Claiming a child as a dependent when parents are divorced, separated or live apart

From IRS.gov – IRS Tax Tip 2022-98, June 28, 2022

Parents who are divorced, separated, never married or live apart and who share custody of a child with an ex-spouse or ex-partner need to understand the specific rules about who may be eligible to claim the child for tax purposes. This can make filing taxes easier for both parents and avoid errors that may lead to processing delays or costly tax mistakes.

Only one person may be eligible to claim the qualifying child as a dependent

Only one person can claim the tax benefits related to a dependent child who meets the qualifying child rules PDF. Parents can’t share or split up the tax benefits for their child on their respective tax returns.

It’s important that each parent understands who will claim their child on their tax return. If two people claim the same child on different tax returns, it will slow down processing time while the IRS determines which parent’s claim takes priority.

Custodial parents generally claim the qualifying child as a dependent on their return.

  • The custodial parent is the parent with whom the child lived for the greater number of nights during the year. The other parent is the noncustodial parent.
  • In most cases, because of the residency test, the custodial parent claims the child on their tax return.
  • If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income.

Tie-breaker rules may apply if the child is a qualifying child of more than one person

  • Although the child may meet the conditions to be a qualifying child of either parent, only one person can actually claim the child as a qualifying child, provided the taxpayer is eligible.
  • People should carefully read Publication 504, Divorced or Separated Individuals to understand who is eligible to claim a qualifying child.

Noncustodial parents may be eligible to claim a qualifying child

Special rules apply for a child to be treated as a qualifying child of the noncustodial parent.

  • The custodial parent can release the dependency exemption and sign a written declaration or Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent PDF for the noncustodial parent to submit with their tax return.
  • This also applies to some tax benefits, including the child tax credit, additional child tax credit, and credit for other dependents. It doesn’t apply to other tax benefits, such as the earned income credit, dependent care credit or head of household filing status.

For More information, please see:

Avoid Huge Penalties By Filing Your Form 5500 For Your 401K/Profit Sharing Plan By 7/31/21

Just a reminder that if your practice had a 401k/Profit Sharing Plan in place during 2021, you are required to file a Form 5500 by 7/31/22 (https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2019-sf.pdf). If you aren’t able to submit this paperwork prior to 7/31, please file for an extension using the Form 5558, https://www.irs.gov/pub/irs-pdf/f5558.pdf, giving yourself until 10/15 to file.

There are no taxes due with this form.  Instead, the 5500 is an informational filing only. Practices with SEPs and SIMPLEs are exempt from this annual filing requirement. While no taxes are due, the PENALTIES FOR FILING THE FORM 5500 LATE ARE DISGUSTING – A WHOPPING $250 PER DAY!!!

  • As a practice owner with a retirement plan, it’s up to you to follow up with your TPA to be completely sure that all the filing deadlines are met. No one is certain how flexible the IRS will be to reduce or waive this onerous late filing penalty. Please do what you can to not need to find out.
  • Remember, no one cares more about your practice avoiding this $250 per day late-filing penalty than you do.

July 1st Kicks Off The Next Round of Provider Relief Fund (PRF) Self-Reporting

Practice owners who received Provider Relief Fund (PRF) payments exceeding $10,000 in the aggregate between January 1, 2021 and June 30, 2021 are required to self-report using the PRF Reporting Portal during Reporting Period 3 (RP3) which runs through September 30th.  Helpful resources can be found on the PRF Reporting Webpage and their Frequently Asked Questions (FAQs).

Providers who fail to comply with this requirement by September 30th will be deemed out of compliance with the program’s Terms and Conditions and could be subject to forfeiture of the PRF subsidies received.  Please check out the Provider Relief Fund Reporting Non-Compliance Fact Sheet at: https://www.hrsa.gov/sites/default/files/hrsa/provider-relief/reporting-non-compliance-fact-sheet.pdf.

Don’t forget – 2nd Q Estimated taxes Due 6/15/22

Generally, taxpayers who are self-employed, are shareholders in S-Corporations that typically pay out distributions in addition to the wages paid to the owners, partners in profitable partnerships, and/or report a good amount of investment income should consider paying in estimated taxes during the year.

The IRS now recommends that individuals make their estimated tax payments electronically.  Read more at: National Small Business Week: Making estimated tax payments electronically is fast and easy | Internal Revenue Service (irs.gov).

