political activity [9] by social welfare nonprofits in 1995.

“People in a group would write up their thoughts: ‘Here’s the law,’” said Beth Kingsley, a Washington lawyer with Harmon, Curran, Spielberg & Eisenberg who’s worked with nonprofits for almost 20 years. “It wasn’t pushing the envelope. It was, ‘This is how we see this issue.’ It told us what the IRS was thinking.”

The system began to change in the mid-1990s. The IRS was having trouble hiring people for low-level positions in field offices like New York or Atlanta — the kinds of workers that typically reviewed applications by nonprofits, Owens said.

In Cincinnati

The answer to this was simple: Cincinnati.

The city had a history of being able to hire people at low federal grades, which in 1995 paid between $19,704 and $38,814 a year — almost the same as those federal grades paid in New York City or Chicago. (Adjusted for inflation, that’s between $30,064 and $59,222 now.)

“That was well below what the prevailing rate was in the New York City area for accountants with training,” Owens said. “We had one accountant who just had gotten out of jail — that’s the sort of people who would show up for jobs. That was really the low point.”

So in 1995, the Exempt Organizations division started to centralize. Instead of field offices evaluating applications for nonprofits in each region, those applications would all be sent to one mailing address, a post-office box in Covington, Ky. Then a central office in Cincinnati would review all the applications.

Almost inadvertently, because people there were willing to work for less than elsewhere, Cincinnati became ground zero for nonprofit applications.

For the time being, the checks remained in place. The criteria for flagged nonprofits were still made public. The Continuing Professional Education text was still made public. Saturation reviews and post reviews were still in place.

But by 1998, after hearings in which Republican Senator Trent Lott accused the IRS of “Gestapo-like” tactics, a new law mandated the agency’s restructuring. In the years that followed, the agency aimed to streamline. For most of the ‘90s, the IRS had more than 100,000 employees. That number would drop every year, to slightly less than 90,000 [10] by 2012.

Change Will Come

Change also came to the Exempt Organizations division.

The IRS tried to remove discretion from lower-level employees around the country by creating rules they had to follow. While the reorganization was designed to centralize power in the agency’s Washington headquarters, it didn’t work out that way.

“The distance between Cincinnati and Washington was such that soon Cincinnati became a power center,” said Streckfus, the former IRS lawyer.

Following reorganization, many highly trained lawyers in Washington who previously handled the most sensitive nonprofit applications were reassigned to focus on special projects, he said.

Owens, who left the IRS in 2000 but stayed in touch with his old division, said the focus on efficiency meant “eliminating those steps deemed unimportant and anachronistic.”

In 2003, the saturation reviews and post reviews ended, and the public list of criteria that would get an application referred to headquarters disappeared, Owens said. Instead, agents in Cincinnati could ask to have cases reviewed, if they wanted. But they didn’t very often.

“No one really knows what kinds of cases are being sent to Washington, if any,” Owens said. “It’s all opaque now. It’s gone dark.”

By the end of 2004, the Continuing Professional Education articles stopped [11].

Recommendations [12] from an ABA task force for IRS guidelines on social welfare nonprofits and politics that same year were met with silence.

Even the IRS’s Political Activities Compliance Initiative, which investigated [13] complaints of charities engaged in politics — primarily churches — closed up shop in early 2009 after less than five years, without any explanation.

Both before and after the changes, the Exempt Organizations division has been a small part of the IRS, which is focused on collecting money and chasing delinquent taxpayers.

US capitol

IRS Employee Count in 2012

Rulings and Agreements, the division that handles applications of all nonprofits, accounted for less than 0.5 percent of all IRS employees in 2012.

Source: IRS Data Books [14], IRS Exempt Organizations Annual Report [15]

Of the 90,000 employees at the agency last year, only 876 worked in the Exempt Organizations’ division, or less than 1 in 1,000 employees.

Of those, 335 worked in the office that actually handles applications of nonprofits.

Most of those — about 300 — worked in Cincinnati, Streckfus estimates. The rest were at headquarters, in Washington D.C.

In Cincinnati, the employees’ primary job was sifting through the applications of nonprofits, making determinations as to whether a nonprofit should be recognized as tax-exempt. In a press release [16] Wednesday, the IRS said fewer than 200 employees were responsible for that work.

