By Marc Slafsky, Salem Five Insurance Services;?Content provided by Travelers Insurance, ISU Network, and Philadelphia Insurance Co.
?October is Cyber Liability Awareness Month.? Did you know:
Data breaches have increased 42% in the last year.
31% of the breaches have occurred in companies with less than 100 employees.
All Industries are vulnerable.
The average cost of a breach today has risen to over $5 million dollars.
The cost associated with a breach averages $188 per compromised record.
Many doctors and dentists aren?t aware that their standard insurance coverages (Malpractice, GL, Property) typically don?t provide proper coverage for cyber and privacy liability. Most also don?t know that they (along with their practice) have an exposure to cyber and privacy risk, especially given the presence of personal health information that they and their vendors have access to and the laws that exist to protect this.
Specifically in the healthcare industry, some claim examples are:
A lost laptop that has patient records was stolen from a vehicle. This information contained patient names, social security numbers, dates of birth, address, phone number and MEDICAL CONDITIONS.? This could be considered 3-6 Records (depending on state law) that have been compromised.
A practice was ?down? for 4 days due to a hacker ?attack?; the practice was unable to see patients was they could not access records, scheduling, of critical computer equipment.? The practice lost the revenue for 4 days and had to pay the cost of the repair from the hacker damage.
Medical information that was scheduled to the shredded per HIPPA laws was accidently thrown away in an unsecured dumpster. This resulted in a class action suit against the practice
A Cyber Liability Insurance policy protects against these types of losses.? The policy pays when insured is liable for theft or loss of unauthorized access to Personal Information, Breach response and Notification and Regulatory Defense and Penalties.
The policy is based on Gross Revenue and the cost can range from $975-$1800 annually for a $1,000,000 of coverage.? This is becoming just as important as your general liability and professional liability in today?s business environment.
If you?d like more information about Cyber Liability Insurance, please contact your insurance broker or Marc Slafsky at Salem Five Insurance (978-720-5144, email@example.com).
Let?s start by discussing some of the benefits of setting up and maintaining a Retirement Plan for your practice.? The first benefit is that contributions you make into the retirement plan are generally tax deductible, and then those contributions grow tax deferred.? Remember, contributing to a retirement plan is one of the best tax shelters available to people during their working years.
Here are a few questions I get all the time:
Why bother contributing to a retirement plan at all?
And why contribute now, especially since the stock?market, until recently, hasn?t performed all that well during the past decade or so?
When you contribute to a retirement plan, the taxes you save provide you with an Immediate Return on your Investment.? Let?s assume you?re in the 28% federal tax rate, and you live in a state with a 5% rate.? So each additional dollar of income you earn is taxed at 33%.
In this scenario, you would earn an instant 49.25% return on your investment by contributing to a retirement plan. That?s because it only costs you $670 in after-tax dollars for every $1,000 that is now invested. You?ve already earned a whopping $330 on the $670 you invested.
Yes, you will owe income taxes on the money withdrawn from these accounts down the road, but you get to invest the government?s money over all those years that the money remains within your retirement accounts. And, you get to keep the investment earnings on the government?s money.? Trust me, investing the tax savings over time really adds up.? The compounded growth on the tax savings can easily add up to tens of thousands of dollars or more.
For example, $100k invested and earning an average of ?8% per year over 25 years will grow to be worth $685k within a tax-deferred account.? What happens if you pay taxes each year at a 33% rate?? Since your compounded return falls from 8% to 5.35%, this $100k investment will grow to just $370k over 25 years, assuming all the income and growth within the account is fully taxed each year. That?s how powerful tax-deferred compounding can be.
There are additional benefits of a retirement plan.? For starters, money in most retirement plans is protected from your creditors. That?s great news for anyone in a profession like healthcare where getting sued is not completely out of the question. Please check with a lawyer to find out which types of retirement accounts are protected based on the rules for your state.
Plus, contributing to a retirement plan is one of the best ways to build a nest-egg to fund your post-working years.? Unless you work for a government employer or some other business that provides a lucrative pension, it?s up to you to make sure you have enough money set aside to fully fund a comfortable retirement.? And the earlier you start building our nest egg, the better chance you give yourself to reach your retirement savings goals.
Looking for additional benefits of maintaining a retirement plan for your practice?? Offering a retirement plan might be a way to help you attract and retain staff, and is also a great way to reward staff for loyalty and longevity at your practice.? Most practice owners would agree that having an engaged staff is a key ingredient to having a successful practice.
Managing a practice requires that you look at “the numbers” on a regular basis. If you’re like most practicing Doctors, you probably try to glance at the production and collections figures at least monthly. Did you know that there are a lot of other performance metrics that can help you gauge how your practice is performing?
Figuring out which metrics are meaningful is one challenge. The problem is that calculating those metrics and then looking at those performance indicators in a vacuum doesn’t provide you with much insight at all. For that reason, calculating various performance metrics will be much more valuable to you if you can compare your practice’s metrics to your peer group.
