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May 2012


by Andrew D. Schwartz, CPA

Boy is the tax code complicated.  Does the complex set of rules cause you to be surprised by the amount of money you end up paying or getting back on your taxes each year?

The biggest culprit is the reconciliation process known as the Form 1040.  Each winter, you tally up all of your various sources of income from the prior year, then claim your allowable deductions against that income to determine your taxable income.  Based on that figure, you calculate your regular tax liability and your alternative minimum tax liability, and pay whichever one is higher.

Here's where many CPA offices take on the feel of a high-stakes casino.  If the amount of taxes paid in during the year through withholdings and estimates exceed your tax liability, you feel like a winner.  When your total tax bill dwarfs the payments you made during the year; sorry, dealer has twenty-one.

Here are some of the common causes of an April 15th surprise:

Misleading Withholding Tables:

Let's start by admitting that the withholding tables do not work so well.  It's not uncommon for highly compensated taxpayers to have only W-2 income and either owe the IRS five figures or get a substantial refund.

The W-4 form appears to be easy enough to complete.  Simply check whether you're single or married, and jot down the number of "allowances" you want to claim.  Presumably, you claim an allowance for you, your spouse, each of your kids, your mortgage, and any other sizeable deduction you can claim.  The problem is that with each additional allowance, less taxes are withheld, even though your tax liability might not change by all that much due to the Alternative Minimum Tax or a variety of other factors.

A second problem is that each employer withholds taxes as if they are your only employer.  Work for multiple employers during the year, and there is a good chance that you'll find yourself under-withheld.  (However, if your total earnings exceed $110,100 during 2012 and you work for more than one employer, you'll end up with excess FICA taxes withheld which counts as additional federal taxes paid in.)

If you're married, watch out, since the withholding tables assume your spouse doesn't work.  For that reason, a married couple comprised of two working spouses may find themselves to be under-withheld by 6% or more on their total wages.  On $300k of combined income, that translates into a shortfall of $18,000!  I surprised more than a few well compensated couples with the news that they owe more than $10k in taxes, even though their only income was W-2 wages, and they were confident that they completed their W-4 forms correctly.

The IRS is well aware that the W-4 form can be quite misleading.  For help completing the W-4 form correctly, check out the IRS' Online Withholding Calculator.

Not All Breaks Are Equal:

Not all tax breaks are created equal.  Certain changes to your financial or personal situation generally guarantee a big April 15th surprise.  Get married or buy a home during the year, and chances are good that you have no idea how your taxes will end up that year.

Other tax breaks that seem to indicate a substantial savings don't end up impacting your tax situation much at all.  Believe it or not, having a baby or sending a child to college saves you very little in taxes unless your income is relatively modest.

What if you take full advantage of a retirement savings plan offered by your employer?  While money contributed into the plan through salary deferrals saves you taxes, your employer reduces the taxes withheld from your pay by an equivalent amount since the withholding tables are based on your taxable earnings instead of your gross earnings.  So even though maxing out your salary deferrals is one of the best tax shelters available to you during your working years, you will generally not see much of a change to your refund or balance due by doing so.

Delayed Reaction:

Another contributing factor to a big tax surprise is the fact that even though you make the bulk of your tax planning decisions during the year, you don't see the impact of those decisions until you prepare your returns the following winter.  When you finally work through your paperwork and realize there is an issue to address, the next year is already one-quarter done, leaving you just nine months to make any necessary adjustments.  And then, if you forget to make a second set of adjustments the following January, you'll find yourself with another April 15th surprise when you prepare your taxes for that year.

Besides setting the rates for your withholdings and estimates, another common example is paying for a child's dependent care expenses with pre-tax dollars through your employer's flexible spending account.  While this strategy generally makes a lot of sense, it backfires if your spouse has no earned income during the year. 

Lets say you paid for $5,000 of childcare expenses with pre-tax dollars through your employer's FSA, but your spouse didn't earn any income during the year.  When you prepare your taxes, you'll need to add that $5k back to your taxable wages, increasing your federal tax bill by up to $1,750, with no accompanying withholding.  And then, since you most likely sign up for your benefits annually during November, once you realize this pitfall, it's too late to undo the election for the current tax year.