In 2012, these employees received 60,780 applications. The bulk of those — 51,748 — were from groups that wanted to be recognized as charities.

But the number of social welfare nonprofit applications spiked from 1,777 in 2011 to 2,774 in 2012. It’s impossible to say how many of those groups indicated whether they would engage in politics, or why the number of applications increased. The IRS said Wednesday that it “has seen an increase in the number of tax-exempt organization applications in which the organization is potentially engaged in political activity,” including both charities and social welfare nonprofits, but didn’t specify any numbers.

Total 501(c)(4) [17] Nonprofit Applications from 2002 to 2012

From 2011 to 2012, applications increased by more than 50 percent.

Source: IRS Data Books [14]

On average, one employee in Cincinnati would be responsible for going through roughly one application per day.

Some would be easy — say, a local soup kitchen. But to evaluate whether a social welfare nonprofit has social welfare as its primary purpose, the agent is supposed to use a “facts and circumstances” test. There is no checklist. Reviewing just one social welfare nonprofit could take days or weeks, to look through a group’s website, track down TV ads and so forth.

“You’ve got 60,000 applications coming through, and it’s hard to do that with the number of agents looking at them,” said Philip Hackney [18], who was in the IRS’s chief counsel office in Washington between 2006 and 2011 but said he wasn’t involved in the Tea Party controversy. “The reality is that they cannot do that, and that’s why you’re seeing them pick stuff out for review. They tried to do that here, and it burned them.”

As we have previously reported, last year the same Cincinnati office sent ProPublica [19] confidential applications from conservative groups. An IRS spokeswoman said the disclosures were inadvertent.

The Commissioner Speaks

Mark Everson, IRS commissioner for four years during the George W. Bush administration, said he believed the fact that the division is understaffed is relevant, but not an excuse for what happened. “The whole service is under-funded,” he pointed out.

And Dan Backer, a lawyer in Washington who represented six of the groups held up because of the Tea Party criteria, said he doesn’t buy the notion that low-level employees in Cincinnati were alone responsible.

“It doesn’t just strain credulity,” Backer said. “It broke credulity and left it laying on the road about a mile back. Clearly these guys were all on the same marching orders.”

The inspector general’s audit was prompted last year after members of Congress, responding to complaints by Tea Party groups, asked for it.

Like former officials interviewed by ProPublica, the audit suggests that officials at IRS headquarters in Washington were unable to manage their subordinates in Cincinnati. When Lois Lerner, the Exempt Organizations division director in Washington, learned [20] in June 2011 about the improper criteria for screening applications, she instructed that they be “immediately revised.”

But just six months later, Cincinnati employees changed [21] the revised criteria to focus on “organizations involved in limiting/expanding government” or “educating on the Constitution.” They did so “without executive approval.”

“The story people are overlooking is: Congress is complaining about underpaid, overworked employees who are not adequately trained,” said Bryan Camp, a former attorney in the IRS chief counsel’s office.

Assessment

In the end, after all the millions of anonymous money spent by some groups to elect candidates in 2012, after all [22] the groups [23] that said in their applications that they would not spend money to elect candidates before doing exactly that, after the Cincinnati office flagged conservative groups, the IRS approved almost all the new applications. Only eight applications were denied.

Source: http://www.propublica.org/article/how-irs-nonprofit-division-got-so-dysfunctional

Conclusion

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Seeking Director of Hospital Accounting

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For an East Coast Facility

By Kathy Williams kathyw@thorgroup.com
Resource Manager
Thor Group, Inc

Dear Dr. David E Marcinko,

Hello!  We are looking for a Director of Accounting for Hospital client located on East Coast. This is a Direct Hire position.  The position will oversee 3 Managers and 15 FTE’s.  This position will report to the VP of Accounting.

POSITION SUMMARY

The purpose of the position is to provide primary oversight, supervision and strategic direction to the General Accounting Department. This position ensures the accuracy of hospital’s consolidated financial statements in accordance with Generally Accepted Accounting Principles (GAAP) and system-wide policy.

Job Requirements

1. Previous Director / Manager experience in Hospital / Healthcare Accounting role
2. CPA or MBA required.
3. 7 to 10 years of experience.
4. The knowledge and ability to direct, control and supervise the activities of the General Accounting Department at a level generally acquired through 7 to 10 years of progressive experience in healthcare accounting
5. Experience formulating business and accounting policies and procedures
6. Extensive experience using computerized accounting systems and Microsoft Office.

