Small business owners can use these basic strategies year-round to make tax season less of a hassle.
By Caitlin Lukacs
With April right around the corner, many people are already stressing over tax time and whether they will owe the government more than expected. According to tax experts, however, there are things you can do throughout the year to keep your accounting manageable. Just staying up-to-date and organized each month can help you feel more in control during tax season.
Alan Badey, CPA, head of medical practice for the Westchester, N.Y., office of the accounting firm Citrin, Cooperman & Co., explains that simply paying attention to your finances and planning ahead can save you major headaches at tax time. “The goal is to pay the least amount of tax, and most people miss deductions because they don’t plan in advance,” he says.
Accelerating Expenses
Part of planning ahead includes paying particular attention to your finances and tax information in November and December. During this period, small businesses, such as private chiropractic practices, have several options for increasing tax deductions.
First, according to Bill Rucci, CPA, partner and director of medical practices at the Boston-based accounting and tax advisory firm Rucci, Bardaro & Barrett, most professional practices operate on a cash-based method of accounting. This means that revenue is not recognized until it is received, and expenses are not recognized until they are paid. This allows for an accelerated expenses/payments strategy, whereby you pay your bills before the end of the year in order to receive tax deductions for that same year.
The strategy also can be applied to employee bonuses. “If you can, cut the bonuses before the end of the year, say in December 2009 rather than January 2010, so that the tax deductions can be used in 2009,” says Rucci.
The same is true of contributions to your pension plan. Alison Polulak, a tax accountant for the New Jersey-based accounting firm Cowan, Gunteski & Co., notes, “It’s always smart to maximize retirement contributions. The greatest advantage of this is that payments do not actually need to be made by the close of the year. The company can receive a deduction on their current year tax return as long as the plan is funded by the due date of the return, including any extensions.”
Badey also advises his clients to think about using expense acceleration. As an example, he says, if you would normally pay your malpractice insurance in 2010, consider paying it in December 2009 so that you’ll receive the deduction on your 2009 taxes.
In addition, Mark Sanna, DC, CEO of the chiropractic practice management firm Breakthrough Coaching, suggests using a credit card to pay any last-minute charitable contributions, business expenses or medical expenses. “The IRS considers the expense deductible in the year the charge is incurred and not in the year that the credit card bill is paid,” he says.
Similarly, if you pay for anything with a check at the end of the year, be sure that it is dated and mailed before Dec. 31. Dr. Sanna explains that what matters is that you made the payment, not whether it cleared the bank by the end of the year.
Accelerating Income
Just as expenses can be accelerated, businesses should also try to accelerate any payments that will be made to them. Dr. Sanna suggests issuing year-end bills early so that you will receive payment before the end of the year. Additionally, he says some patients will also be in tax-planning mode and may be happy to pay for January’s deductible in advance.
Practice Reimbursements
Another important piece of tax advice for the end of the year is to make sure that any professional expenses paid for by the doctor are reimbursed by the practice. Mark Dreher, CPA, of Arizona-based Wallace, Plese & Dreher, explains that any licensing fees, books or continuing education fees that were paid for out of the doctor’s pocket should be covered by the practice because it is much better to have the practice take the deduction than to try to take personal deductions. “If the practice doesn’t reimburse them for these payments, they could lose the deductions,” he says.
Section 179
Polulak notes that one of the most important pieces of tax advice is to take advantage of the Internal Revenue Code Section 179 deductions. Section 179 states that business owners can expense up to $250,000 for qualifying purchases of up to $800,000 when filing 2008 taxes. In 2009, the Section 179 deduction will decrease to $133,000. She explains that qualifying purchases include furniture and fixtures, machinery and equipment, and off-the-shelf computer software.
“For example, say your practice purchases a piece of equipment that costs $500,000,” says Polulak. “You can expense $250,000 as a Section 179 deduction.”
Section 179 is available throughout the year. It can be used regardless of the month in which the equipment was purchased. In addition, you do not need to write a check up-front for the equipment, according to Rucci. You can finance it and still receive the benefit of a tax deduction under Section 179.
General Deductions
As healthcare professionals, doctors of chiropractic can take advantage of tax deductions for business purchases—not just for equipment, but for any software or special clothing that may be necessary. Keeping track of these purchases and giving all the financial information to your accountant or tax adviser is important. “Remember that a practice is a business, and if the money you spend is for business purposes, then you can take a deduction, provided it is not specifically disallowed by the IRS,” says Rucci.
Regardless of the tax strategies you use, it is always beneficial to turn your records over to your CPA on a timely basis, says Dreher. Ideally, you should keep organized records throughout the year and provide your accountant with all of your tax data in January or February. This lessens the probability of him or her coming back to you and asking for additional information at the last minute.
According to Dreher, one of the biggest worries during tax season is the possibility of owing the government more money than expected. Anything you can do ahead of time to decrease the chance of that in April will lessen your stress.
Feedback: clukacs@acatoday.org
The materials and information in this article are independently developed and do not necessarily reflect the opinions or positions of the American Chiropractic Association (ACA). All information and comments contained in ACA articles are provided with the understanding that the ACA is not engaged in the provision of legal or other professional advice. Doctors are advised to seek the services of a competent professional in order to obtain such advice.
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this article was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.
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