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NOTICE TO RESIDENTS OF MARYLAND

We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


Useful Links:

FindAGoodCPA.com - Not a healthcare professional?  Find a CPA or EA who understands the tax issues specific to you.

Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules

IRS Web Site - for tax forms, publications, and general tax information.

Exchange Authority - New England's first authority for IRC 1031 Exchanges

Cost Segregation Studies - Accelerate tax depreciation deductions on new and existing buildings through cost segregation studies

Social Security - find out the latest rules or your projected retirement benefit.

The Company Corporation offers fast, reliable & affordable incorporation and LLC services.


MONTHLY TAX NEWSLETTER

February 2016

LEASING VS OWNING YOUR OFFICE SPACE

by Andrew D. Schwartz, CPA

If given the opportunity to purchase space for your practice, are you better off owning that space or opting to lease an equivalent space instead?  While there are many variables to consider, owning could generally prove to be a much less expensive option over the long run.

Paying rent, utilities, and repairs and maintenance are expenses all practices incur.  These Facility Costs are often the second largest expense grouping of a practice after Staff Expenses.

Practices seem to pay on average between 5% and 7% of their collections on facility costs.  Smaller practices, less productive practices, and newer practices can see a higher percentage of their collections going towards their facility costs.

So what's better - owning or leasing?

Let's first look at the cost of leasing your space.  For starters:

  • You pay rent every month you occupy the space

  • Rent increases over time with inflation.

Many commercial leases are written as "Triple Net" leases, which means that you as the tenant pay the real estate taxes, insurance, and repairs and maintenance for the property you are leasing. Essentially, you as the tenant take on many of the financial risks of ownership. (This is very different from a residential lease where the tenant pays the rent and the landlord covers the various costs of ownership.)

Let's assume that you will be in practice for 25 years, and enter into a lease with an initial rent of $3k per month that increases over time with inflation.  If inflation runs at 3% per year, you'll pay $3,090 in rent starting in year 2, $3,183 in year 3, $3,279 in year 4, and so on.  In year 20, your rent will be $5,400 per month.

To be able to figure out whether leasing is less expensive than buying, we need to compare "apples to apples". To do so, we need to calculate all the costs in "today's dollars", which removes the effect of inflation.  It's easy to understand the value of $3,000 today.  Who knows what $5,400 will buy in 20 years?

For a practice entering into a lease for $3k per month over a term of 25 years that increases with inflation, that practice would spend $900k in today's dollars for that lease. ($3,000 * 12 months * 25 years = $900k)

That's a lot of money. Let's now figure out the cost of owning in today's dollars.

For this example, I calculated that you could purchase a $500k office space for a 20-years mortgage with a payment of $3k per month at a 4% interest interest rate.  I also assumed that the value of the building will increase based on inflation of 3% per year, so will double in value over the 25 years you are in practice.

Here are the basics:

  • Mortgage payments do NOT increase with inflation.  Monthly payments on a fixed-rate mortgages stay the same over the life of the loan. (Remember, your rent in year 20 would be $5,400 per month, while your mortgage payment would still be $3k per month that year.)

  • Unlike rent which continues as long as you occupy the space, mortgage payments end when the mortgage is paid off.  In this example, you would have the final 5 years of your 25-year career with no payments for your space; money available to put away for retirement, pay for your kids' education, or finally purchase that Tesla.

  • The property is an asset available to be sold at the end of your career.

I then converted the 20 years of paying $3k per month to today's dollars, and reduced that total by what $1 million dollars 25 years from now would be worth today, and came out with a total cost of owning this property, in today's dollars, to be only $60k!  That cost is essentially the real cost of the interest you will pay on the mortgage converted to today's dollars.

In this oversimplified example, leasing your space over 25 years is 15 times more expensive than purchasing an equivalent space.

Please note, however, that there are a lot of variables to consider when trying to decide whether to lease or own office space for your practice. Your CPA or our friends at Carr Healthcare Realty can help you run these numbers.  The Carr team can also help you negotiate the lease or the purchase price for your office space, and believe it or not, the Landlord or the Seller pays their fee. Yes, Carr offers this essential business service at  no cost to the practice owner.

