Medical Managed Care IBNR Accounting Claims

Posted on February 27, 2023 by Dr. Marcinko

DR. DAVID E. MARCINKO MBA

http://www.CertifiedMedicalPlanner.org

eTax Savings Strategies

Claim Anatomy - ipitome

[By Ana Vassallo] AND [Dr. David E. Marcinko MBA]

Managed Care Organizations (MCOs) that accept capitated risk contracts face a potentially significant tax burden for Incurred but Not Reported (IBNR) claims. It is not uncommon that IBNR claims at the end of a reporting period equal one to two months premiums for MCOs under a fee-for-service model. The Internal Revenue Service (IRS) has taken a very strong position relative to the deductibility of these claims by saying that an MCO cannot deduct such losses if they are based on estimates.

Incurred But Not Reported [IBNR] Claims

IBNR is a term that refers to the costs associated with a medical service that has been provided, but for which the carrier has not yet received a claim. The carrier to account for estimated liability based on studies of prior lags in claim submission records IBNR reserves. In capitated contracts, MCOs are responsible for IBNR claims of their enrollees (Kennedy, 1). 

For example, if an enrollee is treated in an emergency room, a plan may not know it is liable for this care for at least 30-60 days. Well-run plans devote considerable attention to accurately estimating such claims because a plan can look healthy based on claims submitted and be financially unhealthy if IBNR claims experience is increasing substantially but is unknown.

Why a Problem for HMO’s/MCOs 

Section 809(d)(1) of the Code provides that, for purposes of determining the gain and loss from operations, a insurance company shall be allowed a deduction for all claims and benefits accrued, and all losses incurred (whether or not ascertained), during the taxable year on insurance and annuity contracts.  Section 1.809-5(a) (1) of the Income Tax Regulations provides that the term “losses incurred (whether or not ascertained)” includes a reasonable estimate of the amount of the losses (based upon the facts in each case and the company’s experiences with similar cases) incurred but not reported by the end of the taxable year as well as losses reported but where the amount thereof cannot be ascertained by the end of the year. By taking into account for its prior years only the reported losses but not the unreported losses, the taxpayer has established a consistent pattern of treating a material item as a deduction. The effect of the taxpayer’s claim for the first time of a deduction for an estimate of losses incurred but unreported under section 809(d)(1) of the Code, was to change the timing for taking the deduction for the incurred but unreported losses.

Due to the taxpayer consistently deducting losses incurred in the taxable year in which reported, a change in the time for deducting losses incurred under section 809(d)(1) is a change in the method of accounting for such losses to which the provisions of section 446(e) apply (IRS, 14-30). 

In order to qualify for an insurance company under the current IRS regulations, the MCO must have the following criteria (Kongstvedt, 235-256):

· At least 50% of the MCO must come from insurance related activities.

· The MCO must have an insurance company license.

If an MCO did not have these two criteria, the IRS will not deem the manage care company as an eligible insurance company.  Therefore, the MCO would not be able to file for IBNRs with the IRS.

How MCOs/HMOs Intensify IBRN Claims

There is a high degree of uncertainty inherent in the estimates of ultimate losses underlying the liability for unpaid claims.  The only reason the IRS would not allow an MCO to deduct IBNR because the financial statements is based on an estimate (IRS, 134-155).

Except through the insurance company exclusion IRS does not allow any taxpayer to deduct losses based on estimates. There has been some precedence set that the IRS will accept an amount for incurred but not reported claims if the amount is supported by valid receipts of claims that the company has in-house prior to the filing of the tax return.

There has been some controversy as to how long of a period of reporting time the IRS will allow you to include in those estimates. There are ranges from 3-6 months to file a claim (IRS, 137). The process by which these reserves are established requires reliance upon estimates based on known facts and on interpretations of circumstances, including the business’ experience with similar cases and historical trends involving claim payment patterns, claim payments, pending levels of unpaid claims and product mix, as well as other factors including court decisions, economic conditions and public attitudes.

There has been no clear indication from the IRS that it will accept an accrual for these losses and entities. Therefore, companies deducting such losses may eventually find themselves in a position where the IRS may challenge the relating deductibility of those losses.

Product DetailsProduct DetailsProduct Details

Evaluating IBNRs from a New Present Value Perspective

The best measure of whether or not a stream of future cash flows actually adds value to the organization is the net present value (NPV).  The best decision rule for NPV to accept or reject a decision problem is if the NPV is greater than zero, the project adds value to the organization.  Although – if the NPV is exactly zero it neither adds nor subtracts value from the organization (McLean 193).  In either case, the project is acceptable.  In addition, if the NPV is less than zero, the project subtracts value from the organization and should not be undertaken (McLean, 193).

The provision for unpaid claims represents an estimate of the total cost of outstanding claims to the year-end date. Included in the estimate are reported claims, claims incurred but not reported and an estimate of adjustment expenses to be incurred on these claims. The losses are necessarily subject to uncertainty and are selected from a range of possible outcomes (Veal, 11). During the life of the claim, adjustments to the losses are made as additional information becomes available. The change in outstanding losses plus paid losses is reported as claims incurred in the current period.

All but the smallest organizations have predictable and unpredictable losses. It is important mentally to separate the two since predictable losses are not risks but normal business expenses. Risk is the degree to which losses vary from the expected. If losses average $85,000 per year but could be as much as $20 million, the risk is $20 million minus $85,000. The $85,000 figure represents reasonably predictable losses (Veal, 12).

IBNR Challenges and Solutions

While I was unable to find an actual amount of the cost of the penalties that can be incurred, the IRS is able to impose penalty fees under Section 4958 of the IRS code (IRS, 255). While penalties differ depending on individual bases, MCOs will be penalizing for any misconduct either by IRS Codes or Court Jurisdiction.

It is prudent that MCOs ensure their organization that they will not incur a financial “meltdown”. They further need to ensure IBNR is funded for period of at least 2-3 months. In some states, the state laws make the MCO financially responsible to pay the providers for a second time if the intermediary fails to pay or becomes insolvent (Cagle, 1).

Paid losses, paid expenses and net premiums are usually deductible; reserves for incurred-but-unpaid losses generally are not, unless the taxpaying entity is an insurance company. Consequently, if a corporation has a high effective tax rate and concedes that it cannot deduct self-insured loss reserves, some of its more cost-effective options may be a paid-loss retro (if state rules are not too restrictive), a compensating balance plan, or the formation of a pool or industry captive. Even these plans may be subject to IRS challenge. To qualify as a tax-deductible expense, a premium or other payment must satisfy two criteria (Cagle, 2):

 

  • There must be transfer of risk: an insurance risk. This differs from investment risk, but there is no authoritative definition of “risk transfer” other than various court decisions (primarily Helvering v. Le Gierse, 312 US 531 — U.S. Supreme Court 1941).
  • There must be both risk shifting and risk distribution. “Risk shifting” means that one party shifts the risk of loss to another, generally not in the same corporate family. “Risk distribution” means that the party assuming the risk distributes the potential liability, in part, among others.

The deductibility of an insurance expense may also be questioned if it is contingent upon a future happening, such as a loss payment, right to a dividend or other credit, or possible forgiveness of future loans or notes (Cagle, 3). This may seem a broad statement, but the Cost Accounting Standards Board states in its Standards for Accounting for Insurance Expense that any expense which is recoverable if there are no losses shall be accounted as a deposit, not an expense. This is essentially the IRS position (IRS, 145).

Assessment

While there are a few solutions to this matter, the IRS is making sure that MCOs will be penalized if MCOs improperly handle IBNRs.  It is also important for organizations to understand the MCO’s policies regarding IBNR reserves and their contractual obligations. And, while the IRS has set limitations for MCOs to file their IBNR claims, MCOs have the major responsibility of allocating these IBNR claims appropriately.  There are severe penalties for not properly filing the IBNR claims appropriately.  However, there is several tax saving strategies to help MCOs properly file their IBNR claims with the IRS.  It imperative that MCO executives and accounting manager consult an expert to properly plan an ethical strategy that will help them build a stable business that is trustworthy and reliable.

Bibliography

1. Cagle, Jason, Esq., Interview, June 8, 2004, interview performed by Ana Vassallo.

2. McLean, Robert A., Net Profit Value, Pages 193-194, 2nd Edition, Thomson/Delmar Learning, Financial Management in Heath Care Organization, 2003.

3. Patient-Physician Network, Managed Care Glossary, Printed 6/11/04 http:/www.drppg.com/managed_care.asp.

4. Internal Revenue Services, IRS.Gov, Printed 6/12/04, http://www.irs.gov/

5. Internal Revenue Services, Revenue Ruling, Printed 6/11/04, http://www.taxlinks.com/rulings/1079/revrul179-21.thm

6. Kongstvedt, Peter R., Managed Care – What It Is and How it Works, Pages 235-256, Jones and Bartlett Publishers, 2003.

7. Veale, Tom, The Return of Captives in the Hard Market, Tristar Risk Management Aug. 22, 2002, San Diego RIMS.

Conclusion

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FOMC: Interest Rates Up?

Posted on February 1, 2023 by Dr. Marcinko

By Staff Reporters

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DEFINITION:

According to Wikipedia, the Federal Open Market Committee (FOMC), a committee within the Federal Reserve System (the Fed), is charged under United States law with overseeing the nation’s open market operations (e.g., the Fed’s buying and selling of United States Treasury securities). This Federal Reserve committee makes key decisions about interest rates and the growth of the United States money supply. Under the terms of the original Federal Reserve Act, each of the Federal Reserve banks was authorized to buy and sell in the open market bonds and short term obligations of the United States Government, bank acceptances, cable transfers, and bills of exchange. Hence, the reserve banks were at times bidding against each other in the open market. In 1922, an informal committee was established to execute purchases and sales. The Banking Act of 1933 formed an official FOMC.

The FOMC is the principal organ of United States national monetary policy. The Committee sets monetary policy by specifying the short-term objective for the Fed’s open market operations, which is usually a target level for the federal funds rate (the rate that commercial banks charge between themselves for overnight loans).