To pay your estimated taxes electronically, go to www.irs.gov, click on Make a Payment and then click on Pay Now with Direct Debit.  Follow the prompts and make the payment by direct debit from your bank account.  Other options are available to pay your estimated taxes including how pay them by credit card and the associated fees to do so.

EPLI Can Pay Huge Dividends If A Disgruntled Employee Sues your Practice

The purpose of insurance is to protect against extraordinary or catastrophic financial losses.  One potential loss to consider is when a terminated or disgruntled employee hires an attorney to sue your practice for wrongful termination or for an array of other situations while a member of your staff.

Employment Practices Liability Insurance, or EPLI for short, is the type of insurance that protects against claims filed by disgruntled employees.  Expect to pay annual EPLI premiums based on the size of your staff and the dollar amount of wages paid.  In the grand scheme of insurances, the premiums are generally quite reasonable, especially when compared with the potential for a sizable settlement that could financially devastate your practice.

For an EPLI quote, please reach out to the insurance agent where you obtain your Property and Casualty (P&C) insurances, which includes business liability, workers compensation, and malpractice. Your life, disability, or health insurance agent probably can’t help with EPLI.

If you are unlucky enough to ever receive that certified letter notifying you that your practice is being sued by a disgruntled or terminated employee, you will be very glad that you purchased EPLI. Simply pass that certified letter along to the insurance company that issued your EPLI policy, and they should take over from there. Since your EPLI company takes on much of the risk of losing money on the settlement, they take whatever steps are necessary to minimize the claim.

In the many years that we have helped our healthcare practices, we thankfully haven’t seen too many employment-related claims. Even so, they do happen from time to time, and sometimes the losses can be substantial.  For that reason, we recommend that all our clients who own their own practice and employ staff consider purchasing EPLI.

And Don’t Forget About Cyber Insurance:

While you’re getting a quote for EPLI for your practice, please also inquiry about obtaining Cyber insurance for your practice to protect against the costs and headaches that follow a cyber breach.

 

PPP2 Loan Forgiveness Applications Should Be Submitted Soon

If you haven’t already filed for forgiveness of your PPP2 loan, please do so soon.  Otherwise, your PPP2 lender will require that you begin making payments on that loan.  Any payments made will be refunded when the PPP loan is ultimately forgiven, but why not just take care of filing for full forgiveness now?

Start by contacting the PPP2 lender and finding the link to submit for full forgiveness.  If you prefer to handle things like this on your own, here are a few articles on our website that might be helpful:

Otherwise, we can help you apply for PPP Loan Forgiveness with your lender. Our fee for to complete the Form 3508S is $750, discounted to $500 if you use our firm’s payroll service, while our fee is $1,000 to complete the Form 3508EZ or $1,500 for the Form 3508.

Practice Owners – IRS Reminds Employers About Special Tax Credits To Help Employers Hire Staff

From IRS News IR-2022-104, May 6, 2022

WASHINGTON — With many businesses facing a tight job market, the Internal Revenue Service reminds employers to check out a valuable tax credit available for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment. For any business now hiring, the Work Opportunity Tax Credit may help.

What is the WOTC?

This long-standing tax benefit encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment. the IRS notes that one of these targeted groups is long-term unemployment recipients who have been unemployed for at least 27 consecutive weeks and received state or federal unemployment benefits during part or all of that time. The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025.

The other groups include certain veterans and recipients of various kinds of public assistance, among others. Specifically, the 10 groups are:

  • Temporary Assistance for Needy Families (TANF) recipients,
  • Unemployed veterans, including disabled veterans,
  • Formerly incarcerated individuals,
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties,
  • Vocational rehabilitation referrals,
  • Summer youth employees living in Empowerment Zones,
  • Supplemental Nutrition Assistance Program (SNAP) recipients,
  • Supplemental Security Income (SSI) recipients,
  • Long-term family assistance recipients and
  • Long-term unemployment recipients.

Qualifying for the credit

To qualify for the credit, an employer must first request certification by submitting IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency (SWA). It must be submitted to the SWA within 28 days after the eligible worker begins work. Employers should not submit Form 8850 to the IRS.

Claiming the credit

Eligible businesses then claim the WOTC on their federal income tax return. It is generally based on wages paid to eligible workers during the first year of employment. This is a one-time credit for each new hire and an employer cannot claim the WOTC for employees who are rehired.