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RECORDED PRESENTATIONS AVAILABLE ON MDTAXES

We're pleased to share with you with links to the following recorded presentations available on MDTAXES:

RECORDED IN 2015

W-4 Basics: Kids and College Students Earning Less Than $6,300 Should Claim Exempt

How should most kids and college students should fill out the W-4 form for their summer or part-time jobs. By claiming Exempt, your employer will NOT withhold any federal income taxes, so you’ll have more money in your pocket with each pay check, and won’t need to file a tax return next winter to get back taxes that were unnecessarily withheld .

W-9 Basics: How to Complete a W-9 Form for an LLC

While completing the W-9 Form for most businesses is very straightforward, that's not the case for LLCs. There are very specific rules that the LLC needs to follow to fill out the W-9 correctly.

401k & 403b Basics: No Match Doesn't Mean No Good

Contributing to a 401(k), 403(b), or 457 plan AT WORK is one of the best tax shelters available to people during their working years. Amounts contributed generally reduce your taxable salary and grow tax-deferred. What if your employer does NOT make any matching contributions? In this case, the advice I routinely give is quite simple: No Match Does Not Mean No Good.

Help Working Kids and Students Correctly Complete a W-4 Form

One thing I continually notice is that most kids who work are incorrectly having federal and state income taxes withheld from their wages. Please note that a working child will generally owe no federal income taxes unless wages earned exceed $6,300 (in 2015) and/or investment income exceeds $350. Needless to say, most of the kids are getting back all the federal and state income taxes withheld during the year. By claiming "exempt", these kids avoid having federal income taxes withheld, which gives them more of their paycheck sooner, and also avoids the costs and headaches of filing a federal income tax return to get back those taxes that were unnecessarily withheld.

RECORDED IN 2014

Preventing Theft By The Front Desk Staff of a Dental Practice

Every business is at risk of losing money to fraud and theft. This presentation details 8 steps that dental practice owners can take to prevent theft from their front desk staff.

RECORDED IN 2013

Professional Expenses Commonly Deducted by Doctors to Save Taxes

Physicians, dentists, psychologists, and other healthcare professionals can often times save some taxes by deducting their unreimbursed professional expenses. Check out this presentation to learn about a variety of professional expenses commonly deducted by doctors in the U.S.

Retirement Plan Basics for Practice Owners

Wondering which type of retirement plan makes the most sense for your practice? Check out this presentation on the most common retirement plan options available to practice owners. You'll also learn why it makes sense to set up and begin to max out your retirement plan savings as soon as possible.

Million Dollar Metrics for General Dentists

The ten "million dollar metrics" presented in this video will provide general dentists with valuable insight to help improve their practice management. General dentists can learn which metrics to generate to gauge how their dental practice is doing, and then compare those metrics with other general dental practices, including those practices from the sample that collected one million dollars or more during 2012.

Increase Practice Revenue and Profits with SIBS (Simple Incentive Bonus System)

Learn to increase revenues and profits at your practice by implementing a Simple Incentive Bonus System. For short we call this SIBS. We've seen a lot of clients implement bonus system similar to the one presented in this video who saw immediate positive results within their practice.

Recorded Short Presentations on QuantiaMD:

We also have four three-minute multi-media podcasts, including insightful poll questions, available only on QuantiaMD:

And One Modest Attempt at Humor. 

Editor's note: Please don't ask us why.  Sometimes there are things in a person's brain that just need to come out.  Please remember that we are tax accountants first, and I don't even know where comedian would come on this list.

Best Depreciation Joke Ever Written

Suggestions for Future Recorded Presentations???

If you have any suggestions for information you'd like us to include in our 2015 recorded presentations, please e-mail me.

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IRS REMINDS TAXPAYERS TO PLAN AHEAD IF YOU NEED A TAX TRANSCRIPT

IR-2015-140, Dec. 23, 2015                                                                                    

WASHINGTON — The IRS reminds taxpayers that the quickest way to get a copy of their tax transcript is to order it online using the Get Transcript application on IRS.gov. By planning ahead, they should receive their transcript in the mail within five to 10 days from the time the IRS receives the request online.