The FOMC also directs operations undertaken by the Federal Reserve System in foreign exchange markets, although any intervention in foreign exchange markets is coordinated with the U.S. Treasury, which has responsibility for formulating U.S. policies regarding the exchange value of the dollar.

The Federal Reserve is set to announce today whether it will impose another interest rate hike, the central bank’s latest move in a months long fight that has eased inflation but risks plunging the U.S. into a recession.

The Fed [FOMC] has put forward a string of borrowing cost increases as it tries to slash price hikes by slowing the economy and choking off demand. The approach, however, risks tipping the U.S. economy into a downturn and putting millions out of work.

CITE: https://www.r2library.com/Resource/Title/0826102549

And so, at a meeting in December 2022, the Fed raised its short-term borrowing rate a half-percentage point, pulling back from three consecutive 0.75% increases and signaling confidence that sky-high inflation could be brought down to normal levels.

Economists expect the Fed to continue softening its approach with a 0.25% rate hike today? The decision comes weeks after a government report showed that inflation slowed in December, marking six consecutive months of easing price increases.

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IRS TAX FILING: Joint or Separate for Married Couples?

Posted on January 24, 2023 by Dr. Marcinko

INTUIT

By Staff Reporters

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Married couples have the option to file jointly or separately on their federal income tax returns. The IRS strongly encourages most couples to file joint tax returns by extending several tax breaks to those who file together.

In the vast majority of cases, it’s best for married couples to file jointly, but there may be a few instances when it’s better to submit separate returns.

READ HERE: https://turbotax.intuit.com/tax-tips/marriage/should-you-and-your-spouse-file-taxes-jointly-or-separately/L7gyjnqyM?dclid=CKzxz8Pzy_wCFeMBwQods3cDLQ

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IRS: Tax Changes to Know for 2022

Posted on January 6, 2023 by Dr. Marcinko

By Staff Reporters

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Here are eight things to keep in mind as you prepare to file your 2022 taxes

1. Income tax brackets shifted somewhat

There are still seven tax rates, but the income ranges (tax brackets) for each rate shifted slightly to account for inflation. For 2022, the following rates and income ranges apply:

Taxable income brackets

Tax rate  Single filers Married couples filing jointly (and qualifying widows or widowers)
10% $0 to $10,275$0 to $20,550
12%$10,276 to $41,775$20,551 to $83,550
22% $41,776 to $89,075$83,551 to $178,150
24%$89,076 to $170,050$178,151 to $340,100
32% $170,051 to $215,950$340,101 to $431,900
35% $215,951 to $539,900$431,901 to $647,850
37% $539,901 or more$647,851 or more

2. The standard deduction increased somewhat

After an inflation adjustment, the 2022 standard deduction increases to $12,950 for single filers and married couples filing separately and to $19,400 for single heads of household, who are generally unmarried with one or more dependents. For married couples filing jointly, the standard deduction rises to $25,900.

3. Itemized deductions remain essentially the same

For most filers, taking the higher standard deduction is more practical and saves the hassle of keeping track of receipts. But if you have enough tax-deductible expenses, you might benefit from itemizing.

  • State and local taxes: The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000.
  • Mortgage interest deduction: The mortgage interest deduction is limited to $750,000 of indebtedness. But people who had $1,000,000 of home mortgage debt before December 16, 2017 will still be able to deduct the interest on that loan.
  • Medical expenses: Only medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2022.
  • Charitable donations: The deductions for charitable donations are not as generous as they were in 2021. In 2022, the annual income tax deduction limits for gifts to public charities1 are 30% of AGI for contributions of non-cash assets—if held for more than one year—and 60% of AGI for contributions of cash.
  • Miscellaneous deductions: No miscellaneous itemized deductions are allowed.

4. IRA contribution limits remain the same and 401(k) limits are slightly higher

The traditional IRA and Roth contribution limits in 2022 remain the same as the prior year. Individuals can contribute up to $6,000 to an IRA, and those age 50 and older also qualify to make an additional $1,000 catch-up contribution. If you’re able to max out your IRA, consider doing so—you may qualify to deduct some or all of your contribution.

However, the 2022 contribution limits for 401(k) accounts have increased to $20,500. If you’re age 50 or older, you qualify to make an additional $6,500 catch-up contribution for this tax year as well.

5. You can save a bit more in your health savings account (HSA)

For 2022, the maximum you can contribute to an HSA is $3,650 for an individual (up $50 from 2021) and $7,300 for a family (up $100). People age 55 and older can contribute an extra $1,000 catch-up contribution.

To be eligible for an HSA, you must be enrolled in a high-deductible health plan (which usually has lower premiums as well). Learn more about the benefits of an HSA.

6. The Child Tax Credit is lower after a one-year bump

Tax credits, which reduce the tax you owe dollar for dollar, are normally better than deductions, which reduce how much of your income is subject to tax.

In 2021, the American Rescue Plan Act (ARPA) temporarily enlarged the Child Tax Credit. But in 2022, the credit returns to $2,000 per child age sixteen or younger. The credit is also subject to a phase-out starting at $400,000 for joint filers and $200,000 for single filers. For other qualified dependents, you can claim a $500 credit.

7. The alternative minimum tax (AMT) exemption is higher

Until the AMT exemption enacted by the Tax Cuts and Jobs Act expires in 2025, the AMT will continue to affect mostly households with incomes over $500,000. For 2022, the AMT exemptions are $75,900 for single filers and $118,100 for married taxpayers filing jointly. The phase-out thresholds are $1,079,800 for married taxpayers filing a joint return and $539,900 for all other taxpayers. (Once your income for the AMT hits the phase-out threshold, your AMT exemption begins to phase out at 25 cents for every dollar over the threshold.)

8. The estate tax exemption is even higher

The estate and gift tax exemption, which is indexed to inflation, rises to $12.06 million for 2022. But the now-higher exemption is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn’t act.

The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability or using up any of your lifetime estate and gift tax exemption, increases to $16,000 per recipient (up $1,000 from 2021).

Don’t get caught

Finally, if you’re age 72 or older, make sure you’ve taken your required minimum distribution (RMD) from your retirement accounts before the end of the year or else you face a 50% penalty on any undistributed funds (unless it’s your first RMD, in which case you can wait until April 1, 2023).

CITE: https://www.r2library.com/Resource/Title/082610254

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Front Matter with Foreword by Jason Dyken MD MBA

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IRS: Best States for Minimizing Taxes in Retirement

Posted on December 28, 2022 by Dr. Marcinko

By SMART ASSET

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If shrinking your tax liability is high on your list of priorities, a few states stand out. The winners in the list below either have no state income tax, no tax on retirement income, or a substantial discount on the taxes levied on retirement income. But that’s just the start.

CITE: https://www.r2library.com/Resource/Title/082610254

While several additional states have no state income tax, the states that made our list also have favorable sales, property, inheritance, and estate taxes.

  • Alaska
  • Florida
  • Georgia
  • Mississippi
  • Nevada
  • South Dakota
  • Wyoming

If those seven locations aren’t ideal, consider the next tier of tax-friendly states. Tax benefits aren’t quite as high as those above, but they do stand out in one specific category: no taxes on social security income.

That’s not to say they don’t make up for it in other areas, however. Washington State, for example, has no state income tax, but does have a 6.5% state sales tax. Still, it’s always beneficial to avoid income tax when possible.

  • Alabama
  • Arkansas
  • Colorado
  • Delaware
  • Idaho
  • Illinois
  • Kentucky
  • Louisiana
  • Michigan
  • New Hampshire
  • Oklahoma
  • Pennsylvania
  • South Carolina
  • Tennessee
  • Texas
  • Virginia
  • Washington
  • West Virginia

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RMDs: Are You of IRS Taxation Age?

Posted on December 6, 2022 by Dr. Marcinko

Stop 2020 – Restart 2021

By Staff Reporters

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CITE: https://www.r2library.com/Resource/Title/082610254

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Are You of RMD Age?
A Required Minimum Distribution (RMD) is an amount of money the IRS requires you to withdraw from most retirement accounts, beginning at age 72.
Due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, RMDs were not required in 2020, but RMDs are required in 2021 and each year after. RMDs can be an important part of your retirement income strategy.

IRS: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

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IRS: Taxes, NFTs and Crypto-Currency

Posted on December 5, 2022 by Dr. Marcinko

By Staff Reporters

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You have to report your crypto and NFT transactions to the IRS

While not technically new, for 2022 the IRS is making a more concerted effort to track cryptocurrency sales and trades. Whenever you sell or trade your crypto or purchase an item with crypto, you trigger a taxable event. Currently, crypto is taxed like property, making it subject to short- or long-term capital gains taxes. This also means you can report any crypto losses to help offset any gains. Since 2022 saw a drastic drop in the value of cryptocurrencies like bitcoin and ethereum, if you sold or traded your crypto at a loss, you may be able to reduce your tax bill by reporting your capital loss. The same goes for NFTs. 

And though the IRS will flag any unreported crypto gains, if you don’t report a loss that can lower your tax burden, the IRS won’t adjust your return on your behalf. “If you leave it off, it stays off,” said Steber. “Tax deductible losses from your virtual currency activity do have real consequences on your tax return, and can save you real dollars. So I always tell people, if you’ve got something that you don’t fully understand, you certainly should seek out guidance from a trained experienced tax professional.”

CITE: https://www.r2library.com/Resource/Title/082610254

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ORDER: https://www.amazon.com/Dictionary-Health-Information-Technology-Security/dp/0826149952/ref=sr_1_5?ie=UTF8&s=books&qid=1254413315&sr=1-5

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IRS and [Temporary] Charitable Donations

Posted on November 30, 2022 by Dr. Marcinko

By Staff Reporters

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Temporary charitable donation deductions have ended

Fewer filers may be able to claim charitable donation tax breaks for this tax year.

The expanded charitable cash contribution benefits that were offered in 2020 and 2021 have ended. The temporary suspension of the 60% AGI limit in 2020 and 2021 is now back, limiting the amount you can claim in charitable contributions.  