The credit is first figured on Form 5884, Work Opportunity Credit, and then claimed on Form 3800, General Business Credit.

How To Save $100,000 On Your Expiring Lease

By Guest Write Stefan Zelich, President/Founder of FOCUS Healthcare Realty

Rent is typically a dental practice’s 2nd or 3rd highest expense behind payroll, but it’s also one of the most negotiable.  This ability to negotiate one of the highest expenses to a practice allows doctors to improve their overall profitability significantly.  I typically find most practices could save a significant amount of money by approaching their expiring lease with the proper amount of leverage.

How does the math work?

Let’s say that you have a 2,500 SF practice, and you’re looking at signing a 5-year extension.  The practice has been there for ten-plus years and needs some updates.  Many landlords are willing to provide generous tenant improvement allowances for a long-term lease because it represents a direct investment into their space.   An allowance of $20 per SF comes to $50,000 and will likely cover new flooring, paint, and lighting for the practice.

If the practice can reduce its rent by $3 per SF, that’s $7,500 per year and another $37,500. Suppose you take that savings and invest it into an investment account at a 7% rate of return. That amount jumps to $45,000, which brings your total savings to $95,000.  Then it’s just a matter of getting the landlord to return a piece of the original security deposit to get you to the total of $100,000 in savings.

 How to accomplish the savings?

The scenario outlined above is not uncommon, but it can only be achieved by maximizing your leverage with the landlord.  There are three keys to maximizing your leverage in a lease negotiation.

  • Timing – You must have enough time to move your practice. If you don’t have enough time, your landlord will not be worried about you leaving and will not be willing to offer their best terms to get you to stay.
  • Secure multiple offers – In any negotiation, it’s always the person with the most options that come out on top, so it’s critical that you go out and secure offers to move your practice elsewhere.
  • Hire a real estate broker – The call/voicemail to your landlord goes like this: “Hi Mr./Mrs. Landlord, my name is Stefan Zelich, I’m a commercial real estate broker, and I’ve been hired by your tenant ABC Dental to help them decide what to do when their lease expires in 12 months. They’ve received offers on a couple of other properties and would be willing to sign an extension if we can agree on some new terms.  We’ve drafted a letter of intent outlining those terms that I’ll send shortly.  Please let me know if you have any questions.” This approach gives the idea of you leaving significantly more creditability than if you were to call the landlord on your own.  The best part is that the landlord will pay your real estate broker’s fee in addition to the concessions, so you don’t come out of pocket for anything.

Summary

A significant amount of money is tied up in most practices’ real estate leases.  Unlocking that money usually comes down to applying the three keys outlined above.  Most doctors will only have one or two, maybe three, opportunities to negotiate new terms with their landlords.  If handled correctly, the potential for future savings can be in the hundreds of thousands of dollars.  By hiring a broker well versed in the healthcare space, the doctor can focus on what they do best and let the real estate expert focus on what they do best.

Stefan Zelich, President/Founder
FOCUS Healthcare Realty
617-487-3460
szelich@focushealthcarerealty.com

Help – I missed the tax filing deadline!

Did you miss this year’s personal tax filing deadline?

Unfortunately, the IRS does not simply look the other way with regard to taxpayers missing the tax filing deadline.  Not filing your taxes by the due date will result in the following assessed IRS penalties for many taxpayers:

  • The Failure to File penalty equals 5% of the tax owed for each month that the tax return is late in being filed and is capped at five months time (and reduced by the assessed Failure to Pay penalty).
  • The Failure to Pay penalty equals 0.5% of the unpaid tax owed by the taxpayer until paid in full and is capped at 25% of the unpaid tax.

In addition to the penalties noted above, the IRS also charges interest on the tax balance owed after the due date, plus interest on the accessed penalties unpaid.  IRS interest assessed is calculated by adding 3% to the federal short-term rate.  The current IRS interest rate is approximately 5%.

As these assessed IRS penalties plus interest can quickly increase your existing tax balance owed, we recommend filing as soon as possible after the missed tax filing deadline.

However, for taxpayers due a refund, there is no Failure to File penalty or other penalty assessed by the IRS.

