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

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

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MONTHLY TAX NEWSLETTER

June 2015

OBTAINING AND RENEWING YOUR COMMERCIAL LEASE: IMPORTANT THINGS TO KNOW

by Dave Miller, Carr Healthcare Realty

Leasing and lease renewals are not typically conducted on a level playing field. After all, the landlord is in the real estate business and most doctors are not. By planning ahead and having professional representation, you can negotiate a lower lease rate and receive substantial tenant improvement allowances and free rent.

How does the lease renewal process work?

An important clause found in a standard lease is the renewal option. This allows you to extend your lease for a predetermined amount of time (usually five or ten years) by giving your landlord six to twelve months’ written notice. Renewal options include terms for specific lease rates, concessions such as free rent and tenant improvement allowances, and whether a new base year for operating expenses will be granted. All of these terms are negotiable and play a large role in the financial structure of a lease renewal.

How do I calculate what I am currently paying per square foot?   

Knowing what you are already paying per square foot is especially important if you are thinking about renewing your lease. What you are paying now versus what buildings are leasing for in your immediate area can be vastly different. We have seen a substantial decrease in lease rates over the last two years. The way to calculate your price per square foot is to multiply your monthly rent by 12 months and divide it by your square footage. Keep in mind that Triple Net (NNN) or CAM charges (operating expenses for the property) are also calculated the same manner.

What type of cost savings can be achieved through a successful renewal?

If properly negotiated, you can receive significant rent savings and build out allowances. It is very common to start a lease renewal at a lower lease rate than what you are currently paying. As the economy continues to struggle, landlords are offering aggressive concessions and more attractive lease terms to good tenants to keep their buildings leased. The amount of overall savings will depend on the availability of competitive vacancies, the efficiencies of the buildings, the market knowledge of the broker and the broker’s ability to negotiate business points and reduce overall exposure.

What are some common mistakes doctors make during the process?

One of the most common mistakes doctors make is negotiating without the help of a commercial real estate professional, specifically one who specializes in representing healthcare professionals. Some doctors believe they can save money by not using a broker; but to benefit in real estate, you need leverage. Landlords are in the real estate business and negotiate with professional guidance. Selecting an expert to represent you provides the leverage needed to receive the best possible lease terms. Further, landlords are responsible for paying commissions, not tenants, so professional representation is available to you at no out of pocket cost.

Another mistake doctors make when entering into a lease renewal negotiation is not being familiar with their current lease terms and exposure. Prior to contacting the landlord about a lease renewal, you should be well aware of your current lease terms including every option and deadline. As mentioned, most leases contain options that must be exercised within a specific time period, typically six to twelve months prior to the lease’s expiration. If you allow this period to pass, you risk losing all rights outlined in the option, which can cause the negotiations to begin at a disadvantage.

When should the process begin?

As a rule of thumb, you should begin to consider the renewal process 12 – 18 months in advance of your lease’s expiration. This is recommended so that you can compare all relocation options in the market before your current lease options expire. Tenants who miss their lease options incur more risk. Landlords view this as an opportunity to push rents higher as the window of opportunity to relocate closes. If tenants holdover, they often see penalties of 150 to 200 percent of their last month’s rent and can also incur consequential damages if they holdover without permission. The bottom line is that if there is not ample time to relocate if necessary, the landlord has a strong upper hand.

Dave Miller is an Agent of Carr Healthcare Realty and specializes in representing Healthcare Professionals with all their real estate needs. Carr Healthcare Realty has successfully negotiated over 600 lease and sale transactions. You can reach Dave at (617)595-6497 or dave.miller@carrhr.com.

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EMPLOYEE VERSUS INDEPENDENT CONTRACTOR

by Andrew D. Schwartz, CPA

Last fall, my CPA firm helped out a client being audited about whether he should have been classified as an employee or as an independent contractor by the organization that was paying him.  In actuality, the client was being audited as an extension of the organization being audited.