CITE: https://www.r2library.com/Resource/Title/082610254

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

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MORE: Tax Loss Harvesting

Posted on November 25, 2022 by Dr. Marcinko

Tax Loss Harvesting

By Vitaliy Katsenelson, CFA

DEFINITION: https://medicalexecutivepost.com/2022/11/06/tax-loss-harvesting-what-it-is/

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Tax Lost Harvesting with Examples

I enjoy writing about taxes as much as I enjoy going to the dentist. But I feel what I am about to say is important. We – including yours truly – have been mindlessly conditioned to do tax selling at the end of every year to reduce our tax bills. On the surface it makes sense. There are realized gains – why don’t we create some tax losses to offset them?

Here is the problem. With a few exceptions, which I’ll address at the end, tax-loss selling makes no logical sense. Let me give you an example.

Let’s say there is a stock, XYZ. We bought it for $50; we think it is worth $100. Fourteen months later we got lucky and it declined to $25. Assuming our estimate of its fair value hasn’t changed, we get to buy $1 of XYZ now for 25 cents instead of 50 cents.

But as of this moment we also have a $25 paper loss. The tax-loss selling thinking goes like this: Sell it today, realize the $25 loss, and then buy it in 31 days. (This is tax law; if we buy it back sooner the tax loss will be disqualified.) This $25 loss offsets the gains we took for the year. Everybody but Uncle Sam is happy.

Since I am writing about this and I’ve mentioned above I’d rather be having a root canal, you already suspect that my retort to the above thinking is a great big NO!

In the first place, we are taking the risk that XYZ’s price may go up during our 31-day wait. We really have no idea and rarely have insights as to what stocks will do in the short term. Maybe we’ll get lucky again and the price will fall further. But we’re selling something that is down, so risk in the long run is tilted against us. Also, other investors are doing tax selling at the same time we are, which puts additional pressure on the stock.

Secondly – and this is the most important point – all we are doing is pushing our taxes from this year to future years. Let’s say that six months from now the stock goes up to $100. We sell it, and… now we originate a $75, not a $50, gain. Our cost basis was reduced by the sale and consequent purchase to $25 from $50. This is what tax loss selling is – shifting the tax burden from this year to next year. Unless you have an insight into what capital gains taxes are going to be in the future, all you are doing is shifting your current tax burden into the future.

Thirdly, in our first example we owned the stock for 14 months and thus took a long-term capital loss. We sold it, waited 31 days, and bought it back. Let’s say the market comes back to its senses and the price goes up to $100 three months after we buy it back. If we sell it now, that $75 gain is a short-term gain. Short-term gains are taxed at your ordinary income tax bracket, which for most clients is higher than their capital gain tax rate. You may argue that we should wait nine months till this gain goes from short-term to long-term. We can do that, but there are costs: First, we don’t know where the stock price will be in nine months. And second, there is an opportunity cost – we cannot sell a fully priced $1 to buy another $1 that is on fire sale.

Final point. Suppose we bought a stock, the price of which has declined in concert with a decrease of its fair value; in other words, the loss is not temporary but permanent.  In this case, yes, we should sell the stock and realize the loss. 

We are focused on the long-term compounding of your wealth. Thus our strategy has a relatively low portfolio turnover. However, we always keep tax considerations in mind when making investment decisions, and try to generate long-term gains (which are more tax efficient) than short term gains. 

We understand that each client has their unique tax circumstances. For instance, your income may decline in future years and thus your tax rate, too. Or higher capital gains may put you in a different income bracket and thus disqualify you from some government healthcare program.

We are here to serve you, and we’ll do as much or as little tax-loss selling as you instruct us to do. We just want you to be aware that with few exceptions tax-loss selling does more harm than good.

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CITE: https://www.r2library.com/Resource/Title/082610254

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DAILY UPDATE: New IRS 1099-K Reporting Rule

Posted on November 13, 2022 by Dr. Marcinko

By Staff Reporters

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IRS

The IRS just noted that there are no changes made to the taxability of income but only in the reporting rules for Form 1099-K. Taxpayers are still required to report all income on their tax return unless it is excluded by law. This is whether they receive a Form 1099-NEC, Nonemployee Compensation; Form 1099-K; or any other information return.

Previously businesses would generally receive a 1099-K tax form only when their gross payments exceeded $20,000 for the year and the business conducted at least 200 transactions.

According to the new 1099-K rule, the gross payments threshold has been lowered to just over $600 for the year with the transactions threshold no longer applying. Now a single transaction exceeding $600 can trigger a 1099-K. This includes transactions through credit cards, debit cards, banks, PayPal, Uber, Lyft, and other third-party payment settlement entities.

The 1099-K form includes information about the payment processor and the company receiving payments, and a monthly breakdown of total payments, among other information.

According to the IRS, the lower information reporting threshold and the summary of income on Form 1099-K will make it easier for taxpayers to track the amounts received.

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Two Year Treasury Yields = HIGH!

Posted on November 4, 2022 by Dr. Marcinko

By Staff Reporters

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U.S. bond yields just rose to new cycle highs as the fallout from the Federal Reserve’s latest interest rate hike and commentary reverberated across markets. The policy-sensitive 2-year rate broke intermittently above 4.7%, shrinking its spread to the 10-year rate to as little as minus 60.9 basis points in a worrisome sign of the economic outlook. The 2-year yield finished the New York session at its highest level in more than 15 years.

What’s happening

  • The yield on the 2-year Treasury rose 13.1 basis points to 4.699% from 4.568% on Wednesday. Thursday’s level is the highest since July 25, 2007, based on 3 p.m. figures from Dow Jones Market Data.
  • The yield on the 10-year Treasury advanced 6.4 basis points to 4.123% from 4.059% as of late Wednesday. Thursday’s level is the highest since Oct. 24.
  • The yield on the 30-year Treasury climbed 2.9 basis points to 4.151% from 4.122% Wednesday afternoon.

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“I” Bonds: DOWN!

Posted on November 3, 2022 by Dr. Marcinko

By Staff Reporters

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DEFINITION: https://www.treasurydirect.gov/savings-bonds/i-bonds/

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The rate for I bonds, an asset that’s tied to the rate of inflation, was lowered to 6.89% yesterday from its record high of 9.62%. But in the final days of the previous rate, investors hoarded I bonds like crazy.

Now, on Friday, the Treasury sold $979 million of I bonds, nearly as much as the entire amount sold in the three years from 2018 to 2020, per CNBC. The investors also crashed the website.

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BREAKING NEWS: The FOMC Raises Short-Term Interest Rate 0.75%

Posted on November 2, 2022 by Dr. Marcinko

By Staff Reporters

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The Federal Reserve jut raised its short-term borrowing rate another 0.75% to slow key areas of the economy and tame inflation, which is at a 40-year high. The central bank said its new target range is 3.75%-4%, the highest level since January 2008.

The aggressive move is the latest in a string of borrowing cost increases imposed by the Fed in recent months as it tries to slash price increases by cooling the economy and choking off demand. The approach, however, risks tipping the U.S. into a recession and putting millions out of work.

The fourth rate hike of 2022 also arrives less than a week before the midterm elections.

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IRS: Increases Contribution Limits for Retirement Savings Plans

Posted on October 23, 2022 by Dr. Marcinko

By Staff Reporters

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The IRS just said that the maximum contribution that an individual can make in 2023 to a 401(k), 403(b) and most 457 plans will be $22,500. That’s up from $20,500 this year.

People aged 50 and over, which have the option to make additional “catch-up” contributions to 401(k) and similar plans, will be able to contribute up to $7,500 next year, up from $6,500 this year. That’s means a 401(k) saver who is 50 or older can contribute a maximum of $30,000 to their retirement plan in 2023.

The IRS also raised the 2023 annual contribution limits on individual retirement arrangements, or IRAs, to $6,500, up from $6,000 this year. The IRA “catch-up” contribution limit remains at $1,000, as it’s not subject to an annual cost of living adjustment, the IRS said.

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IRS: New Taxation Rates and Brackets for 2023

Posted on October 19, 2022 by Dr. Marcinko

By Staff Reporters

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The IRS just released inflation-adjusted marginal rates and brackets for 2023 on Tuesday, and many workers will see higher take-home pay in the new year as less tax is withheld from their paychecks.

Additionally, the agency released the standard deduction for next year. It is increasing by $900 to $13,850 for single taxpayers, and by $1,800 for married couples, to $27,700. For heads of household, the 2023 standard deduction will be $20,800. That’s an increase of $1,400.

Here are the marginal rates for for tax year 2023, depending on your tax status.

Single filers

  • 10%: income of $11,000 or less
  • 12%: income between $11,000 to $44,725
  • 22%: income between $44,725 to $95,375
  • 24%: income between $95,375 to $182,100
  • 32%: income between $182,100 to $231,250
  • 35% income between $231,250 to $578,125
  • 37%: income greater than $578,125

Married filing jointly

  • 10%: income of $22,000 or less
  • 12%: income between $22,000 to $89,450
  • 22%: income between $89,450 to $190,750
  • 24%: income between $190,750 to $364,200
  • 32%: income between $364,200 to $462,500
  • 35% income between $462,500 to $693,750
  • 37%: income greater than $693,750

Additionally, the maximum Earned Income Tax Credit for 2023 is $7,430 for those who have three or more qualifying children. The maximum contribution to a healthcare flexible spending account is also increasing, from $2,850 to $3,050.

Wealthy Americans will also be able to exclude significantly more assets from the estate tax in 2023. Individuals will be able to transfer up to $12.92 million tax-free to their descendants, up from just over $12 million in 2022. A married couple can pass on double that. And the annual exclusion for gifts increases to $17,000.

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FOMC: Will Raise Interest Rates in November?

Posted on October 9, 2022 by Dr. Marcinko

By Staff Reporters

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The Fed is poised to raise interest rates just one more time in November before stopping, according to Ed Yardeni. That’s because there is a growing risk that financial markets are on the verge of instability due to a soaring US dollar.

“The soaring dollar has been associated in the past with creating financial crisis on a global basis,” Yardeni just told told Bloomberg.

CITE: https://www.yardeni.com/

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What is a Retirement QCD?