Filing an extension allows taxpayers to file late, but does not allow taxpayers to pay late: 

The primary benefit of fling an extension of time to file your taxes is that the taxpayer will be granted an additional 6 months of time to compile all their tax information in order to prepare their personal tax return.  However, this extension of time to file, does not allow taxpayers to pay their taxes after the due date.  Taxpayers should estimate as accurately as possible the taxes owed as of the due date and make that payment by the due date with the extension being filed.  Owing taxes after the due date once the tax return is eventually completed will result in the taxpayer being assessed a Failure to Pay penalty plus interest.

However, for taxpayers that filed an extension and paid the estimated tax balance owed by the extension filing due date, if at least 90% of taxes were paid in by the due date, then generally there would be no Failure to Pay penalty assessed once the tax return is eventually completed and filed.

Penalty relief for certain late filers: 

Taxpayers that have a “clean” IRS penalty history can apply for penalty abatement from the late filing and late payment penalties assessed by the IRS if the following conditions are met:

  1. No tax penalties in the 3 prior tax years,
  2. All prior year tax returns have been timely filed, and
  3. Prior taxes have been paid or are arranged to being paid.

This penalty waiver process is known as the IRS’s First Time Penalty Abatement policy.  Additionally, if the abatement proves successful, any interest assessed on the penalty will also be waived as well.  

Can’t pay your tax bill?

If you owe the IRS more than you can afford to pay once your tax return is prepared or if additional taxes are owed related to an IRS tax notice, the IRS allows qualifying taxpayers to apply for a Long-Term Payment plan, commonly known as an Installment Agreement.

If the tax balance owed by the taxpayer exceeds $25,000 then monthly payments must be made via auto withdrawals from their bank account.  This EFT payment method is referred to as the Direct Debit Installment Agreement (DDIA).  If the tax balance owed is $25,000 or less, taxpayers have the choice of making their monthly loan payments either via checks mailed to the IRS or via DDIA.

The IRS charges a setup fee for the installment agreement.  If the installment agreement application is applied on-line there is a $31 setup fee for DDIA and a $130 setup fee if non-automated payments are to be made monthly.

Applying on-line for an IRS payment plan can be done on the IRS website at the link below:

Online Payment Agreement Application | Internal Revenue Service (irs.gov)

Benefits to paying taxes on the IRS website: 

The IRS makes it easy for taxpayers to pay electronically via EFT from taxpayers’ bank accounts for taxes owed and estimated taxes.  This process is known as Direct Pay on the IRS website.  When paying online, the taxpayer receives an immediate confirmation of the payment made plus an email confirmation as well.  On the IRS website, taxpayers can also sign up to view their tax payment history.

Making an immediate online EFT payment can relieve the stress of checking your bank account daily waiting to see when your IRS payment check (balance due or estimated tax payment) has cleared.  The IRS link to pay via Direct Pay is at the link below:

Direct Pay | Internal Revenue Service (irs.gov)

Client Spotlight: Karen Leitner MD Coaching: Life Coaching For Women Doctors

Why did you decide to become a coach for women physicians?

Doctors — and women, frankly — are notorious for deprioritizing themselves. I have three daughters and I don’t want to normalize this for them. Society holds us to a very difficult standard in terms of how we spend our time. When/if we prioritize family or personal life, we risk being perceived as somehow lesser than. This feeds into imposter syndrome, struggles with work-life integration, and high rates of burnout in healthcare and in other fields as well. Having grappled with these issues personally, I know exactly how painful this can be, and also how valuable the tools of coaching can be for this. I help women create sufficiency in the ongoing juggle of home and work. I help them set goals, overcome obstacles, and get out of their own way. Most of all I help them have compassion for themselves. My clients amaze me with their strength, intelligence and humanity every single day. They often come to me struggling to recognize this in themselves.

In teaching the tools of coaching, I help them feel empowered to take action and determine a path forward.

This sort of support should be a required part of training for doctors, especially these days. We are going through such challenging times, yet there is stigma around seeking help, showing a level of vulnerability that implies you’re human, and being open to guidance.

Coaching is an incredibly powerful way to create the outcomes we want to see, in our own lives. It’s a process to take inventory of what you are and are not satisfied with, and take action to drive strategic change. The results that you can create with this kind of approach are infinite!

Learn more on Karen’s Website, at her Facebook Group and Instagram, or email Karen at karenleitnermd@gmail.com to set up a free introductory consult call.