Good Intentions + Complex Rules = April 15th Surprise:

Which of these goals did you set last month?

  • Minimize your tax burden

  • Adjust your withholdings

  • Maximize your contributions to tax-advantaged savings opportunities

With the April 15th deadline still a not-too-distant memory, invest some time now to make those adjustments necessary to avoid a big tax surprise next April.



by Lisa DiOrio

If your practice isn’t growing, it is dying!

According to Joel Harris (CEO of ADA Intelligent Dental Marketing), “Experienced dental consultants almost always agree that the patient attrition rate of an established practice runs between 10 and 12 percent each year, and that the attrition rate for patients in a new practice is in the 15 to 20 percent range.” This attrition is due to unavoidable patient transitions such as patients moving away, serious illness, sudden financial hardship and death. Additional patient loss may occur as a result of patients moving to another practice.

Marketing your practice is not an option

It should be clear that just to maintain the status quo in the practice, constant acquisition of new patients is required. This necessitates active marketing efforts which fall into two categories: external marketing and internal marketing. External marketing refers to attracting patients from sources outside of the practice normally through advertising. Advertising has limited effect with today’s saturated consumer. A better route is internal marketing which is targeted toward engendering loyalty from the existing patient base to increase retention and referrals.

Additionally, the patient acquired through a referral has come into your practice based on the recommendation of someone they trust and will result in a higher treatment acceptance rate. According to, the new patient who comes into a practice based on a recommendation statistically will accept twice as much treatment on average as compared to a new patient generated from external marketing.

Internal Marketing – it’s easier than you might think

Internal marketing includes several strategies that involve excellent care and customer service as well as ways to remind your patients of your practice between visits. Send Out Cards is the best tool that we have found for reaching out to patients outside of the office to provide a tangible reminder of your practice. It provides an automated, yet highly personal system for sending cards and gifts to patients and referral partners.

We recommend that as part of an internal marketing plan, practices minimally send “welcome to the practice” cards and “referral thank you” cards as well as get well and condolence cards as appropriate. Practices may also want to send birthday cards and holiday cards to some or all of their patients. The Send out Cards system includes over 16,000 built-in card designs or you can create custom cards with your own images. Customization, as well as personal messages, are easily added along with your logo or other branding. And, for special occasions you can include a gift or gift card. Cards are printed and mailed directly to your recipient. The service is reasonably priced at less than $1 per card plus postage and there is no additional cost for labor, etc. Training for office staff as well as a strategic assessment of how to best use the Send Out Cards system as part of your internal marketing efforts is also included for new customers.

For more information about Send Out Cards, visit

Lisa DiOrio provides consulting on relationship marketing strategies for small businesses. She can be contacted at or at 978-397-6063.



by Andrew D. Schwartz, CPA

You purchase insurance to protect yourself against the catastrophic.  Paying a few hundred dollars to fix a broken window in your garage won't trigger a financial crisis for most households.  Being forced to rebuild your two-car garage after it is flattened by a fallen tree is when you look to your homeowner's insurance to come to the rescue.

Protection against the catastrophic describes long-term disability insurance as well. Miss a few days of work due to the flu, and you won't be financially devastated, even if you have already used up all of your PTO (Paid Time Off) for the year.   How financially devastating would it be if you end up missing a chunk of time at work and do not have adequate disability insurance coverage in place?

Assuming the purpose of insurance is to protect yourself against the catastrophic, please explain what happened to the health insurance industry.  Most plans pay pretty much all of your health costs each year.  Yes, you get hit with co-pays and a relatively modest annual deductible.  But that's about it for most people with traditional health insurance coverage.

When you think about it, however, there is a very good reason as to why the health insurance industry evolved into more of a payment program than a true insurance product.  Leaders of the healthcare industry realized that it would be less expensive in the long-run for insurance companies to encourage people to seek out preventative care instead of paying for costly medical care that could have been avoided with earlier detection. 

Now that consumers are better informed about preventative healthcare, let's review a strategy that helps people not only reduce their health insurance premiums but also build up money within a tax-advantaged savings account.


Back in 2004, President Bush introduced Health Savings Accounts (HSA).  Only individuals or families covered under a high-deductible health insurance plan during the year are eligible to contribute to an HSA.  For 2012, the minimum annual deductible to qualify as a high-deductible plan is $1,200 for individuals or $2,400 for families. 