Posted on September 25, 2022 by Dr. Marcinko

A Tax-Efficient Way to Donate Money to Charity

By Staff Reporters

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A qualified charitable distribution (QCD) is a withdrawal from an individual retirement arrangement (IRA) that’s made directly to an eligible charity.

CITE: https://www.r2library.com/Resource/Title/0826102549

IRA account holders who were at least age 70.5 as of Dec. 31, 2019, can contribute some or all of their IRAs to charity.

LINK: https://6acebc46b9e64340fdc1a8917e0c290a.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

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Creative Giving Strategies: The QCD - Nebraska Cultural Endowment

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It might seem counterintuitive that anyone would want to give their savings away after making contributions for years in anticipation of the day when they would retire, but there can be tax advantages for doing so.

IRS: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals

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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™ book cover

RISK MANAGEMENT: https://www.routledge.com/Risk-Management-Liability-Insurance-and-Asset-Protection-Strategies-for/Marcinko-Hetico/p/book/9781498725989

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PODCAST: What’s Going on at the IRS?

Posted on September 8, 2022 by Dr. Marcinko

Welcome to The Common Bridge

By Richard Helppie

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Hello, welcome to the Common Bridge.

We’ve got a great topic for you today. It’s all about taxes and the IRS and with us today, two experts from Plante Moran. Welcome, Rachel Keller and Brett Bissonnette, welcome to the Common Bridge. The Common Bridge, of course, is available@substack.com. Please go to substack.com. Enter the Common Bridge in your search engine. Subscribe if you wish, either a paid subscription or a free subscription.

Of course, the Common Bridge is available on all of your podcast outlets. Look for us there and on YouTube TV. And of course, with our friends over at Mission Control radio on your radio garden app. We all listen to debates and commentary about law and policy and especially taxes. And every law, every policy and of course tax regulation require mechanisms to ensure compliance.

Well, our President Joseph R. Biden has stated that the IRS needs to be properly funded in order to carry out its mission on our very complex tax code. Taxpayers have been puzzled by missing records, slow refund late fees for things they paid and other matters including slowness in the support that they get directly from the IRS. So today, we’re going to chat with these two experts who are in the field today actively advising people from all stripes about tax law and tax regulation. They spent a lot of their time interacting with the IRS and making sure that their clients are in compliance with the tax law. So we anticipate some education and maybe some policy ideas. 

From Plante Moran, we welcome Rachel Keller and Brett Bissonnette — Welcome to the Common Bridge.

-Richard Helppie

EDITOR’S NOTE: Richard D. Helppie
Former: CEO and Founder
Superior Consultant Company, Inc.
[SUPC-NASD]

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PODCAST: https://podcasts.apple.com/us/podcast/richard-helppies-common-bridge/id1485396596?i=1000576748851

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UPDATE: The New IRA & IRS with “Pass-Thru” Business Entities

Posted on August 10, 2022 by Dr. Marcinko

By Staff Reporters

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  • The US Senate passed their climate, health and tax package, including nearly $80 billion in funding for the IRS.
  • The Inflation Reduction Act allocates $79.6 billion to the agency over the next 10 years, with more than half of the money going to enforcement, with the IRS aiming to collect more from corporate and high-net-worth tax dodgers.
  • The remainder of the funding is earmarked for operations, taxpayer services, technology, development of a direct free e-file system and more. Collectively, those improvements are projected to bring in $203.7 billion in revenue from 2022 to 2031, according to recent estimates from the Congressional Budget Office.

The biggest revenue-raiser of the IRA is a 15% minimum tax on corporations with profits of $1 billion or more, which is expected to generate $258 billion over 10 years. This addresses the problem of the rampant tax dodging among large companies that has mostly benefited wealthy shareholders and executives. The bill includes a 1% excise tax on companies’ stock buybacks, raising an estimated additional $74 billion. This will discourage corporations from siphoning resources into share repurchases that largely benefit shareholders and executives with stock-based pay. Those resources could instead go toward worker wages or other productive investments. And the bill would boost IRS enforcement to ensure the ultra-rich pay.

Finally, the Inflation Reduction Act would also extend a tax limitation on pass-through businesses for two more years. The limitation on how businesses can use losses to reduce taxes is supposed to expire at the start of 2027. A pass-through or flow-through business is one that reports its income on the tax returns of its owners. That income is taxed at their individual income tax rates. Examples of pass-throughs include sole proprietorships, some limited liability companies, partnerships and S-corporations.

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CITE: https://www.r2library.com/Resource/Title/082610254

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

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UPDATE: Markets, Twitter, Theranos and the ‘Pass-Through’ Tax Loophole

Posted on July 8, 2022 by Dr. Marcinko

By Staff Reporters

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  • Markets: The S&P climbed for its fourth-straight trading day, tying its best winning streak in 2022 (h/t chip and energy companies). But, at 8:30am ET today, with the release of the June jobs report, any sign of a recession will show up.
  • Elon Musk could take drastic action to back out of his $44 billion agreement to buy Twitter, according to the Washington Post. Apparently Musk’s team cannot verify the data on bots that were provided to them and therefore are looking to exit the agreement.
  • Former Theranos executive Sunny Balwani was convicted of defrauding investors and patients in his role as president and COO of the company.

Finally, under proposed IRS changes, individuals who make more than $400,000 annually and couples who make more than $500,000 will have to pay a 3.8% tax on earnings from their pass-through business income. Those revenues would be used to shore up the government-run Medicare healthcare program for the elderly. A pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates.

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What Date has Never Been Known as Tax Day?

Posted on April 15, 2022 by Dr. Marcinko

By Staff Reporters

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TRIVIA QUESTION: What date has never been known as Tax Day?

A. March 1st
B. March 15th
C. April 15th
D. May 1st

ANSWER: D—May 1st.

After the 16th Amendment cleared the way for the modern version of the federal income tax, the first filing deadline fell on March 1, 1913. Congress shifted Tax Day to March 15 after passing the Revenue Act of 1918, which introduced a progressive income tax structure to increase revenue during World War I. Since 1954, Tax Day for most Americans has been April 15 (or the next business day if the 15th falls on a weekend or holiday).

CITE: https://www.r2library.com/Resource/Title/082610254

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The IRS, Taxation and Virtual Currency!

Posted on March 28, 2022 by Dr. Marcinko

New Reporting Warning Issued

By Staff Reporters

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Virtual currency transactions are taxable by law just like transactions in any other property. Taxpayers transacting in virtual currency may have to report those transactions on their tax returns.

CITE: https://www.r2library.com/Resource/Title/0826102549

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All taxpayers must answer a question about virtual currency on their return.

On March 18th, the IRS issued a new alert warning all taxpayers that they must answer a section about virtual currency on their 2021 tax refund this year, even if they did not deal with any digital transactions. According to the agency, there is a question on the top of all versions of Form 1040 that asks, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

“All taxpayers filing Form 1040, Form 1040-SR or Form 1040-NR must check one box answering either ‘Yes’ or ‘No’ to the virtual currency question,” the IRS explained. “The question must be answered by all taxpayers, not just taxpayers who engaged in a transaction involving virtual currency in 2021.”

IRS: https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies

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UPDATE: IRS Interest Rates Rising, Currency Inflation and Upcoming Earning Reports, etc.

Posted on February 28, 2022 by Dr. Marcinko

By Staff Reporters

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IRS: The IRS sent out a notice on February 23rd, warning taxpayers about a price hike coming in the next few months. The tax agency said that interest rates will increase for the calendar quarter starting April 1st, 2022. You can accrue interest on two types of payments: over-payment or underpayment. So starting in April, over-payments will have an interest rate of 4 percent, except for corporations which will earn a 3 percent rate and a 1.5 percent rate for the portion of a corporate over-payment that exceeds $10,000. In terms of underpayments, the interest rate will increase to 4 percent overall and 6 percent for large corporate underpayments.

“Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis,” the IRS website explained. The tax agency did not change interest rates in this last quarter, which began Jan. 1, 2022. Before they get changed in April, the rates are currently 3 percent for general over-payments and 2 percent for corporation over-payments, with a 0.5 percent rate for the portion of a corporate over-payment exceeding $10,000. The underpayment interest is 3 percent right now, expect for large corporations which have a 5 percent rate.

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CURRENCY INFLATION: Inflation may occur when the Federal Reserve, or another central bank, adds fiat currency into circulation at a rate that exceeds that of the economy’s growth rate. That creates a situation in which there are more dollars bidding on fewer goods and services. The result is that goods and services cost more. One reason that inflation has been a constant in the US since 1933 is that the FOMC has continually increased the money supply. In response to the 2008 financial crisis, the Fed dropped its lending rate close to zero as a way to inject more liquidity into the economy, which led to increased inflation but not hyperinflation. While those increases have usually moved in step with growth, that hasn’t always been the case.

CITE: https://www.r2library.com/Resource/Title/0826102549

And so, in response to the COVID-19 pandemic and subsequent lock-downs, the Federal Reserve released the equivalent of $3.8 trillion in new liquidity in 2020. That amount was equal to roughly 20% of the dollars previously in circulation. And it is one reason why many investors were watching the CPI closely in 2021.

EARNING REPORTS:

Monday: India GDP data; Earnings from Lordstown Motors, Groupon, HP, SmileDirectClub and Zoom Video

Tuesday: US and China manufacturing data; Earnings from AutoZone, Baidu, Domino’s Pizza, Hostess Brands, J.M. Smucker, Kohl’s, Target, AMC Entertainment and Salesforce

Wednesday: European inflation data; Earnings from Abercrombie & Fitch, Dine Brands, Dollar Tree, Snowflake and Victoria’s Secret

Thursday: ISM Non-Manufacturing Index; Earnings from Best Buy, Weibo, Costco and Gap

Friday: US jobs report

10-Year: Treasuries rallied to 1.902%.

Oil: The rise in oil prices is spilling over at the gas pump: The average gas price in the US has jumped 10 cents, to $3.64/gallon, in the past two weeks.

