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Key Hospital Employee Benefits

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For KEY Hospital Employees

By PERRY D’ALESSIO; CPA

[D’Alessio Tocci & Pell LLP]

Dr. David E. Marcinko; MBA CMP®

http://www.CertifiedMedicalPlanner.org

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

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

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

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

  • The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased to $17,500.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $255,000 to $260,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $165,000 to $170,000.
  • The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5‑year distribution period is increased from $1,035,000 to $1,050,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $205,000 to $210,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from to $115,000.
  • The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $5,000 to $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.
  • The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost‑of‑living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $380,000 to $385,000.
  • The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $500 to $550.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from to $12,000.
  • The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased to $17,500.
  • The compensation amounts under Section 1.61‑21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $100,000 to $105,000.  The compensation amount under Section 1.61‑21(f)(5)(iii) is increased from $205,000 to $210,000.
  • The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). These dollar amounts and the adjustments are as follows:
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $35,500 to $36,000; the limitation under Section 25B(b)(1)(B) is increased from $38,500 to $39,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $59,000 to $60,000.
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $26,6250 to $27,000; the limitation under Section 25B(b)(1)(B) is increased from $28,875 to $29,250; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $44,250 to $45,000.
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $17,750 to $18,000; the limitation under Section 25B(b)(1)(B) is increased from $19,250 to $19,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $29,500 to $30,000.
  • The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $95,000 to $96,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $59,000 to $60,000. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $178,000 to $181,000.
  • The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $178,000 to $181,000. The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $112,000 to $114,000.

***

IRS

***

Assessment

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

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

Conclusion

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

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™

***

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

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2 Doctors and 2 CPAs Discuss Office Internal Controls

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

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

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

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

***

9805af30277425_561bf03a87d59

***

Common Office Schemes

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

More:

  1. Understanding the Healthcare Fraud and Abuse Control Program

Assessment

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

Conclusion

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

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

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

***

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

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

[Dr. Cappiello PhD MBA] *** [Foreword Dr. Krieger MD MBA]

***

PERSONAL FINANCIAL ACCOUNTING AND INCOME TAXATION FOR DOCTORs

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A SPECIAL ME-P REPORT

[The Ethical Pursuit of Tax Reduction and Avoidance]

perry-dalessio-cpa

[By Perry D’Alessio CPA]

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

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

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

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

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

***

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

***

Now consider the following more specifically:

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

ASSESMENT

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

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ABOUT

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

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™

On Additional Disability Insurance Taxation for Medical Executives

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Additional Disability Insurance for Practice Owners and Physician Executives 

By Perry D’Alessio CPA

perry-dalessio-cpa

Some medical clinics, hospitals, health care employers and other business entities may offer disability insurance to their employees on a group basis as part of an employee benefit program. This is a good thing.

The expense for this coverage is typically deducted as an ordinary and necessary expense by the employer entity.

Additional DI

However, many entities also purchase additional disability insurance for the owners and executives; etc. This additional disability insurance expense should not be deducted on the entity’s tax return for two reasons.

  1. First, it would probably be considered a discriminatory benefit to the owners and, therefore, not be allowed as a deduction anyway.
  2. Second, and more importantly, when a person becomes disabled and qualifies for disability benefits whose premiums have been deducted as a business expense by the entity, the disability insurance proceeds are considered taxable income to the person receiving them.

A Catastrophe

This can be personally catastrophic since disability insurance covers only a portion (approximately 60 percent) of regular earnings. The coverage was designed to be paid on an after tax basis. The benefits would be tax free to the beneficiary and would be close to the disabled person’s net take home pay before being disabled.

***

BandagesX

***

Assessment

Here is one of those instances where the traditional tax planning thought process is overridden by a long term (potential) tax cost / benefit decision.

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More:

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:

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

Year End MEGA Tax Planning “Tips” for Physicians

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For Medical Professionals … and Us All

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

A SPECIAL ME-P REPORT

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

For Individuals

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

For Businesses

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

Bigger Earners

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

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

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

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

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

The Checklist[s]

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

***

Next-Gen Physicians

[Future High Income-Earners?]

***

Year-End Tax Planning Moves for Individual Medical Providers 

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

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

Let’s consider the following:

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

***

Target MD

[Future IRS Targets?]

***

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

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

Assessment

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

Conclusion

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

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On Entirely Legal AUTOMOBILE Employment Fringe Benefit Strategies 

[By Perry Dalessio CPA]

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

Examples:

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

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

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

jag346_SWHT

Assessment

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

Conclusion

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Doctors, Sole Proprietors and ObamaCare Taxes

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On the Self-Employment Tax

By Perry D’Alessio CPA

perry-dalessio-cpaA sole proprietor is an individual business owner [medical practice] physician-executive whose business [practice] is accounted for on a separate schedule of the owner’s individual income tax return.