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If any ME-P reader is interested in this Director of Accounting position, please forward their resume to me at kathyw@thorgroup.com.  If you are not interested in this opportunity, perhaps you know someone who might be … please have them forward their resume to me!

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Moonlighting and Deducting Professional Expenses [video]

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For Healthcare Accountants

By Andrew Schwartz CPA

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Andrew Schwartz

Content: Video (mp4) – 122.48MB
Title: Andrew Schwartz Webinar 1.16.13 Moonlighting and Professional Expenses

Video: http://www.screencast.com/t/Zksfdssln

Andrew D. Schwartz, CPA, received his B.S. in Accounting and Finance from the Wharton School at the University of Pennsylvania. Prior to forming Schwartz & Schwartz, P.C. in 1993, he worked at KPMG Peat Marwick, LLP.  Andrew is the author of many tax and financial articles on a variety of issues that impact healthcare professionals.  He is frequently quoted as a tax advisor on current topics in national publications, such as the Washington Post and Wall Street Journal.   Andrew is also the founder of The MDTAXES Network,  a national association of CPAs that specialize in the healthcare profession.

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Recent Tax Law Changes and Basic Retirement Planning [video]

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Content: Video (mp4) – 105.32MB
Title: Richard Schwartz Webinar 1.23.13 Tax Changes and Retirement

Link: http://www.screencast.com/t/Huco7W8LOl

Richard S Schwartz, CPA, CVA, received a B.A. in Economics from Brandeis University in 1985 and an M.S. in Accounting from the Graduate School of Professional Accounting at Northeastern University in 1990.  Prior to joining his brother at Schwartz and Schwartz,  P.C. in 1993, he worked for the international accounting firm PricewaterhouseCoopers, LLP, in their Emerging Business Services Group.  Since joining Schwartz and Schwartz, P.C. he has worked with individuals providing tax expertise as well as small business owners providing both tax and accounting guidance to help their businesses grow.  In 2006, Rick earned the designation of Certified Valuation Analyst from the National Association of Certified Valuation Analysts (NACVA), which he uses to assist healthcare professionals in their evaluation of whether to purchase a practice.

Conclusion

In any case, early planning is the key to supporting both your kids’ futures and your retirement. Making logical college funding decisions, rather than emotional ones, creates a win/win for everyone.

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How to Handle Incurred But Not Reported Health Insurance Claims [Webinar]

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Event Information
[Live Audio Conference – Webinar]
Dr. David E. Marcinko MBA
Presenter: Dr. David Edward Marcinko; MBA CMP™
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Conference Date: Tue, Apr 02, 2013
Aired Time: 1 pm ET | 12 pm CT | 11 am MT | 10 am PT
Length: 60 Minutes
Product Description
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Here’s How to Augment Bottom-Line Revenues by Understanding IBNR Healthcare Claims

One of most relevant financial issues of the PP-ACA and contemporary healthcare and medical reimbursement is known as Incurred But Not Reported (IBNR) healthcare claims. IBNR claims are an indirect result of prospective payments systems, the insurance industry and commercial risk contracts, and to some extent fee-for-service medicine. IBNR claims represent a risk and an opportunity for managed care companies, healthcare organizations, clinics, physicians and related medical providers alike.

Join this enlightening event presented by expert speaker Dr. David Edward Marcinko MBA CMP™ who will provide you detailed insights on IBNR claims so that you do not face any compliance risk and optimize your organization’s bottom line.

Here is a brief sample of some details you may learn:

  • Historical Review
  • What Is an IBNR Claim?
  • IBNR Problems for Healthcare Organizations
  • IBNR Claims — Management Volume and Consequences
  • Inadequate Cash Flows
  • Reserve Shortfalls and Fiscal Instability
  • Inaccurate Pricing
  • Administrative Cost Increases
  • Regulatory Sanctions
  • Managed Care Organization Exacerbation of IBNR Claims
  • IBNR from a Net Present Value Perspective
  • Tax Strategies for IBNRs
  1. IRS Rules and Regulations
  2. IBNR Tax Qualifications for Managed Care Organizations
  3. How Managed Care Organizations Intensify IBNRs
  4. How Does IBNR Affect Net Present Value?
  • IBNR Challenges and Solutions

1. Tax and Court Penalties

  • IRC Section 4958
  • Excess Benefit Definition
  • Taxes under Section 4958

2.  Tax Deductibility

  • Potential Solutions to the IBNR Challenge
  • IBNR Calculations and Methodology
  1. Actuarial Data Analysis
  2. Open Referral Analysis
  3. Historic Cost Analysis

Ask a question at the Q&A session following the live event and get advice unique to your situation, directly from our expert speaker.