Partial SWIFT ban: Western governments put aside their hesitations and proposed banning some Russian lenders from SWIFT, the global messaging service that facilitates cross-border transactions. It’s a move that could cause turmoil across global financial markets.

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UPDATE: The Stock Markets and IRS Online Taxpayer ID

Posted on February 23, 2022 by Dr. Marcinko

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By Staff Reporters

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MARKETS: The S&P 500 fell into a correction for the first time in two years, joining the NASDAQ Composite, as Russia sent troops into pro-Russian regions in Ukraine. The S&P 500 index ended down 1% at 4,304.76, below the correction level at 4,316.91, which would represent a 10% drop from its January 3rd record close. A correction is commonly defined by market technicians as a fall of at least 10% (but not greater than 20%) from a recent peak. The last time the S&P 500 entered a correction was February 27th 2020, when the market was being whipsawed by fears about the outbreak of the COVID pandemic.

And, this bearish market isn’t sparing 2021 winners like Home Depot, which fell the most in nearly two years after supply-chain bottlenecks squeezed its margins. HD was the Dow’s biggest gainer last year.

CITE: https://www.r2library.com/Resource/Title/0826102549

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IRS: According to a news release issued by the IRS, taxpayers now have the option to verify their identities during live, virtual interviews with agents. The agency stresses that no bio-metric data will be required for those interviews.

However, taxpayers once again have the option to verify their identity using ID.me’s facial recognition services. Addressing privacy concerns, the IRS says new requirements are in place to ensure that images provided will be deleted upon verification. That would apply to any new IRS accounts created and those where selfies have already been collected.

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Cryptocurrency Trades and Income Taxes 2021

Posted on February 22, 2022 by Dr. Marcinko

Virtual Currency – Real Taxation

By Staff Reporters

What you need to report to the IRS

The IRS treats virtual currencies as property, which means they’re taxed similarly to stocks. If all you did was purchase cryptocurrency with U.S. dollars, and those assets have been sitting untouched in an exchange or your cryptocurrency wallet, you shouldn’t need to worry about reporting to the IRS.

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Reporting is required when certain events come into play, most commonly:

  • Trading one cryptocurrency for another.
  • Selling cryptocurrency for fiat dollars (government-issued currency).
  • Using cryptocurrency to buy goods or services (e.g., paying for a cup of coffee with cryptocurrency).

A critical distinction to make is that triggering a taxable event doesn’t necessarily mean you’ll owe taxes, said Andrew Gordon, an Illinois-based certified public accountant and tax attorney. Just because you have to report a transaction doesn’t mean you’ll end up owing the IRS for it.

READ HERE: https://www.msn.com/en-us/money/taxes/yes-you-must-pay-taxes-on-cryptocurrency-trades-heres-how/ar-AATamDL?li=BBnb7Kz

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IRS TAX DEDUCTION: Home [Medical] Office

Posted on February 10, 2022 by Dr. Marcinko

By Staff Reporters

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SYNOPSIS: The home office deduction allows qualified taxpayers to deduct certain home expenses when they file taxes. And, now that some doctors and many of us are working remotely, you may be wondering whether working from home will yield any tax breaks. If your small medical or healthcare consulting or other business qualifies you for a home office tax deduction, should you be concerned about triggering an audit? How does a business qualify in the first place; etc?

CITE: https://www.r2library.com/Resource/Title/082610254

Well, to claim the home office deduction on their 2021 tax return, taxpayers generally must exclusively and regularly use part of their home or a separate structure on their property as their primary place of business.

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Home Office Tax Deduction| White Coat Investor

If I work from home, do I qualify for a home office tax deduction?

If you’re an employee working remotely rather than an employer or business owner, you unfortunately don’t qualify for the home office tax deduction (however, please note that it is still available to some as a state tax deduction). Prior to the Tax Cuts and Job Acts (TCJA) tax reform passed in 2017, employees could deduct unreimbursed employee business expenses, which included the home office deduction. However, for tax years 2018 through 2025, the itemized deduction for employee business expenses has been eliminated.

If I’m self-employed, should I take the home office tax deduction?

You may have heard that taking the home office deduction sends a red flag to the IRS and ups your chances of being audited. Although there may have been some merit to this advice in the past, changes in the tax rules in the late 1990s made it easier for people who work out of their homes to qualify for these write-offs. So if you qualify, by all means, take it.

Do I qualify for the home office tax deduction?

Generally speaking, to qualify for the home office deduction, you must meet one of these criteria:

  • Exclusive and regular use: You must use a portion of your house, apartment, condominium, mobile home, boat or similar structure for your business on a regular basis. This also includes structures on your property, such as an unattached studio, barn, greenhouse or garage. It doesn’t include any part of a taxpayer’s property used exclusively as a hotel, motel, inn, or similar business.
  • Principal place of business: Your home office must be either the principal location of your business or a place where you regularly meet with customers or clients. Some exceptions to this rule include day care and storage facilities.

What is “exclusive use”?

The biggest roadblock to qualifying for these deductions is that you must use a portion of your home exclusively and regularly for your business.

The law is clear and the IRS is serious about the exclusive-use requirement. Say you set aside a room in your home for a full-time business and you work in it ten hours a day, seven days a week. If you let your children use the office to do their homework, you violate the exclusive-use requirement and forfeit the chance for home office deductions.

The exclusive-use rule doesn’t mean:

  • You’re forbidden to make a personal phone call from the office.
  • You have to rush outside whenever a family member needs a moment of your time.

Although individual IRS auditors may be more or less strict on this point, some advisers say you meet the spirit of the exclusive-use test as long as personal activities invade the home office no more than they would be permitted to in an office building. The office can also be a section of a room if the division is clear — thanks to a partition, for example — and you can show that personal activities are excluded from the business section.

What is “regular use”?

There’s no specific definition of what constitutes regular use. Clearly, if you use an otherwise empty room only occasionally and its use is incidental to your business, you’d fail this test. If you work in the home office a few hours or so each day, however, you might pass. This test is applied to the facts and circumstances of each case the IRS challenges.

What does “principal place of business” mean?

In addition to passing the exclusive- and regular-use tests, your home office must be either the principal location of that business or a place for regular customer or client meetings.

If your home office is in a separate, unattached structure — a detached garage converted into an office, for example — you don’t have to meet the principal-place-of-business or the deal-with-clients test. As long as you pass the exclusive- and regular-use tests, you can qualify for home business write-offs.

What if your business has just one home office, but you do most of your work elsewhere?

Remember that the requirement is that your home office is your principal place of business, not your principal workplace. As long as you use the home office to conduct your administrative or management chores and you don’t make substantial use of any other fixed location to conduct those tasks, you can pass this test.

If you’re an employee of another company but also have your own part-time business based in your home, you can pass this test even if you spend much more time at the office where you work as an employee.

This rule makes it much easier to claim home office deductions for individuals who conduct most of their income-earning activities somewhere else (such as outside salespeople or tradespeople).

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29 Dr.'s Office ideas | doctor office, office design, chiropractic office

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What qualifies as a business?

As with the regular-use test, whether your endeavors qualify as a business depends on the facts and circumstances. The more substantial the activities, in terms of time and effort invested and income generated, the more likely you are to pass the test.

Making money from your efforts is a prerequisite, but for purposes of this tax break, profit alone isn’t necessarily enough. If you use your den solely to take care of your personal investment portfolio, for example, you can’t claim home office deductions because your activities as an investor don’t qualify as a business.

Taxpayers who use a home office exclusively to manage rental properties may qualify for home office tax status but as property managers rather than investors.

What if I operate a child care or storage facility?

The exclusive-use test doesn’t apply if you use part of your house to:

  • Provide day care services for children, older adults or individuals with disabilities. If you care for children in your home between 7 a.m. and 6 p.m. each day, for example, you can use that part of the house for personal activities the rest of the time and still claim business deductions. To qualify for the tax break, your home care business must meet any applicable state and local licensing requirements.
  • Store product samples or inventory you sell in your business. Assume your home-based business is the retail sale of home-cleaning products and that you regularly use half of your basement to store inventory. Occasionally using that part of the basement to store personal items wouldn’t cancel your home office deduction. To qualify for this exception, your home must be the principal location of your business.

How do I calculate the home office tax deduction?

Your home office business deductions are based on either the percentage of your home used for the business or a simplified square footage calculation.

The most exact way to calculate the business percentage of your house is to measure the square footage devoted to your home office as a percentage of the total area of your home. If the office measures 150 square feet, for example, and the total area of the house is 1,200 square feet, your business percentage would be 12.5%.

An easier calculation is acceptable if the rooms in your home are all about the same size. In that case, you can figure out the business percentage by dividing the number of rooms used in your business by the total number of rooms in the house.

Special rules apply if you qualify for home office deductions under the day care exception to the exclusive-use test.

  • Your business-use percentage must be reduced because the space is available for personal use part of the time.
  • To do that, you compare the number of hours the child care business is operated, including preparation and cleanup time, to the total number of hours in the year (8,760).

Assume you use 40% of your house for a nursing daycare business that operates 12 hours a day, five days a week for 50 weeks of the year.

  • 12 hours x 5 days x 50 weeks = 3,000 hours per year.
  • 3,000 hours ÷ 8,760 total hours in the year = 0.34 (34%) of available hours.
  • 34% of available hours x 40% of the house used for business = 13.6% business write-off percentage.

Simplified square footage method

Beginning with 2013 tax returns, the IRS began offering a simplified option for claiming the deduction. This new method uses a prescribed rate multiplied by the allowable square footage used in the home.

  • For 2021, the prescribed rate is $5 per square foot with a maximum of 300 square feet.
  • If the office measures 150 square feet, for example, then the deduction would be $750 (150 x $5).
  • The space must still be dedicated to business activities.

With either method, the qualification for the home office deduction is determined each year. Your eligibility may change from one year to the next. Finally, please note that only certain expenses such as rent, mortgage interest and property taxes qualify for the deduction, and the deduction is limited to $10,000.

