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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 2017

MINIMIZE PRACTICE OVERHEAD TO MAXIMIZE PROFITS

by Andrew D. Schwartz, CPA

Last month during the 2017 Yankee Dental Conference in Boston, I was interviewed on the topic of Minimizing Practice Overhead to Maximize Profits.  While this interview was geared specifically towards dental practice owners, much of the information discussed applies to all healthcare practice owners.  I hope you are able to use some of this information to increase the profitability of your practice.

Below are the talking points from that interview:

Question - Like any business, dental practices pay a lot of money on their overhead each year. 

Yes, overhead for most general practices ranges from a low of 45% of collections to as high as 60% or more.  Please note that is “non-doctor” overhead, which means that the salaries and benefits paid to owners and Associates are excluded from overhead. Most dental practices, therefore, have somewhere between 40% and 55% of practice collections available to pay the salary and benefits of the owners and the other doctors, and also pay the practice debts and invest in equipment and technology.

Question - What is generally the largest expense incurred by dentists?

Staff expenses are pretty much always the largest expense grouping. Practices we work with around Boston pay on average 23%-28% or higher of their collections for salaries, payroll taxes, health insurance, retirement plan contributions, and other staff costs and benefits Remember, this is non-doctor staff costs that includes the hygienists, assistants, and front desk/admin staff. 

Question – How can practice owners minimize their staff costs?

Start by leveraging technology that is available and reasonably inexpensive to replace labor intensive activities.  All practices can improve communication with patients and save payroll costs by utilizing programs that sit on top of the popular practice management systems and interact with practice patients, including:

  • Lighthouse 360

  • Revenue Well

  • Solution Reach (fka Smile Reminders)

  • Demand Force

One of my clients insists that using Lighthouse 360 saved the practice that he had purchased a few years prior. When set up properly, these programs save staff time and cost by:

  • Confirming appointments via text message or email

  • Filling the schedule following cancellations

  • Sending out surveys following each visit

  • Promoting Yelp and Google reviews

Another way to save staff time and costs is to utilize a collections service. Paying staff to chase after delinquent patient receivables becomes expensive.  An inexpensive service such as the one provided by Transworld Systems sends out a series of 5 letters to delinquent patients for a cost of just $15 per account.  The series of letters starts out very friendly and then proceeds to get a little more demanding with each subsequent letter sent out.

Another benefit of using a collection service is that doing so helps front desk staff adhere to the financial policies of the practice.  All they need to do is send over a delinquent account through a web based system once the account exceeds a set number of days past due. 

Question – What about marketing costs?  It seems dentists can spend a lot on marketing that doesn’t always pay off with results.

Practices we work with seem to spend 1% to 2% of their collections on advertising and marketing each year.  According to a recent article in Dental Economics, the best way for practices to attract new patients is through:

  • Existing Patients

  • The Practice's Website

  • Social Media (Facebook and Google ads)

  • Yelp and Google ratings and review

To get the best results from these four methods of marketing, make sure that each patient has the best possible experience with each visit to your office so they become your best advertisement by broadcasting to their friends and family how great you are. Also make sure to track how new patients heard about your office to figure out how best to allocate your marketing dollars and efforts

I strongly recommend that you read 1 800-Dentist founder Fred Joyal’s book – Everything is Marketing.

Question - What Are Some Other Opportunities to Cut Some Costs?

Here are some recurring costs that you might be able to save by contacting a few providers to get updated pricing: 

  • Merchant Fees - don't assume you have the best pricing for processing credit cards.

  • Utility Costs – now that there has been deregulation.

  • Insurance Costs – putting all insurance with one company can save money

Question - A lot of dentists who purchase existing practices, purchase equipment or technology, or open or expand practices have loans they are paying.  What can these dentists do to cut this overhead expense?

There are a few options available to practice owners with debt to cut the interest rate on those loans. Start by trying an "Internal Refinancing" with your current lender. This opportunity is generally available after 1 year of paying the debt. and only in circumstances where the interest rate on the loan is higher than the rates currently being offered.  There are generally minimal loan costs and paperwork required in connection with an internal refinancing.

A second option is to refinance your practice loans with another lender. There are multiple dental specific lenders in most markets competing for good loans, and they all love refinancing opportunities, especially for great practices

Question – Besides staff expenses, dentists seem to also spend a good amount each month on their facility expenses.  How can they cut these costs?

Most established dental  practices we work with spend between 5% and 7% of collections on Facility Expenses – rent, repairs and maintenance, utilities, and local taxes.   The good news is that there is a relatively new national business service available to all healthcare professionals to provide lease renewal assistance.