Who should attend? All charge-master coordinators, coding personnel, billing and claims transaction personnel, internal auditing personnel; and financial and compliance personnel! And, all administrators, accountants, comptrollers, office managers, billing clerks and physician-executives, CFOs, CXOs and other interested parties.

IBNRs

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http://www.audioeducator.com/medical-coding-billing/ibnr_problems-040213.html

ORDER HERE FOR WEBINAR

A Hospitalist Asks a CPA – “what happened to my paycheck?”

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Law changes will result in smaller paychecks in 2013

DT&PA number of law changes go into effect in 2013 that will result in employees [like hospitalists, nurses, allied healthcare providers and some pHO members, etc] seeing smaller paychecks, including the expiration of the payroll tax cut, the increase in the Social Security taxable wage base, and the new 0.9% Medicare tax imposed on high wage earners.

The following law changes go into effect in 2013

  • The payroll tax cut, which temporarily lowered the Social Security withholding tax rate on wages earned by employees in 2011 and 2012 from 6.2% to 4.2%, has expired. Accordingly, employees will see a 2-percentage-point bump in the amount of Social Security tax withheld from their paychecks from 2012 to 2013.
  • The Social Security taxable wage base has increased by $3,600, from $110,100 to $113,700.
  • An additional 0.9% Medicare surtax is withheld from wages paid to an employee in excess of $200,000 in a calendar year.

Effect of these changes on paychecks

The following illustrations show the effect of these law changes on employees’ paychecks:

… Employees earning $50,000 in 2013 FICA wages will have $1,000 more in FICA taxes withheld ($50,000 × [6.2% – 4.2%]) than they would have in 2012, due to the 2-percentage-point increase in the Social Security tax rate.

… Employees earning $100,000 in 2013 FICA wages will have $2,000 more in FICA taxes withheld ($100,000 × [6.2% – 4.2%]) than they would have in 2012, due to the 2-percentage-point increase in the Social Security tax rate.

… Employees earning $300,000 in 2013 FICA wages will have $3,325.20 more in FICA taxes withheld than they would have in 2012. This includes $2,202 in additional Social Security taxes due to the increase in the Social Security tax rate ($110,100 × [6.2% – 4.2%]), $223.20 in additional Social Security taxes due to the increase in the Social Security taxable wage base ([$113,700 – $110,100] × 6.2%), and $900 in additional Medicare tax ([$300,000 – $200,000] × 0.9%).

… Employees earning $500,000 in 2013 FICA wages will have $5,125.20 more in FICA taxes withheld than they would have in 2012. This includes $2,202 in additional Social Security taxes due to the increase in the Social Security tax rate ($110,100 × [6.2% – 4.2%]), $223.20 in additional Social Security taxes due to the increase in the Social Security taxable wage base ([$113,700 – $110,100] × 6.2%), and $2,700 in additional Medicare tax ([$500,000 – $200,000] × 0.9%).

… Employees earning $1,000,000 in 2013 FICA wages will have $9,625.20 more in FICA taxes withheld than they would have in 2012. This includes $2,202 in additional Social Security taxes due to the increase in the Social Security tax rate ($110,100 × [6.2% – 4.2%]), $223.20 in additional Social Security taxes due to the increase in the Social Security taxable wage base ([$113,700 – $110,100] × 6.2%), and $7,200 in additional Medicare Tax ([$1,000,000 – $200,000] × 0.9%).

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Assessment

There is also a new 39.6% income tax withholding rate on high wage earners (previously, the highest withholding tax rate was 35%). This withholding rate is used for single taxpayers with annual wages greater than $402,200 and for married taxpayers with annual wages greater than $458,300.

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Conclusion

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