The IRS continues to work to bring the viewable/printable functionality of the application back online in the near future with enhanced identity protection security features. In the meantime, taxpayers can still request a mailed transcript by going online to Get Transcript.

Though taxpayers should always keep a copy of their tax return for their records, some may need the information from filed tax returns for many reasons. This includes college financial aid applicants or taxpayers who have applied for a loan to buy a home or start a business.

If a taxpayer is returning to college this January and applying for financial aid, they should check with their financial aid department at school to see if they will need a copy of their transcript before they start classes. Frequently, students get all the tax return information they need on the FAFSA application via the IRS Data Retrieval Tool.  

Similarly, if a taxpayer plans to apply for a loan, they should ask their financial institution if a transcript will be necessary so they can plan ahead and have it at the appropriate time.

The fastest way to get a transcript is through the Get Transcript tool on IRS.gov. Although the IRS temporarily stopped the online viewing and printing of transcripts, Get Transcript still allows taxpayers to order their transcript online and receive it by mail.  Taxpayers simply click the "Get a Transcript by Mail" button to order the paper copy of their transcript and have it sent to their address of record.  Among the options available:

  • To order a transcript online and have it delivered by mail, go to IRS.gov and use the Get Transcript tool.
  • To order by phone, call 800-908-9946 and follow the prompts.
  • To request an individual tax return transcript by mail or fax, complete Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses and individuals who need a tax account transcript should use Form 4506-T, Request for Transcript of Tax Return.

The IRS will mail the transcript to the address of record entered on the prior year’s tax return. The mailed transcript is an official document. It does not need to be a “certified” copy as is the case with some other documents. If a taxpayer has moved since they last filed a tax return with the IRS, they need to first submit Form 8822, Change of Address, to ensure that the transcript is mailed to the correct address. Allowing time for the Form 8822 is another reason for taxpayers to plan ahead for their transcript needs.  

If a taxpayer is applying for financial aid, they are encouraged to use the IRS Data Retrieval Tool on the FAFSA website to easily import their tax return information to their financial aid application. The temporary shutdown of the Get Transcript tool does not affect the Data Retrieval Tool. Taxpayers may also click on the FAFSA help page for more information.

If they are applying for a mortgage, most mortgage companies only require a tax return transcript for income verification purposes. Most of these companies participate in our IVES (Income Verification Express Service) program and can request (with the taxpayer’s consent) to have a transcript sent directly to the financial institution. If a taxpayer needs to order a transcript, they should follow the process described above and have it mailed to the address the IRS has on file for them.

Remember, ordering a transcript online is the quickest option. For more information, read the IRS How Do I Get My Transcript? fact sheet.

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TAX AND FINANCIAL PLANNING CALENDAR FOR FEBRUARY 2016

Month

Income Taxes

Saving and Investing

 

February

  • Get a jump on your tax prep and call one of the MDTAXES CPAs by 2/29/16 to set up an appointment
  • Organize your tax information
  • Try to have holiday credit card balances paid off by 2/29/16

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2015 & 2016 TAX FACTS

  • For 2015, the standard deduction for a single individual is $6,300 and for a married couple is $12,600. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2015, the personal exemption is $4,000. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $118,500 for 2015 and 2016, up from $117,000 in 2014.
  • The standard mileage rate is $.54 per business mile as of January 1, 2016, down from $.575 for 2015.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $18,000 in 2015 and 2016, up from $17.5k in 2014.  And if you'll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $5,500 for 2015 and 2016.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2016 to make your 2015 IRA contributions.

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Need Help With Your Nanny Payroll?
 

This Month's Topics

Leasing Vs Owning Your Office Space

Recorded Presentations Available On MDTAXES

IRS Reminds Taxpayers To Plan Ahead If You Need A Tax Transcript

The FICA Refund for Medical Residents 

2015 & 2016 Tax Facts

Tax and Financial Planning Calendar for February 2016

 

NEWSLETTER ARCHIVES
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WHAT'S NEW WITH THE FICA REFUND?

In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

 

 
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