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DOCTORS & TAX DEDUCTIONS: Top Ten [10] Most Over-Looked

Posted on February 5, 2022 by Dr. Marcinko

By Staff Reporters

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IRS Lists Top 10 Criminal Tax Investigations in 2021 - Small Business Trends

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The most recent numbers show that more than 45 million of us itemized deductions on our 1040s—claiming $1.2 trillion dollars’ worth of tax deductions. That’s right: $1,200,000,000,000!  That same year, taxpayers who claimed the standard deduction accounted for $747 billion. Some of those who took the easy way out probably shortchanged themselves. (If you turned age 65 in 2021 or earlier, remember that you deserve a bigger standard deduction than younger folks.)

Here are our 10 most overlooked tax deductions. Claim them if you deserve them, and keep more money in your pocket. Good advice for all physicians, nurse and medical professionals, too.

1. State sales taxes

This write-off makes sense primarily for those who live in states that do not impose an income tax. Especially Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Here’s why this is a factor. You must choose between deducting state and local income taxes or state and local sales taxes. For most citizens of income-taxing-states, the state and local income tax deduction is usually the better deal.

For those of you in an income-tax free state, there are two ways to claim the sales tax deduction on your tax return. One, you can use the IRS tables provided for your state to determine what you can deduct. In addition, if you purchased a vehicle, boat, airplane, home or did major home renovations, you may be able to add the state sales tax you paid on these items to the amount shown in the IRS tables up to the limit for your state. Or two, you can you can keep track of all of the sales tax you paid throughout the year and use that.

The best way to see what you can deduct is to use the IRS’s Sales Tax Calculator for this. Keep in mind, the total of your itemized deductions for all of your state and local taxes is limited to $10,000 per year.

2. Reinvested dividends

This isn’t really a tax deduction, but it is a subtraction that can save you a lot of money. And it’s one that many taxpayers miss. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the stock or mutual fund. That, in turn, reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares.

Forgetting to include the reinvested dividends in your cost basis—which you subtract from the proceeds of sale to determine your gain—means overpaying your taxes.

3. Out-of-pocket charitable contributions

It’s hard to overlook the big charitable gifts you made during the year by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good deeds. Ingredients for casseroles you regularly prepare for a qualified nonprofit organization’s soup kitchen, for example, or the cost of stamps you buy for your school’s fundraiser count as a charitable contribution. If you drove your car for charity in 2021, remember to deduct 14 cents per mile.

4. Student loan interest paid by you or someone else

In the past, if parents or someone else paid back a medical school or other loan incurred by a student, no one got a tax break. To get a deduction, the law said that you had to be both liable for the debt and actually pay it yourself. But now there’s an exception. You may know that you might be eligible to take a deduction but even if someone else pays back the loan, the IRS treats it as though they gave you the  money, and you then paid the debt. So, a student who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by you or by someone else.

5. Moving expenses

While most taxpayers lost the ability to deduct moving expenses beginning in 2018, one main group of people who can still claim their moving expenses to the IRS. Who are they? Military personnel. If you’re an active duty military member who is relocating, you can still deduct these expenses —if you don’t receive reimbursement from the government for the move.

Also, as long as the move is permanent —and your relocation was ordered by the military — you don’t have to pay tax on qualified moving expense reimbursements. So start getting those receipts out now – because you can claim travel and lodging expenses for you and your family, moving household goods, and the costs for shipping your cars and your beloved pets! And that’s good news for the men and women we thank for bravely serving our country.

Sam (1)

6. Child and Dependent Care Tax Credit

A tax credit is so much better than a tax deduction—it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.

But it’s easy to overlook the Child and Dependent Care Credit if you pay your child care bills through a reimbursement account at work. For 2020, the law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work. Up to $6,000 in care expenses can qualify for the credit, but the $5,000 from a tax favored account can’t be used. So if you run the maximum $5,000 through a plan at work but spend more for work-related child care, you can claim the credit on up to an extra $1,000. That would cut your tax bill by at least $200 using the minimum 20 percent of the expenses. The credit percentage goes up for lower income households.

However, there are big changes for 2021, The American Rescue Plan signed into law on March 11, 2021 brought significant changes to the amount and way that the child and dependent care tax credit can be claimed only for tax year 2021. The new law not only increases the credit, but also the amount of taxpayers that will benefit from the credit’s highest rate and it also makes it fully refundable.  This means that, unlike previous years, you can still get the credit even if you don’t owe taxes. Changes to the Child and Dependent Care Credit that apply only for tax year 2021 (the taxes you file in 2022) include:

  • The highest credit percentage increased from 35% to 50% of qualifying expenses
  • Qualifying child and dependent care expenses increased from $3,000 to $8,000 for one qualifying person and from $6,000 to $16,000 for two or more qualifying individuals
  • The adjusted gross income (AGI) level at which the credit percentage is reduced is increased from $15,000 to $125,000

For example, prior to the 2021 tax year, a taxpayer with one qualifying person, $3,000 in qualifying expenses and an AGI of $60,000 would qualify for a nonrefundable credit of approximately $600 (20% x $3,000). By contrast, under the new law for tax year 2021 only, a taxpayer with the same circumstances can potentially claim a refundable credit of approximately $1,500 (50% x $3,000).

Also for tax year 2021, the maximum amount that can be contributed to a dependent care flexible spending account and the amount of tax-free employer-provided dependent care benefits is increased from $5,000 to $10,500.

7. Earned Income Tax Credit (EITC)

Millions of lower-income people take this credit every year. However, 25% of taxpayers who are eligible for the Earned Income Tax Credit fail to claim it, according to the IRS. Some people miss out on the credit because the rules can be complicated. Others simply aren’t aware that they qualify.

The EITC is a refundable tax credit—not a deduction— with maximum amounts for different filing statuses ranging from $1,502 to $6,728 for 2021. The credit is designed to supplement wages for low-to-moderate income workers. But the credit doesn’t just apply to lower income people. Tens of millions of individuals and families previously classified as “middle class”—including many medical colleagues and white-collar workers—are now considered “low income” because they:

  • lost a job
  • took a pay cut
  • or worked fewer hours during the year

The exact refund you receive depends on your income, marital status and family size. To get a refund from the EITC you must file a tax return, even if you don’t owe any taxes. Moreover, if you were eligible to claim the credit in the past but didn’t, you can file any time during the year to claim an EITC refund for up to three previous tax years.

8. State tax you paid last spring

Did you owe taxes when you filed your 2020 state tax return in 2021? Then remember to include that amount with your state tax itemized deduction on your 2021 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments. Beginning in 2018, the deduction for state and local taxes is limited to a maximum of $10,000 per year.

9. Refinancing mortgage points

When you buy a house, you often get to deduct points paid to obtain your mortgage all at one time. When you refinance a mortgage, however, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage—that’s $33 a year for each $1,000 of points you paid. Doesn’t seem like much, but why throw it away?

Also, in the year you pay off the loan—because you sell the house or refinance again—you get to deduct all the points not yet deducted, unless you refinance with the same lender.

10. Jury pay paid to employer

Some employers continue to pay employees’ full salary while they are doing their civic duty, but ask that they turn over their jury fees to the company. The only problem is that the IRS demands that you report those fees as taxable income. If you give the money to your employer you have a right to deduct the amount so you aren’t taxed on money that simply passes through your hands.

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SOME TAX BENEFITS: Senior Healthcare Professionals

Posted on February 1, 2022 by Dr. Marcinko

By Staff Reporters

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See the source image

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Tax planning can be quite a tedious process, but there are benefits for all seniors to make it less taxing. And senor medical professionals should take particular note:

  • Free Advice: IRS-certified volunteers will help older taxpayers with tax return preparation and electronic filing between January 1st and April 15th each year.
  • No Withdrawal Penalties: Anyone aged 59 years or over can withdraw money from an IRA, without incurring the common 10% tax.
  • Catch-Up Contributions: Healthcare Workers aged 50 or older can defer income tax on an extra $6,500 or a total of $26,000 if contributed to a 401(k) plan, resulting in a tax savings of $6,240 for an older worker in the 24% tax bracket.
  • Additional IRA Contribution: Workers age 50 and older can contribute an additional $1,000 to an IRA, or a total of $7,000 in 2020.
  • CITE: https://www.r2library.com/Resource/Title/082610254

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IRS Tax Reduction Issues for Self-Employed Physician Executives

Posted on January 26, 2022 by Dr. Marcinko

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By Dr. David Edward Marcinko MBA CMP®

SPONSOR: http://www.CertifiedMedicalPlanner.org

INTRODUCTION

Whether you do contract work or have your own small business, tax deductions for the self-employed physician consultant and/or medical executive or nurse consultant, etc., can add up to substantial tax savings.

Welcome Tax Season: https://www.msn.com/en-us/money/taxes/tax-season-2022-irs-now-accepting-tax-returns-what-to-know-before-filing-taxes-about-your-refund/ar-AAT53rR?li=BBnb7Kz

With self-employment comes freedom, responsibility, and a lot of expense. While most self-employed people celebrate the first two, they cringe at the latter, especially at tax time. They might not be aware of some of the tax write-offs to which they are entitled.

When it comes time to file your returns, don’t hesitate to claim the benefits you get for being the boss. As a self-employed success story, you’ve earned them.

FORM 1099 NEC: Form 1099 NEC is one of several IRS tax forms used in the United States to prepare and file an information return to report various types of income other than wages, salaries, and tips. The term information return is used in contrast to the term tax return although the latter term is sometimes used colloquially to describe both kinds of returns.

READ: https://turbotax.intuit.com/tax-tips/self-employment-taxes/how-to-file-taxes-with-irs-form-1099-misc/L3UAsiVBq?tblci=GiC9aWPDzN9yXLpSuE8LDo3YRMDPuoFwO9ycCY6qixKJ8CC8ykEo94-H7prplp7cAQ

CITE: https://www.r2library.com/Resource/Title/082610254

“Many times an overlooked deduction is educational expenses. If one is taking courses or buying research material to be more effective in their work, this can be deductible.”

Individual Retirement Plans (IRAs)

One of the best tax write-offs for the self-employed physician consultant is a retirement plan. A person with no employees can set up an individual 401 (k). “You can contribute $19,500 in 2021 as a 401(k) deferral, plus 25 percent of net income.”