The name of the company is call Carr Healthcare Realty, and unlike a Doctor that negotiates a lease once every five or ten years against property owners who negotiate leases as part of their job, Carr acts as the Doctor's agent and use their experience and access to market data to professionally negotiate for better terms including:

  • Monthly Rent Cost

  • Free Rent for a certain period of time

  • Tenant Improvement Allowance

Since Carr acts as your agent, their fee is paid by the Landlord as part of the lease you sign.  We have had clients save tens of thousands of dollars over the term of their lease thanks to Carr Healthcare Realty, and paid no direct fee to Carr for that valuable service.

In Conclusion:

Remember, each 1% that you can cut from your overhead puts $10k more into your pocket assuming you have a $1 million practice.

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THE IRS EXPLAINS THE TAX GAP

Tax Gap Estimates for Tax Years 2008-2010


IRS Statement on the Tax Gap Update

The IRS periodically estimates the tax gap, which gives a broad view of the nation’s compliance with federal tax laws. The new study covers tax years 2008-2010. The report finds that there has been no significant change in the amount of the tax gap or the rate of compliance since the last report was issued for tax year 2006.

The average annual tax gap for 2008-2010 is estimated to be $458 billion, compared to $450 billion for tax year 2006. IRS enforcement activities and late payments resulted in an additional $52 billion in tax paid, reducing the net tax gap for the 2008-2010 period to $406 billion per year. The voluntary compliance rate is now estimated at 81.7 percent compared to the prior estimated rate of 83.1 percent. After accounting for enforcement and late payments, the net compliance rate is 83.7 percent.

The small increase in the estimated size of the tax gap and small decrease in the voluntary compliance rate are largely attributable to improvements in the tax gap estimation methodology, and do not represent a significant change in underlying taxpayer behavior. The changes also reflect the overall decline in the nation’s tax revenues due to the severe recession during the time period covered by this study, as well as changes in the mix of income sources that have different compliance rates.

A high level of voluntary tax compliance remains critical to help ensure taxpayer faith and fairness in the tax system. Those who don’t pay what they owe ultimately shift the tax burden to those who properly meet their tax obligations. The new tax gap estimate updates long-standing research findings that information reporting and withholding are strongly associated with higher levels of voluntary compliance.

The IRS continues to look for ways to keep the voluntary compliance rate high, including educational efforts aimed at preparers and taxpayers, ongoing efforts to improve compliance in the international tax arena, and working with businesses on employment tax issues.

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TAX GUIDE FOR PHYSICIANS WORKING AS INDEPENDENT CONTRACTORS

by Andrew D. Schwartz, CPA

Our friends at Barton Associates, the Locum Tenens Experts, wanted to compile a tax guide to provide their contractors with a summary of the basic tax rules affecting them. Founded in 2001, Barton Associates is a leading locum tenens staffing company serving physicians, nurse practitioners, and hospitals, medical practices and companies throughout the United States.

A few years back, Barton Associates reached out to us through our MDTAXES website to see if they could use information posted in some of our articles over the years as a foundation for their guide.  Well, to be completely honest, the team at Barton Associates put together a terrific eight page tax guide for self-employed healthcare professionals that covers the following topics:

  • Deductions

  • Retirement Accounts

  • Health Savings Accounts

  • Estimated Quarterly Taxes

  • Planning

I strongly recommend that any healthcare professional who earns income as an independent contractor take the time to download and read this tax guide.  The information is well written and very easy to understand.

Below are links to access Barton Associates' Tax Guide:

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TAX AND FINANCIAL PLANNING CALENDAR FOR FEBRUARY 2017

Month

Income Taxes

Saving and Investing

 

February

  • Get a jump on your tax prep and call one of the MDTAXES CPAs by 2/28/17 to set up an appointment
  • Organize your tax information
  • Try to have holiday credit card balances paid off by 2/28/17

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2016 & 2017 TAX FACTS

  • For 2016, 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 2016, the personal exemption is $4,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $127,200 for 2017, up from $118,500 for 2015 and 2016.
  • The standard mileage rate is $.535 per business mile as of January 1, 2017, down from $.54 for 2016.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $18,000 in 2015, 2016 and 2017, 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 2014 through 2017.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2017 to make your 2016 IRA contributions.

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Need Help With Your Nanny Payroll?
 

This Month's Topics

Minimize Practice Overhead to Maximize Profits

The IRS Explains the Tax Gap

Tax Guide For Physicians Working As Independent Contractors

The FICA Refund for Medical Residents 

2016 & 2017 Tax Facts

Tax and Financial Planning Calendar for February 2017

 

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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