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Second Annual MDTAXES Conference

We'll be hosting our second annual MDTAXES conference, exclusively for our member CPA firms, in Washington, DC, on Friday, October 17th.  During the conference, we'll focus on various tax and financial planning issues applicable to young health care professionals.

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October, 2003

WATCH OUT FOR THE A.M.T.

by Andrew D. Schwartz, CPA

This past spring, President Bush signed into law the second substantial tax-cut package in three years.  The good news is that just about everyone who pays taxes will save money since the 2003 Tax Act reduced the highest tax rate by 3.6%, and the next three tax rates by 2% each.  The bad news is that most high-income taxpayers won’t benefit fully from these reduced rates due to the Alternative Minimum Tax (AMT).

Did you know that you're supposed to calculate your taxes two different ways each year?  First, you need to calculate your regular tax liability, and then you need to calculate your AMT liability.  If your AMT comes out higher, that’s the tax that you pay to the IRS.

What is the AMT?  The AMT was instituted about 35 years ago to ensure that high-income taxpayers pay at least a minimum amount of taxes, no matter how much they could claim in allowable deductions and credits. 

The problem is that more and more people are getting hit with this tax each year.  That’s because unlike the regular tax tables, the AMT hasn’t been indexed for inflation over the years.  And with the 2003 Tax Act cutting tax rates once again, the number of people who will pay the AMT is expected to jump.

When you’re subject to the AMT, certain items are no longer deductible to you, including your personal exemptions and standard deduction, real estate taxes, state income taxes, miscellaneous itemized deductions (including your unreimbursed professional expenses), and interest paid on home equity loan proceeds not used to purchase or improve your primary residence or second home.  You also need to be careful of the AMT if you’ll realize substantial capital gains or plan to exercise and hold incentive stock options (ISOs).

If you have any questions about how the AMT might impact your taxes, please contact one of our CPAs.

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WHAT'S NEW WITH THE FICA REFUND?

A lot is new!!!  And it's all good!  Check out the memorandum issued by the U.S. District Court in Minneapolis and you'll see that the court found that medical residents and fellows might not be subject to FICA taxes in many instances.

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

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THE RETURN OF "OWN-OCCUPATION" DISABILITY INSURANCE

by Lawrence B. Keller, CLU, ChFC, RHU

A few months ago (June, 2003) I wrote the article “Disability Insurance: What You Need To Know Before You Buy” for the MDTAXES Monthly Tax Newsletter.  Since that time, I have received several emails asking for more detailed information regarding the “Own-Occupation” definition of disability, its importance to physicians, and its availability in today’s marketplace.

True “Own-Occupation” Revisited

This type of policy pays benefits if you become disabled and can no longer “perform the material and substantial duties of your occupation.”  For example, an orthopedic surgeon that develops a hand tremor and can no longer operate would be considered totally disabled and receive full disability benefits.  Even if he subsequently decided to return to medicine in some other capacity, earning the same or higher income, his disability benefits would not be affected.

Modified “Own-Occupation” Revisited

This type of disability policy pays benefits if you are “unable to perform the substantial and material duties of your occupation and you are not working.”  Therefore, an orthopedic surgeon that develops a hand tremor and can no longer operate would be considered totally disabled and receive full disability benefits.  However, if he subsequently decided to work in another capacity, his disability benefits would be reduced or eliminated depending upon his new income level. 

The Heart Of The Problem…

The number of claims related to the “Own-Occupation” definition of disability has been a substantial problem for the majority of disability insurance companies.  With physicians’ income levels and job satisfaction declining as a result of managed care, many “older” physicians opted to retire early on disability benefits or to change occupations because of modest physical impairments that would not otherwise have rendered them totally disabled. 

Yes, one could argue that this definition is best suited to surgeons and those physicians that perform invasive procedures.  In addition, some may feel that if an orthopedic surgeon can not operate, but decides to teach or work in some other capacity earning a similar income, then why should he be entitled to full disability benefits?  Although I understand the logic behind these statements, I am of the opinion that as a highly skilled professional, you have invested a great deal of time and money in your education and training and deserve to have your ability to work in that occupation adequately protected. 