Typically, owners filing their business returns via the use of Schedule C of Form 1040 have the lowest level of reporting requirements and also (in general) do the poorest job of keeping good records of business activity.

There is only one level of tax for the sole proprietor. The net profit (or loss) from the Schedule C business is reported on page one of Form 1040 and is combined with all of the other income items reported to arrive at gross income.

Different from interest and dividend income, or investment income that is typically considered passive in nature, self-employment income is income considered to be generated by ones’ own actions.

Self Employment Tax

There is “Self Employment” tax to be paid on virtually all self-employment income reported in the tax return.  Many sole proprietors get into trouble because they neglect to take this tax into account when estimating their tax liability for the year and this tax is significant as noted below.

How SET Works

Self-employment tax is paid on 92.35 percent of all self-employment net profits.  This tax is the equivalent of the combination of the employer’s and employee’s Social Security tax and Medicare tax.  Social Security tax is 12.4 percent of the first $117,000 (in 2014) in net income and Medicare tax is paid 2.90 percent of net income without any upper income limit. There is also no maximum for the .9% additional Medicare tax under the PP-ACA [Obamacare] that applies when adjusted gross income exceeds $250,000 for joint filers, $200,000 for single filers, or $125,000 on married-filing-separate returns.

solo

Social Security Limit

The Social Security income limit is indexed and adjusted (upward) annually.  The sole proprietor is allowed to deduct one half of the self-employment tax against income; however, this deduction is worth far less than the actual tax.

More

Conclusion

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Investment Policy Statement Benchmark Construction for Hospital Endowment Fund Management

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Financial Management of Hospitals and Healthcare Organizations

[By Perry D’Alessio CPA]

[By David Edward Marcinko MBA CMP]

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Introduction

Dr.  Malcolm T. MacEachern, Director of Hospital Activities for the American College of Surgeons, presciently observed that … our hospitals are now involved in the worst financial crisis they have ever   experienced. It is absolutely necessary to all of us to put our heads together and try to find some solution. If we are to have effective results we must have concerted and coordinated immediate action … Repeated adjustments of expenses to income have been made. Never before has there been such a careful analysis of hospital accounting and study of financial policies. It is entirely possible for us to inaugurate improvements in business methods which will lead to greater ways and means of financing   hospitals in the future … It is true that all hospitals have already trimmed their sales to better meet the financial conditions of their respective communities. This has been chiefly through economies of administration. There has been more or less universal reduction in personnel   and salaries; many economies have been effected. Everything possible has been done to reduce expenditures but this has not been sufficient to bring about immediate relief in the majority of instances. The continuance of the present economic conditions will force hospitals generally to further action. The time has come when this problem must be given even greater thought, both from its community and from its national aspect. [1]

Many health administration and endowment managers would agree that Dr. MacEachern accurately describes today’s healthcare funding environment. Although they might be startled to learn that Dr. MacEachern made these observations in 1932, there is the old truism that there is nothing new under the sun.

Current healthcare statistics after the November 7th, 2012 presidential election and Patient Protection-Affordable Care Act confirmation, suggest that the financial crises are much the same for today’s hospitals as they were for hospitals during the Great Depression.

The AHA

The American Hospital Association (AHA) recently reported a number of gloomy statistics for hospitals: [2]

  • Hospitals provided $39 billion in uncompensated   care to patients in 2010 representing 5.8% of their expenses.
  • Technology costs are soaring as traditional technologies such as X-Ray machines, for   $175,000, are being replaced by contemporary technologies such as CAT Scanners at $1 million, that are in turn being replaced by CT Functional Imaging with PET Scans costing $2.3 million. Even such a “simple” instrument as a scalpel that costs $20, is being replaced by equipment for electrocautery costing $12,000, that is then being replaced by harmonic   scalpels costing $30,000.

Daunting Numbers

A further review added more daunting numbers:[3]

  • In 2010, 22.4% of hospitals reported a negative total margin.
  • From 1997 through 2009, hospitals saw a small net surplus from government payments from sources such as Medicare and Medicaid deteriorate into a deficit approaching $35 billion.
  • Emergency departments in 47% of all hospitals report operating at, or over, capacity partially reflecting an approximate 10% decline in the number of emergency departments since 1991.
  • The average age of hospital plants has increased 22.5% from 8.0 years to 9.8 years in just fifteen years.
  • From 2003 through September 2007, hospital bond downgrades have outpaced hospital bond upgrades by 19%.

In a time when so much seems different yet so much seems the same, hospitals are increasingly viewing their endowments as a source of help. But what is an endowment? The same Latin words that give rise to the word “dowry” also give rise to the word endowment [4].

