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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

June 2013

2013 TAX HIKES MEAN IT'S TIME TO REVISIT AVAILABLE TAX BREAKS

by Andrew D. Schwartz, CPA

Effective 1/1/13, taxes increased for many well-paid Americans.  Here are three separate tax hikes that might affect you:

  • Top federal income tax rate now 39.6%

  • Top Medicare tax on earned income now 3.8%

  • New 3.8% Medicare tax on unearned income

Beginning on January 1, 2013, The American Taxpayer Relief Act raised the top federal marginal income tax rates from the 35% max in place since the Bush 2003 tax cuts to 39.6% for taxable income exceeding the following thresholds:

Threshold for 39.6% Bracket:

Filing Status

Tax Bracket Starts
(at taxable income)

Married Filing Joint

$450k

Head of Household

$425k

Single

$400k

Married Filing Separate

$225k

So how much more federal income taxes could you expect to pay this year due to the 39.6% bracket?  Single individuals with taxable income of $600k will pay the federal government an additional $9,200.  Earn $400k more to bring your taxable income to $1 million, and the additional taxes you'll owe jumps to $27,600.  Let's look at the increases based on the four filing statuses:

Additional Taxes Starting in 2013

Taxable income

Single

Head of Household

Married Filing Joint

Married Filing Separate

$600,000

$9,200

$8,050

$6,900

$17,250

$800,000

$18,400

$17,250

$16,100

$26,450

$1,000,000

$27,600

$26,450

$25,300

$35,650

 

Increased Tax Rate on Long-Term Capital Gains and Corporate Dividends

The top tax bracket was not the only increase to federal income taxes.  For long-term capital gains and qualified corporate dividends, the tax rate increases by one-third - from 15% to 20% - based on the same taxable income thresholds as apply the 39.6% bracket, effective 1/1/13.

Higher Medicare Taxes:

There are two new increases to the Medicare tax.  One upped the Medicare tax that you'll pay on your earned income from 1.45% to 2.25% for single individuals earning more than $200k or married couples whose combined earned income exceeds $250k. Keep in mind that your employer will match Medicare taxes withheld from your pay at a rate of 1.45%, so the federal government now gets 3.8% on your earned income that exceeds the applicable threshold.

Increased Medicare Tax

Filing Status

3.8% Tax Starts
(Earned income)

Married Filing Joint

$250k

Single

$200k

New 3.8% Medicare Tax On Unearned Income:

The new 3.8% Medicare tax on unearned income kicks in at the $200k of Adjusted Gross Income (AGI) for single individuals and $250k of AGI for married couples.  Unearned income includes interest, dividends, capital gains, annuities, royalties, and rents. This is the first time that unearned income has ever been subject to Medicare taxes.

 

Tax Rates for Capital Gains and Qualified Dividends – 2012 vs 2013

 

 Single

 

Married Filing Jointly

Capital Gains and Qualified Dividends -2012 rates

Capital Gains and Qualified Dividends -2013 rates

Increase in Tax Rates  on Investments 2012 vs 2013

$0 - $36,250

$0 - $72,500

0%

0%

0%

$36,250 - AGI of $200,000

$72,500 - AGI of $250,000

15%

15%

0%

 

$200,000 - taxable income of $400,000

$250,000 - taxable income of $450,000

15%

18.8%

3.8%

$400,000+

$450,000+

15%

23.8%

8.8%

Strategies to minimize your tax bill in light of these new tax rules.

Plan Your Revenue & Expenditures

Most healthcare professionals are on the "Cash Basis" of accounting, which means that:

  • Income is reported when fees are collected

  • Deductions are claimed when bills are paid

By planning your billing and your expenditures, especially as the year winds down, you might be able to flatten out profit fluctuations from year to year, which could help minimize the portion of your income that will be taxed at higher rates.

 

Purchase Equipment & Instruments

Remember, you must “depreciate” the cost of equipment purchased each year.  However, the rules allow you to claim in the Section 179 Deduction, which means you get to deduct the full cost of the equipment all in the first year instead of taking a deduction ratably over its useful life.  Even if you borrow money to purchase the equipment, you're still allowed to claim the Section 179 deduction, subject to certain restrictions.