If you have employees, consider a SIMPLE (Savings Incentive Match Plan for Employees) IRA—an IRA-based plan that gives small employers a simplified method to make contributions to their employees’ retirement. As of 2021, an employee may defer up to $13,500 and employees over 50 may contribute an additional $3,000.

“A third retirement plan is Simplified Employee Pension IRA (SEP IRA).” The employer may contribute the lesser of 25 percent of income or $58,000 in 2021. If the employer has eligible employees, an equal percentage of their income must be contributed.

Recall that retirement plans are “absolutely the No. 1 tax deduction. The government is helping fund retirement.”

Business use of home or dwelling

Now, most self-employed taxpayers’ businesses start as home-based businesses. These people need to know portions of business costs are deductible and so “It is very important that you keep track of expenses relating to your housing costs.”

If your gross income from your business exceeds your total expenses, then you can deduct all of your expenses related to the business use of your home. If your gross income is less than your total expenses, your deduction will be limited to the difference between your gross income and the sum of all business expenses you would pay if the business was not in your home. Those expenses could include telephone lines, the Internet, and other costs to do business.

You must also have a home office that is truly used for work and the Internal Revenue Service may require you to document this.

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Deducting automobile expenses

If you travel for business, even short distances within your own city, you may deduct the dollar value of business miles traveled on your tax return. The taxpayer may file the actual expense s/he incurred, or use the standard mileage rate prescribed by the IRS, which is 56 cents as of 2021. The IRS allowable mileage rates should be checked every year as they can change.

“If you decide to use actual car expenses, be sure to include payments, depreciation, registration, insurance, garage rent, licenses, repairs and maintenance, and parking and toll fees.” AND, “If you decide to use the standard mileage rate, it would be in your best interest to keep a log—daily, weekly or monthly—of miles driven to distinguish personal use from business use.”

Depreciation of property and equipment

Some self-employed people may purchase property and equipment for a business. If they expect that property to last longer than one year, it should be depreciated on the tax return.

Claims regarding property, according to the IRS, must meet the following criteria: You must own the property and it must be used or held to generate income. The property should have an estimated useful life, meaning you should be able to guess how long you can generate income with it. It may not have a useful life of one year or less, and may not be purchased and disposed of in the same year.

Certain repairs on property used for business may also be deducted.

Educational expenses

Any educational expense is potentially tax-deductible.

“Many times an overlooked deduction is educational expenses. “If one is taking courses or buying research material to be more effective in their work, this can be deductible.”

Think about any books, web courses, local college courses, or other classes or materials that you have purchased to improve your job or business. It’s easy to forget a work-related webinar or business e-book that was purchased online, so remember to save e-receipts.

Also recall that subscriptions to trade or professional publications and donations to business organizations, both of which are frequently necessary for the continuation and growth of your business.

Other areas to explore

Other deductions that can be easily missed are advertising and promotional expenses, banking fees, and air, bus, or train fare. Restaurant meals and other entertainment costs may be written off as long as they are necessary business expenses.

And, consider health insurance premiums, which in most cases represent a credit rather than a tax deduction. “A credit goes directly against one’s taxes, rather than a reduction of income.”

Regardless of which expenses you discover that you may write off, the most important thing is to keep accurate records throughout the year. Save receipts, including e-mail receipts, and file or log them so you have easy access to them at tax time. Not only does keeping receipts, mileage logs, and other expense records make filing taxes easier, but it also facilitates a system that allows you to track changes from year to year.

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Long-term tax-saving strategies

Don’t just look at last-minute write-offs when considering self-employment tax deductions. Think about laying down some long-term strategies for money savings from year to year—particularly if you are a high earner.

“Accountants typically tell you what you have to pay but they don’t always tell you strategies to reduce your payments.”

To reduce your gross taxable income, consider setting up a defined-benefit pension plan. This plan is based on your age and income: The older you are and the higher your earnings, the more you are allowed to contribute. An alternative plan is an age-weighted profit-sharing plan, which is similar and can benefit those who have several employees.

Another strategy for high-earning business owners who own their own building through a limited liability company or similar business structure is to pay themselves rent. This rent is used to pay down the mortgage, but it is also considered a business expense for tax purposes.

Self-employed professionals required to have liability insurance should consider setting up their own insurance company. A captive insurance company is one that insures the risks of the business—or businesses, in the case of a cooperative. Its premiums can be tax-deductible.

But, if money accumulates and claims are minimal, the money taken out is taxable under capital gains. This is not a retirement strategy, but that it can save you money by allowing you to “pay yourself” instead of an insurance company and still deduct the premiums.

Assessment

With any of these more complicated, long-term strategies, consult with a business attorney, CPA/EA or financial planner to ensure you have the best plan possible for your business.

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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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2021 TAXES: 8 Things All Physicians Must Know

Posted on January 14, 2022 by Dr. Marcinko

By Staff Reporters

CITE: https://www.r2library.com/Resource/Title/082610254

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Here are eight things to keep in mind as you prepare to file your 2021 taxes.

1. Income tax brackets have shifted a bit

There are still seven tax rates, but the income ranges (tax brackets) for each rate have shifted slightly to account for inflation. For 2021, the following rates and income ranges apply:

Tax rateTaxable income brackets: Single filersTaxable income brackets: Married couples filing jointly (and qualifying widows or widowers) 
10%$0 to $9,950$0 to $19,900
12%$9,951 to $40,525$19,901 to $81,050
22%$40,526 to $86,375$81,051 to $172,750
24%$86,376 to $164,925$172,751 to $329,850
32%$164,926 to $209,425$329,851 to $418,850
35%$209,426 to $523,600$418,851 to $628,300
37%$523,601 or more$628,301 or more

Source: Internal Revenue Service

2. The standard deduction has increased slightly

After an inflation adjustment, the 2021 standard deduction has increased slightly to $12,550 for single filers and married couples filing separately and $18,800 for single heads of household, who are generally unmarried with one or more dependents. For married couples filing jointly, the standard deduction has risen to $25,100.

3. Itemized deductions remain the same

For most filers, taking the higher standard deduction is more practical and saves the hassle of keeping track of receipts. But if you have enough tax-deductible expenses, you might benefit from itemizing.

The following rules for itemized deductions haven’t changed much for 2021, but they’re still worth pointing out.

  • State and local taxes: The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000. 
  • Mortgage interest deduction: The mortgage interest deduction is limited to $750,000 of indebtedness. But people who had $1,000,000 of home mortgage debt before December 16, 2017, will still be able to deduct the interest on that loan. 
  • Medical expenses: Only medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2021. 
  • Charitable donations: The cash donation limit of 100% of AGI remains in place for 2021, if donations were made to operating charities.1
  • Miscellaneous deductions: No miscellaneous itemized deductions are allowed. 
     

4. IRA and 401(k) contribution limits remain the same 

The traditional IRA and Roth contribution limits in 2021 remain the same as in 2020. Individuals can contribute up to $6,000 to an IRA, and those age 50 and older also qualify to make an additional $1,000 catch-up contribution. If you’re able to max out your IRA, consider doing so—you may qualify to deduct some or all of your contribution.

The 2021 contribution limit for 401(k) accounts also stays at $19,500. If you’re age 50 or older, you qualify to make an additional $6,500 catch-up contribution as well.

5. You can save a bit more in your health savings account (HSA) 

For 2021, the max you can contribute into an HSA is $3,600 for an individual (up $50 from 2020) and $7,200 for a family (up $100). People age 55 and older can contribute an extra $1,000 catch-up contribution.

To be eligible for an HSA, you must be enrolled in a high-deductible health plan (which usually has lower premiums as well). Learn more about the benefits of an HSA. 

6. The Child Tax Credit has been expanded 

For 2021, the American Rescue Plan Act (ARPA) has temporarily modified the Child Tax Credit requirements and amounts for household incomes below $75,000 for single filers and $150,000 for married filing jointly. 

First, the ARPA has raised the age limit for dependents from 16 to 17. In addition, the child tax credit has increased from $2,000 to $3,000 for children age 6 through 17 and up to $3,600 for children under 6. If your income exceeded the above limits but was below $200,000 for single filers or $400,000 for joint filers, you’ll receive the standard child tax credit of $2,000 per child. 

The IRS began sending monthly advance Child Tax Credit payments to eligible families in July and sent its last advance in December. If your dependent didn’t qualify for the child tax credit, you may still qualify for up to $500 of tax credits under the “credit for other dependents” (see IRS Publication 972 for more details). Tax credits, which reduce the tax you owe dollar for dollar, are generally better than deductions, which reduce your taxable income. 

7. The alternative minimum tax (AMT) exemption has gone up

Until the AMT exemption enacted by the Tax Cuts and Jobs Act expires in 2025, the AMT will continue to affect mostly households with incomes over $500,000. Still, the AMT has investment implications for some high earners. 

For 2021, the AMT exemptions are $73,600 for single filers and $114,600 for married taxpayers filing jointly. The phase-out thresholds are $1,047,200 for married taxpayers filing a joint return and $523,600 for all other taxpayers.  

8. The estate tax exemption is even higher

The estate and gift tax exemption, which is indexed to inflation, has risen to $11.7 million for 2021. But the now-higher exemption is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn’t act. 

The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability or using up any of your lifetime estate and gift tax exemption, stays at $15,000 per recipient.

Don’t get caught off guard

As you prepare to file your taxes for 2021, here are a few additional items to consider. 

  • If you’re not retired, the 10% early withdrawal penalty that was waived for retirement account distributions in 2020 has been reinstated for 2021.
  • If you’re age 72 or older, make sure you’ve taken your required minimum distribution (RMD) from your retirement accounts or else you face a 50% penalty on any undistributed funds (unless it’s your first RMD, in which case, you can wait until April 1, 2022).

If you haven’t contributed to your retirement accounts already, now is the time. Review your earnings for the year and take advantage of any deductions that can lower your tax bill. Also, keep an eye on Washington for any last-minute tax changes that could affect your return before you file. Tax season will be here before you know it, and it’s never too early to start preparing.