Here are four tax breaks available to you if you contribute to an HSA:

  • Money contributed into an HSA is tax-deductible.  Either you contribute into an HSA on your own, or your employer contributes on your behalf.

  • Money invested within the HSA is your money and grows tax-deferred.  Unlike Flexible Spending Accounts (FSA) offered to you as part of your employee benefit package where you set aside a set amount of money to pay for your family's healthcare costs with pre-tax dollars, there is no "use it or lose it" pitfall with HSAs.

  • Money can be withdrawn tax-free from your HSA at any time to pay for your family's healthcare expenses.

  • Any money remaining in your HSA upon your reaching the age of 65 is available to subsidize your retirement.

The Winning Combination

As health insurance costs continue to skyrocket, Health Savings Accounts (HSAs) provide you with a great opportunity.  Assuming you and your family are relatively healthy, and you won't choose to routinely forgo your annual physical to save a few hundred dollars in medical bills, start by switching to a high-deductible health insurance product.  You will immediately realize a sizeable decrease in your monthly premium - generally equivalent to the increase in your annual deductible.

Next, open up and fully fund an HSA for the year.  Don't forget to deduct your HSA contributions on your tax return that year.

Assuming you and your family have a relatively healthy year, you will end up ahead of the game, since you get to keep all the money leftover in your HSA at the end of the year. 

What happens if you incur substantial healthcare costs during the year? Yes, you will probably deplete your HSA.  But once you spend the full amount of your annual deductible, your insurance takes over like insurance is supposed to do and protects you against any further financial hardship.

Bang For Your Buck

Are your ready for some more good news about HSAs?  When these tax-advantaged healthcare savings accounts were first introduced back in 2004, the amount you could contribute into an HSA each year was a function of your annual deductible.

A few years ago, the rules were changed to make HSAs more attractive.  For families, as long as your annual deductible is at least $2,400 (in 2012), you can contribute up to $6,250 into your HSA.  Single individuals with a health insurance deductible of at least $1,200 in 2012 are eligible to deposit $3,100 into an HSA this year.  Anyone 55 or older can contribute an extra $1,000 into an HSA this year.

What this new rule means to you is that you can put away almost triple your annual deductible.  So even if you tap into your HSA to pay 100% of your deductible, you still have a decent amount of money left over growing tax-deferred to pay for future healthcare costs or to eventually help fund your retirement.

Survival of the Frugalist

Why not let your health insurance do it's job and protect you and your family against the catastrophic?  Then, couple this less expensive insurance with pre-tax contributions into an HSA, and you have discovered one strategy to minimize the after-tax cost of your family's healthcare costs in today's market.

For more information about HSAs (and some good bedtime reading), check out IRS Publication 969.




Income Taxes

Saving and Investing




  • Good time to make semi-annual donation of clothing and household items to charitable organizations (and maximize this tax deduction using UDoGood.)
  • Before summer kicks in, take a look at your asset allocation of all your retirement and non-retirement accounts, and consider rebalancing your accounts.


2011 & 2012 TAX FACTS

  • For 2011, the standard deduction for a single individual is $5,800 and for a married couple is $11,600. 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 2011, the personal exemption is $3,700. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $110,100 for 2012, up from $106,800 for 2011.
  • The standard mileage rate is $.555 per business mile as of July 1, 2011, up from $.51 per mile for the first six months of 2011.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $17,000 in 2012, up from $16,500 in 2011.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account that year.
  • The maximum annual contribution to your IRA is $5,000 for 2011 and 2012.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2012 to make your 2011 IRA contributions. 


You're Invited to Attend Our Complimentary Presentation on:

Financial Planning Workshop for Female Healthcare Professionals

Presented by Morgan Stanley Smith Barney

Boston - 6/7/12


Need Help With Your Nanny Payroll?

This Month's Topics

Were You Surprised on April 15th?

Growing Your Practice Using Internal Marketing

Minimize Your Healthcare Costs and Save Taxes With An HSA

The FICA Refund for Medical Residents 

2011 & 2012 Tax Facts

Tax and Financial Planning Calendar for May 2012


Browse our index of previous months' newsletter topics

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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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