For 2013, the maximum Section 179 deduction is a whopping $500k.

 

Employ Your Child

For 2013, the first $6,100 of wages paid to child isn’t subject to federal income taxes, assuming the child has less than $300 of investment income. To make this tax break even better, sole proprietors owe no Social Security, Medicare, or Unemployment Taxes on wages paid to child under 18.  Even so, wages paid to a child are deductible as a business expense.  Plus, the child can fund a Roth IRA, up to $5,500 this year, based on the wages you pay.

Employing a child is also a strategy to make college tuition tax-deductible for your family.  For this strategy, you'll want to pay your child more than $6,100, so they would owe some federal income taxes.  You then don't claim your child as a dependent.  And the child doesn't claim himself or herself as a dependent.  However, by no one claiming the child as a dependent, the child can claim the American Opportunity tax credit and offset the first $2,500 of federal taxes owed.

Cost/Benefit of paying $6k of Wages to Child

Cost::  None if sole proprietor, otherwise $933

Benefit:  Tax savings of up to $2,604, plus opportunity for child to contribute $5.5k to a Roth IRA.

 

Employ Your Spouse

By employing your spouse, he or she can contribute up to $17.5k into your practice’s 401(k) plan or $12k into your practice's SIMPLE IRA.  Anyone 50 or older can contribute an extra $5.5k into 401(k) or an extra $2.5k into a SIMPLE.  You just need to pay your spouse enough to fund the retirement account and pay Social Security and Medicare taxes on the wages paid.

Cost/Benefit of paying $19k of Wages to Spouse

Cost:  $3,078 in additional FICA taxes

Benefit:  Tax savings of up to $7,595, plus $17,500 growing in tax-advantaged, creditor-protected account

 

Contribute to an HSA

H.S.A.s keep getting more popular.  If you have a qualifying high-deductible plan, you have the option to contribute up to $6,450 into a Health Savings Account if married ($3,250 if single).  Remember, with an H.S.A., contributions are pre-tax, growth is tax-deferred, and withdrawals used for your family's healthcare expenses are tax-free.

Cost/Benefit of Max Contribution to HSA

Cost:  Higher out of pocket expenses due to high deductible insurance plan

Benefit:  Tax savings of up to $2,800, plus $6,450 growing tax-deferred for medical expenses or retirement.

 

Incorporate Your Practice

With an S-Corporation, you take out the profits by paying yourself a salary like you pay your other employees, or by taking S-Corp distributions.  Under the current tax rules, you'll avoid the 3.8% Medicare tax on income taken as S-Corp Distributions.

Cost/Benefit of Incorporating Practice With $360k of Income

Cost:  $1,000 or more in additional fees and taxes

Benefit:  $3,800 tax savings on $100k of S-Corp distributions

 

Upgrade Your Retirement Plan

There are a variety of retirement plans available to practice owners.  By setting up a plan more sophisticated than a safe-harbor 401(k) or SIMPLE IRA, you can probably make higher contributions on your behalf without increasing the contributions you'll make for your staff.  You'll want to meet with a retirement plan specialist to learn about the best options in plan design that are available to you.

Cost/Benefit of More Sophisticated Plan

Cost:  Potentially higher contributions for your staff and higher administration fees to maintain the plan.

Benefit:  Opportunity to contribute more money on your behalf, plus a larger tax break, potentially without increasing contributions made on behalf of your staff.

 

Reposition Your Portfolio

With marginal tax rates over 50% once you figure in state taxes, consider repositioning your portfolio, putting less tax-efficient investments in your tax-advantaged accounts while keeping index funds, ETFs, non-dividend paying stocks, and tax-exempt bonds and bond funds in your taxable accounts.