1Operating charities, or qualifying public charities, are defined by Internal Revenue Code section 170(b)(1)(A). You can use the Tax Exempt Organization Search tool on IRS.gov to check an organization’s eligibility.

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UPDATE: Markets and Medicine

Posted on December 17, 2021 by Dr. Marcinko

By Staff Reporters

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The Federal Reserve announced that it will stop buying bonds about three months earlier than initially planned. The Fed now plans to trim its monthly Treasury and mortgage-backed security purchases by $30 billion a month starting next month. The new pace is expected to put an end to bond buying by March.

CITE: https://www.r2library.com/Resource/Title/0826102549

The Fed also announced that it would leave interest rates unchanged at near-zero percent. The announcement paves the way for three interest rate hikes by the end of 2022, which could weigh on tech and growth stocks.

UPDATE: https://www.msn.com/en-us/money/news/tech-takes-a-beating-as-central-banks-pull-back/vi-AARTp0n

  • Markets: Stocks reversed their post-Federal Reserve announcement rally with a stinker of a day—especially tech stocks. Semiconductor companies like AMD and Nvidia got particularly thwacked.
  • Covid: The CDC recommended adults use Moderna’s and Pfizer’s Covid vaccines over J&J’s due to the risk of developing rare but serious blood clots.

MORE: https://www.msn.com/en-us/money/markets/stocks-fall-as-investors-digest-feds-latest-move/vi-AARTm2C

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Marriage Penalty Fading – Single Penalty Rising

Posted on December 7, 2021 by Dr. Marcinko

A Curated Report

By Staff Reporters

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The marriage penalty has faded in recent years, particularly after the 2017 Republican tax cuts that targeted high incomes. But the singles penalty remains — the tax code is still written to benefit people in 1950s middle-class marriages who own their homes. That’s not great for the millions of households who are shouldering other cost burdens around single life.

CITE: https://www.r2library.com/Resource/Title/0826102549

Progressive tax codes are intended, at least theoretically, to ensure equitable distribution of the costs of maintaining civilization. They should (again, theoretically) be readjusted when a certain group begins to shoulder a disproportionate amount of that burden — like, for instance, single or divorced people. That’s not what’s happened, not for couples with two earners and not for the growing number of single or solo households. The reality of how people live and who works has changed. The policy has not kept pace.

The same principle holds true for Social Security, which was created first and foremost as a means of protecting the elderly from living out their final years in the literal poorhouse. The idea was simple: You and your employers pay in part of your salary now, and when you retire, you have enough to survive.

READ FULL REPORT HERE: https://www.vox.com/the-goods/22788620/single-living-alone-cost

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Two Vital IRS Audit Flags for Physicians

Posted on October 17, 2021 by Dr. Marcinko

For Doctors and all Investors

By Hayden Adams

Image result for irs

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Red Flag #1: Under reporting income

Generally speaking, all income is taxable unless it’s specifically excluded, as is the case with certain gifts and inheritances. In most instances, the income you earn will be reported to both you and the government on an information return, such as a Form 1099 or W-2. If the income you report doesn’t match the IRS’s records, you could face problems down the road—so be sure you include the income from all of the following forms that are applicable to your situation:

  • 1099-B: The form on which financial institutions report capital gains.
  • 1099-DIV: The form on which financial institutions report dividends.
  • 1099-MISC: The form used to report various types of income, such as royalties, rents, payments to independent contractors, and numerous other types of income.
  • 1099-R:The form on which financial institutions report withdrawals from tax-advantaged retirement accounts.
  • Form 1099-INT: The form on which financial institutions report interest income.
  • Form SSA-1099:The form on which the Social Security Administration reports Social Security benefits (a portion of which may be taxable, depending on your level of income).
  • Form W-2:The form on which employers report total annual compensation, payroll taxes, contributions to retirement accounts, and other information.

If you receive an inaccurate statement of income, immediately contact the responsible party to request a corrected form and have them resend the documents to both you and the IRS as soon as possible to avoid delaying your tax return. Also, be aware that you must report income for which there is no form, such as renting out your vacation home.

CITE: https://www.r2library.com/Resource/Title/0826102549

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Red Flag #2: Misreporting investment gains

When you sell an investment, you’ll need to know both the cost basis (what you paid for the investment) and the sale price to determine your net gain or loss. The cost basis of your investment may need to be adjusted to account for commissions, fees, stock splits, or other events, which could help reduce your taxable gain or increase your net loss.

Financial institutions are required to adjust your investments’ cost basis and provide that information on a Form 1099. However, brokerages aren’t required to report the cost basis for investments purchased prior to a certain date, which means you’ll be responsible for supplying that information (see the table below). Be sure to keep records of all investment purchases and sales—even those for which your brokerage is responsible.

Your reporting responsibility

Depending on security type and date of purchase, you—rather than your brokerage—could be responsible for reporting the cost basis of your investment to the IRS.

CITE: https://www.r2library.com/Resource/Title/0826102549

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Security typeInvestor’s responsibility if
Stocks (including real estate investment trusts)Acquired before 01/01/2011
Mutual funds, exchange-traded funds, and dividend reinvestment plansAcquired before 01/01/2012
Other specified securities, including most bonds, derivatives, and options

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Clue-Less Physicians and Taxes

Posted on May 17, 2021 by Dr. Marcinko

OVER HEARD IN THE DOCTOR’S LOUNGE

Dr.s' Lounge دكتورز لونج - Identity Design by YaStudio

A PHYSICIAN POLL

[IRS Tax Day – May 17, 2021]

“I read a poll on SERMO (a doctor-only web forum) asking what percentage of income was paid in taxes. The lowest option was <20%.  I thought it ridiculous since I make about an average salary and paid about 8% in Federal tax, 3.5% in payroll tax, and 4% in state income taxes. So, I spoke up about it. 

After a few days of correspondence, it became evident that most doctors have no idea what they pay in taxes, or that they pay far too much in taxes.  For example, of 58 responses on the poll, I was the only one who paid less than 20% in taxes.  Keep in mind that more than half of doctors make less money than I do.

I found it hilarious that 4 doctors thought they paid more than 50% in taxes.  I can’t quite figure out how to pull that off; even if you are single, make a ton of money, take a standard deduction, are self-employed, and pay ridiculous state and local income taxes. Really … more than 50%!  You’re either mistaken or stupid … hopefully; just mistaken.

Or is the problem simply that doctor’s have no idea what their effective tax rate is”?

DJ. Morgane DO

[Internal Medicine]

Your thoughts are appreciated.

ORDER TEXTBOOK: https://www.amazon.com/Comprehensive-Financial-Planning-Strategies-Advisors/dp/1482240289/ref=sr_1_1?ie=UTF8&qid=1418580820&sr=8-1&keywords=david+marcinko

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How You Can Deduct Your Medical Expenses

Posted on May 29, 2018 by Dr. Marcinko
Reduce Taxes, Bunch Deductions

By Rick Kahler MSFS CFP®

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Want to save a bunch under the new federal income tax laws? Try bunching your deductions.

The new tax law doubles the standard deduction and eliminates most miscellaneous deductions. It takes a lot more of the limited allowable deductions left to reach the threshold for itemizing deductions instead of using the standard amount.

This means fewer Americans will be able to itemize. A Jan 18, 2018 post by Dena Bunis at AARP.com quotes Mark Mazur, director of the nonpartisan Tax Policy Center: “We’ve estimated that about 30 percent itemized in 2017, and we think that’s going to go down to about the 10 percent range going forward.”

By “bunching” donations and tax payments into alternating years, you may still be able to itemize your deductions every other year. The three main deductions you may be able to bunch are property and state income taxes (up to a cap of $10,000), charitable donations, and medical expenses.

Example:

Here’s how bunching works for a single person. Let’s assume you have $11,500 of deductions every year. This will not put you over the $12,000 threshold, so you will take the $12,000 standard deduction every year. However, if you can bunch all those deductions into alternate years, you could deduct $23,000 one year and take the standard deduction the next year. Depending on your top income tax bracket, bunching might save you a tidy $1,100 to $4,070 every other year. (If you are married, just double these numbers.)

One of the easiest expenses to bunch in South Dakota is property taxes. Most property owners pay the first half of the prior year’s taxes in April and the second half in October. However, county treasurers will allow you to pay your taxes in full on January 1 of each year. So, every other year you write a check to the county treasurer on December 31, bunching two years of property taxes into one year.

Charitable donations can also be easily bunched. You might simply double your donations one year and skip them the next (let smaller charities that rely on your contributions know you’re doing this). Or you could use a donor advised fund (DAF). These funds allow you to make sizeable charitable donations without even knowing which charities you want to support or when. The fund managers keep your money invested until you direct them when and to whom to disburse it. If you give $6,000 a year to your church, for example, you could bunch two or more years of giving into one year and then have the DAF release the funds annually.

Medical deductions in excess of a percentage of your income (7.5% in 2018; 10% in 2019 and after) can be deducted if you itemize. Bunching elective procedures and other expenses into one year may put you over the threshold every other year.

AARP says that you may be surprised at some of the medical costs that are deductible. Those that are eligible include:

·         Out-of-pocket payments for prescription drugs and fees to doctors, dentists, chiropractors, psychiatrists, psychologists, podiatrists, physical or occupational therapists

·         Health and long-term care insurance premiums

·         Payments to nursing homes and other long-term care facilities

·         Inpatient alcohol and drug treatment programs

·         Modifications made to your home for medical reasons

·         Transportation to and from medical appointments

·         Dentures, prescription eyeglasses, hearing aids, and DME such as wheelchairs

·         Smoking-cessation and weight-loss programs related to a specific disease.

Assessment

Obviously, the potential for tax savings from bunching deductions will vary considerably. You may want to investigate what impact it could have for you. At least on alternate years, the savings might make you a happier taxpayer.

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

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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The Home Office Tax Deduction Explained

Posted on December 1, 2017 by Dr. Marcinko

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

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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More on Recent Interest Rate Hikes

Posted on June 8, 2017 by Dr. Marcinko

Impending IRs and … the Economy

By http://www.MCOL.com

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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:

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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