My CPA firm currently provides tax, accounting, payroll, and basic practice management services to more than 130 dental practices. This past winter, we collected practice management data from many of our practice clients and used that data to calculate the following ten meaningful performance metrics for general dentists for 2012:
Number of Active Patients (Defined as an individuals?treated at least once during the prior twelve months)
Collections per Active Patient
Collections per Doctor Hour
Collections per Procedure
Number of Procedures per Active Patient
Number of Non-Diagnostic and Non-Preventive Procedures per Active Patient
Re-Care Efficiency (Defined as the percentage of Active?Patients who came in for two exams during the year)
Number of New Patients brought in during the last year
Percent of New Patients to Active Patients
Percent of Adjustments and Write-Offs to Gross Production
Please note that even though the data was collected mostly from practices in the Greater Boston area, I feel that most of these metrics are relevant to practices located within all 50 states.
To make these metrics even more meaningful, we calculated each performance metric based on the data collected from all the participating practices, and then re-calculated them based on the practices that collected $1 million dollars or more during 2012. It’s very interesting to see how the performance metrics for the total sample compare with the same metrics calculated from just the million dollar practices.
An part of our analysis, we also created a graph that we call our “Internal Marketing Matrix”. This graph plots Re-Care Efficiency on the x-axis versus New Patient Percentage on the y-axis for each of the participating practices. Depending on your practice metrics and where you fall on this graph, you’ll either be apolitician, engineer, neophyte, or “dentist-preneur”.
If you’re practicing in the Greater Boston area and would?like to set up a time for my firm to help you figure out these metrics for your practice, please do not hesitate to e-mail me that request.? We’d really appreciate the opportunity to help you gain some insight on the performance metrics for your practice.
If you plan to start a new business, or you?ve just opened your doors, it is important for you to know your federal tax responsibilities. Here are five basic tips from the IRS that can help you get started:
1. Type of Business. Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.
2. Types of Taxes. The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
3. Employer Identification Number. A business often needs to get a federal EIN for tax purposes. Check IRS.gov to find out whether you need this number. If you do, you can apply for an EIN online.
4. Recordkeeping. Keeping good records will help you when it?s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business? progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.
5. Accounting Method. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.
It?s not uncommon for healthcare professionals to lose money in years that they open a practice from scratch, purchase an existing practice, or expand their current practice.? Assuming you borrow money to fund these transactions, the type of entity determines how much of these losses the you can claim each year.
To maximize the upfront losses you can claim, an S-Corp might not be the best choice.? If you set up your practice as an S-Corp, you can only claim losses to the extent of the money you invested into the practice.? Guaranteeing loans or other liabilities is not sufficient to allow you to claim these losses.
Running your practice as a LLC or a Sole Proprietorship allows you to claim larger losses up front.? The only catch is that you need to be personally liable for paying off these loans.
If you borrow money to purchase, open, or expand a practice, the S-Corp tends to be the better option with respect to managing the tax burden while repaying the loans.? Since the losses are not allowable up front for the S-Corp, those suspended losses are released as you generate profits to pay down the loans.? With a LLC or a Sole Proprietor, you?ll claim the losses in the early years which will not provide you with any tax shelter as you pay down your loans.
Do you have children under the age of 18?? If so, going with the Single Member LLC or Sole Proprietor will let you take advantage of a quirky tax break.? While you get to deduct ?reasonable? wages paid to your child for services provided, neither you nor your child owes Social Security or Medicare taxes on wages paid. Plus, he or she does not owe any federal income taxes on the first $5,800 of wages earned (in 2011).?? (We wrote about this opportunity in our May 2007 Newsletter.)
This is true arbitrage.? You move money from your practice?s bank account to your child?s bank account, and the government gives you a tax break on that money.? You can also contribute money into a Roth IRA for your child based on the wages you report.? Assuming the Roth rules don’t change during your child’s lifetime, your child will benefit from decades of compounded growth within these tax-free investment accounts.
Caveat employer.? Keep in mind that you are only supposed to pay your child a fair wage for services actually performed.? You will also need to complete and file quarterly and annual payroll tax forms, as well as prepare a W-2 form for your child.
Flexibility of a LLC
LLCs?are very flexible entities.? With a LLC, you can start as a disregarded Entity, and your practice will be treated as a Sole Proprietorship for tax purposes.? When the time is right, you can then elect treat your LLC as an S-Corp by filing a Form 8832.? The beauty of this strategy is that you can continue to use same EIN and NPI, and don?t need to re-credential with any insurance companies you submit claims to.
Entity Selection Scorecard
Choosing the correct entity for your practice is a tough decision.? You should definitely reach out to a lawyer and an accountant who are familiar with your state?s rules and regulations prior to making your final decision.
Even so, here is an Entity Selection Scorecard to help you with your decision:
Save Medicare Taxes on Earnings
Possibly avoid paying quarterly?estimates
Minimize accounting fees and state ? corporate taxes
Maximize deductible losses funded by debt
Manage taxes better? during loan repayment
Pay child under the age of 18 ? tax-free
Ability to deduct 100% of expenses? not paid by practice
Avoid doubling up on FICA Taxes
S.P. = Sole Proprietor, S LLC = Single Member LLC, M LLC – Multiple Member LLC