Interestingly, the concepts of a dowry and an endowment are in many ways similar. Both are typically viewed as gifts for continuing support or maintenance. With respect to the healthcare entity, an endowment is generally used to smooth variations in operating results and to fund extra programs or  plant purchases. Any entity that enjoys the support of an endowment also encounters the conflicting objectives between current income and future growth.

Assessment

Dean William Inge, a 19th century cleric and author, aptly noted that: “Worry is interest paid on trouble before it is due.”

When managing an endowment, it is important that the institution focus its attention on those items that it can control rather than worrying about those it cannot control. Successful endowment managers seem to agree that there are at least two major areas   subject to the endowment’s control: asset allocation (also known as investment policy) and payout policy.

###


Notes:

[1]   MacEachern, M.T., MD. “Some Economic Problems Affecting Hospitals Today and Suggestions for Their Solution.” The Bulletin of the American Hospital Association. July 1932.

[2]   Steinberg, C. Overview of the U.S. Healthcare System.  American Hospital Association (2003). Carline Steinburg is Vice President, Health Trends Analysis, for AHA.

[3]   “Trends Affecting Hospitals and Health Systems.”  TrendWatch Chartbook 2010.  American Hospital Association (2010).

[4]   Merriam-Webster Online.

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More Year-End Tax 2014 Planning Insights for Medical Professionals

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Timing of charitable gifts, and type of property contributed, can be important

By Perry D’Alessio CPA www.DaleCPA.com

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Charitable contributions should be timed so as to obtain the maximum tax benefits, either in 2012 or 2013. If a taxpayer, like a physician, plans to make a charitable contribution in 2013, s/he should consider making it this year instead if speeding up the deduction would produce an overall tax saving, e.g., because the taxpayer will be in a higher marginal tax bracket in 2012 than in 2013.

On the other hand, a taxpayer who expects to be in a higher bracket in 2013 should consider deferring a contribution until that year. This task is more difficult than in prior years because of uncertainty over future rates.

In making any sizeable charitable contributions, to the extent possible, clients should make the contributions in appreciated capital gain property that would result in long-term capital gain if sold. This way, a deduction generally is obtained for the full value of the property, such as shares of stock, etc., while any regular income tax on the appreciation in value is avoided. (However, for tangible personal property, this favorable treatment is only available if the donated item is related to the exempt purpose of the donee charity).

Observation:

If rates rise after this year, the tax savings on a later sale could be even greater.

It should be noted, however, that contributions of appreciated capital gain property generally are subject to a 30%-of-AGI (Adjusted Gross Income) ceiling, instead of the usual 50% ceiling, unless a special election is made to reduce the deductible amount of the contribution.

Observation:

Making the election will limit the donor’s deduction to the basis of the contributed property. In most cases, the election should be made only if the fair market value of the property is only slightly higher than the basis of the property.

IRA distributions to charity

Older taxpayers who plan to use individual retirement account (IRA) distributions to make charitable contributions should bear in mind that the favorable tax provision for doing so expired at the end of last year. That provision allowed taxpayers age 70 1/2 or older to take advantage of an up-to-$100,000 annual exclusion from gross income for otherwise taxable IRA distributions that were qualified charitable distributions. Such distributions weren’t subject to the charitable contribution percentage limits and weren’t includible in gross income. Since such a distribution was not includible in gross income, it would not increase AGI for purposes of the phase-out of any deduction, exclusion, or tax credit that was limited or lost completely when AGI reached certain specified levels.

To constitute a qualified charitable distribution, the distribution had to be made after the IRA owner attained age 70 1/2 and made directly by the IRA trustee to specified charitable organization. Also, to be excludible from gross income, the distribution had to otherwise be entirely deductible as a charitable contribution deduction under the Internal Revenue Code provisions, without regard to the charitable deduction percentage limits.

Even though a direct distribution from an IRA to a charity was not included in the taxpayer’s gross income, it was taken into account in determining the owner’s required minimum distribution (RMD) for the year.

Qualified Contributions

Qualified charitable contributions aren’t available for distributions made in tax years beginning after Dec. 31, 2011 While there has been some talk of an extending this provision, it is unclear whether it will make it in any such package and if it does, whether there would be a rule allowing January 2013 distributions to be treated as made on Dec. 31, 2012.

Thus, while IRAs may be a potential source of funds for making charitable contributions between now and year end, clients age 70 1/2 or older must be informed that using an IRA to make contributions will be more costly if the special break is not retroactively revived.

Recommendation: An eligible taxpayer interested in making a charitable contribution from his IRA directly to a charity, and who hasn’t yet taken his 2012 RMD from the IRA, should consider waiting until the end of the year to take the RMD.

Recommendation: An eligible taxpayer interested in making a charitable contribution from his IRA directly to a charity, and who hasn’t yet taken his 2012 RMD from the IRA, should consider waiting until the very end of the year to take the RMD. If the rules to see if qualified charitable distributions are revived.

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Conclusion

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