 

See Andrew Schwartz CPA Present This Information Live

Andrew will be participating in three evening meetings in the Greater Boston Area hosted by Morgan Stanley.  Here are the dates and locations:

  • Tuesday, June 25th - Quincy, MA

  • Wednesday, June 26th - Waltham, MA

  • Tuesday, July 16th - Middleton, MA

While the invite is geared towards dentists, these evening meetings are open to all healthcare professionals who own a practice and want to save some taxes.  If you will be attending any of these meetings, please let me know, so I'll make sure to say, "Hey".

TOP


EXPONENTIAL GROWTH FOR YOUR PRACTICE

There are three ways to grow your business.  One is more new patients, second is more frequency, and the third is more per visit.  Let's take a quick look at each one:

 

More new patients.  You attract new patients to your office in a number of ways.  You can attract them with internal marketing programs.  How is your internal referral program?  Your patient base of any size is a great referral opportunity.  When you do get a referral, how do you thank the referring patient? Getting consistent about this is a great way to attract new patients. 

 

How is your patient experience?  Providing a WOW experience to new patients and existing patients is a great way for your patients to become raving fans.  Think about a positive experience you've had in a restaurant, retail establishment or hotel.  You will tell all your friends and family about it, right?

 

More Frequency.  The second way to grow your business and increase your profits is to increase the number of visits patients have each year.  First of all, are all of your patients coming in for a recare exam at least twice per year?  Look at the numbers, you may be surprised.  Most hygienists will tell you that three times per year is actually a better standard of care.  When you are getting patients into your office consistently and taking the very best care of your patients, you will identify other dental work that needs attention.  In a general practice, there is a 2:1 ratio of operative production to hygiene production.  How are you doing pre-appointing patients for their next visit?  That is a must to keep your patients in the schedule.

 

More Visits.  The third way to grow your business and increase your profits is to get more per visit.  When was the last time you reviewed your fees or increased your fees?  If they are not up to date, that is one way to get more per patient visit.  Do you have a daily production goal for all providers?  If so, are you scheduling to that goal?  There are some key concepts you must implement in your practice to get the most out of your schedule.  How is your case acceptance?  Are you measuring it?  Our best practices are enrolling 80% of treatment presented for needed dentistry and 50% for cosmetic work. 

 

These are just a few ways to increase your net profits.  Please join me on Tuesday, June 18th at 5:00 PM for a 45-minute webinar.  I will be diving into more details on each of these concepts and show you to increase your net profits.  And I will be available for any specific questions you may have.  Also, I have something really special to share that will only be available to those listening to the call. 

 

Sign up here www.fortuneboston.com/threeways

 

Don Khouri, Fortune Management of Boston, is an expert in leadership, teamwork and productivity, and has worked in the dental industry for 15 years.  He coaches dentists to get clear about their vision and inspire the whole team to be responsible for it. 

 

TOP


TAX AND FINANCIAL PLANNING CALENDAR FOR JUNE 2013

Month

Income Taxes

Saving and Investing

 

 

 

June

  • 2nd quarter estimates due 6/17/13
  • Income tax returns (or extension requests) for Ex-Patriots due 6/17/13
  • FBAR filing is due 6/30/13 for individuals and businesses with foreign accounts worth more than $10k at any point during 2012.

 

  • Determine if you are on track to meet the savings and debt reduction goals you set back in January
  • See if you have adequate Disability Insurance in place.

 TOP


2012 & 2013 TAX FACTS

  • For 2012, the standard deduction for a single individual is $5,950 and for a married couple is $11,900. 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 2012, the personal exemption is $3,800. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $113,700 for 2013, up from $110,100 for 2012.
  • The standard mileage rate is $.565 per business mile as of January 1, 2012, up one cent from $.555 per mile since July 1, 2011.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $17,500 in 2013, up from $17,000 in 2012.  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 $5,500 for 2013, up from $5,000 in 2012.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2014 to make your 2013 IRA contributions. 

TOP

Need Help With Your Nanny Payroll?
 

This Month's Topics

2013 Tax Hikes Mean It's Time To Revisit All Available Tax Breaks

Exponential Growth For Your Practice

The FICA Refund for Medical Residents 

2012 & 2013 Tax Facts

Tax and Financial Planning Calendar for June 2013

 

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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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