Today’s Marketplace

While some disability insurance companies continue to view the “medical market” with skepticism, other carriers are aggressively pursuing this type of business.  As a result, there is now an opportunity for medical professionals (including Anesthesiologists, Surgeons and Emergency Medicine Physicians) to once again purchase “Own-Occupation” coverage (including certain states where just a few months ago it was unavailable). 

Summary

When shopping for disability insurance, the best approach is to work with an independent  insurance agent who specializes in insurance coverage for physicians (not a captive agent who must sell only his or her company’s products).  He or she will not only be familiar with your occupation, but with which companies’ policies are best suited to your particular specialty. Then, based on your budget and objectives, you and the agent can decide which insurance company’s policy best meets your insurance needs.

 

Lawrence B. Keller, CLU, ChFC, RHU is the founder of Physician Financial Services, a New York City-based firm, specializing in insurance, investments, and financial services for physicians.  He can be reached for questions or comments by sending an email to lkeller@physicianfinancialservices.com.

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TAX AND FINANCIAL PLANNING CALENDAR FOR OCTOBER, 2003

Month

Income Taxes

Saving and Investing

October

  • Returns on second extension due 10/15/03

  • Update your net worth statement using 9/30 information

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2002 & 2003 TAX FACTS

  • For 2003, the standard deduction for a single individual is $4,750 and for a married couple is $9,500. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes, real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses. Our February, 1998 newsletter addressed the issue of itemizing your deductions.
  • For 2003, the personal exemption is $3,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes has increased to $87,000 in 2003 from $84,900 in 2002.
  • The standard mileage rate is $.36 per mile for 2003, down from $.365 per mile for 2002. Deducting automobile expenses was addressed in our February, 1996 newsletter .
  • The maximum annual contribution to a 401(k) plan or a 403(b) plan has increased to $12,000 for 2003 from $11,000 in 2002.  And if you'll be 50 or older by December 31, 2003, you can contribute an extra $2,000 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $3,000 for 2003 and 2002.  And once you turn 50, you can contribute an extra $500 into your IRA this year.

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copyright - 2003 - The MDTAXES Network



Tax and financial planning calendar for October, 2003


Interact with our CPAs everyday on The MDTAXES Message Board


Join our Live Tax Chat on the first Wednesday of each month at 9 pm (eastern time)


The Millionaire Next Door.  Find out the habits of America's wealthy. You'll be surprised at who comprises the bulk of America's millionaires.

Organize Your Finances with Quicken 2001 in a Weekend

Both these books are available at Barnes&Noble.com.


If you have a friend, colleague, or family member who is always bragging about things they have done to cut their taxes, then check out our new gift items with the saying - "Everything is deductible...until you get audited!"


SAVE MONEY BY TAKING ADVANTAGE OF LOW INTEREST RATES

Are you taking advantage of these reduced rates?  Lower rates will help you cut down on the time it takes you to get out of debt by minimizing the interest you pay each month.  Remember, the lower the interest rate, the larger the portion of your monthly payment that will get applied against your outstanding balances.

  • If you're carrying a balance on your credit cards, there are plenty of opportunities available to cut your interest rate.  Check out CardOffers.com to find the best deals available.

  • If you still owe student loans, see how much you'll save by consolidating your loans into one loan with a lower interest rate at FinancialAid.com.

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HAVE YOU CHECKED YOUR CREDIT REPORT LATELY?

You work hard to keep your credit report as clean as possible. Even so, the current credit reporting system allows for incorrect items to appear on your report that could adversely affect your credit score. Make sure that the information on your credit report is accurate by ordering a free copy of your credit report on-line at  OnlineCreditInfo.com or by purchasing a merged credit report reflecting information from all three credit reports at 130secondreport.com.

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