However you look at it, we tried to show that this client should have been classified as an independent contractor even though the IRS thought he should be an employee.  To prove our case, we developed this table detailing the IRS' 20 "employee versus independent contactors" tests, and simply tallied up the number of responses in each column:

Test
Test Description Empl 1099

Instructions

Does the person for whom the services are performed have the right to require compliance with instructions? - Yes = Employee / No = Independent Contractor

 N

Training

Can the person for whom the services are performed require attendance at training sessions? - Yes = Employee / No = Independent Contractor

Y

Integration

Is there an integration of the worker's services into the business operations? - Yes = Employee / No = Independent Contractor

Y

Services rendered personally

Are the services required to be performed personally? - Yes = Employee / No = Independent Contractor

Hiring, supervision, and paying assistants

Does the person for whom services are performed hire, supervise or pay assistants? - Yes = Employee / No = Independent Contractor

 Y

 N

Continuing relationship

Is there a continuing relationship between the worker and the person whom the services are performed? - Yes = Employee / No = Independent Contractor

 N

Set hours of work

Is there an establishment of set hours to be worked? - Yes = Employee / No = Independent Contractor

 N

Full time required

Must the worker devote substantially full time to the business of the person for whom services are performed? - Yes = Employee / No = Independent Contractor

 N

Doing work on employer's premises

Is the work performed on the premises of the person for whom the services are performed? - Yes = Employee / No = Independent Contractor

 Y

 N

Order or sequence test

Must the worker perform services in the order or sequence set by the person for whom services are performed? - Yes = Employee / No = Independent Contractor

Oral or written reports

Is there a requirement that the worker submit regular reports? - Yes = Employee / No = Independent Contractor

Y 

Payment by the hour, week, or month

Is payment by the hour, week, or month and not  payment by the job or a commission?  - Yes = Employee / No = Independent Contractor

Y 

Payment of business and/or traveling expenses

Does the person for whom the services are performed pay business or traveling expenses? - Yes = Employee / No = Independent Contractor

Y 

Furnishing tools and materials

Does the person for whom the services are performed provide significant tools and materials for the worker? - Yes = Employee / No = Independent Contractor

Y 

Significant investment

Was there a significant investment in the facilities used by the worker? - Yes = Independent Contractor / No = Employee

 Y

Realization of profit or loss

Can the worker realize a profit or suffer a loss as a result of the services? - Yes = Independent Contractor  / No = Employee

 Y

Working for more than one firm at a time

Does the worker perform more than de minimis services for multiple firms at the same time? - Yes = Independent Contractor  / No = Employee

 Y

Making services available to the general public

Does the worker make his/her services available to the public on a regular and consistent basis? - Yes = Independent Contractor  / No = Employee

 Y

Right to discharge

Does the person for whom the services are performed have the right to discharge the worker? - Yes = Employee / No = Independent Contractor

Y 

Right to terminate

Does the worker have the right to terminate the relationship with the person for whom the services are performed at any time without incurring a liability? - Yes = Employee / No = Independent Contractor

Y 

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BEWARE OF FRAUD AT YOUR PRACTICE

by Andrew D. Schwartz, CPA

Sadly, I just worked with a client following an episode of dishonesty by one of the practice's employees.  That experience reminded me to remind you that fraud happens, and you should take steps to minimize the risk of employees stealing your hard-earned money.

For more info, read our January 2015 Newsletter Article or watch this recorded presentation on Preventing Fraud by the Front Desk Staff available at: https://youtu.be/h5VmpWFJo1o

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TAX AND FINANCIAL PLANNING CALENDAR FOR JUNE 2015

Month

Income Taxes

Saving and Investing

 

 

 

June

  • 2nd quarter estimates due 6/15/15
  • Income tax returns (or extension requests) for Ex-Patriots due 6/15/15
  • FBAR filing is due 6/30/15 for individuals and businesses with foreign accounts worth more than $10k at any point during 2014.

 

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2014 & 2015 TAX FACTS

  • For 2014, the standard deduction for a single individual is $6,200 and for a married couple is $12,400. 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 2014, the personal exemption is $3,950. 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, up from $117,000 in 2014.
  • The standard mileage rate is $.575 per business mile as of January 1, 2015, up from $.56 for 2014.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $18,000 in 2015, 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, up from $5,500 last year.
  • The maximum annual contribution to your IRA is $5,500 for 2014 and 2015.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2015 to make your 2014 IRA contributions.

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This Month's Topics

Obtaining And Renewing Your Commercial Lease: Important Things To Know

Employee Versus Independent Contractor

Beware of Fraud at Your Practice

The FICA Refund for Medical Residents 

2014 & 2015 Tax Facts

Tax and Financial Planning Calendar for June 2015

 

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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