Is your practice managing the collection of higher deductibles and copays appropriately? Skin-in-the-game insurance has become the norm for most employers. The average deductible for all employer-paid insurance in 2014 was $1,217, according to a report by the Kaiser Family Foundation. A third of all employees of smaller employers, those with 199 or fewer employees, paid deductibles of at least $2,000. In addition, co-pays are also increasing. This means, of course, that physician practices must work hard to collect more of their revenues at the time of service directly from the patient and that practices must manage that process carefully. Many patients now pay with credit cards, but many practices are also experiencing increased patient payments in the form of checks and cash, resulting in the need for practice managers to tighten up cash controls.

Now’s the time to review your practice’s written cash (checks and currency) handling policies.

• Follow the 4 Ws of cash accountability. Big picture, you’ll want to restrict access to cash to as few people as possible — and ensure that funds are traceable to specific cash handlers. Ask yourself these questions:

– Who has access to cash?
– Why do they have access to cash?
– Where is the cash?
– What has occurred from the transaction's beginning to end?

• Segregate duties. Cash handling duties should always be segregated. That simply means that the person recording receipts should not be the same person responsible for collecting or for depositing the cash and checks from patients. For an additional layer of segregation, make sure that a third person reconciles the daily receipts recorded in the billing system to the deposits of cash and checks recorded in the general ledger. Be sure to use processes that provide an audit trail so you can see everyone who handled the cash along the way.

• Checks received from patients should be stamped with a restrictive endorsement immediately upon receipt from the patient. The use of electronic check scanners provided by your bank for deposit of checks saves time, avoids errors, improves cash flow and improves internal controls. Paper checks must be shredded in a timely manner after reconciliation of the bank account has been completed at the end of each month. 

• Watch the cash drawer. Payment patterns will dictate how much change you need for the cash drawer each morning (in general, $200 in small bills is a good starting point). Assign cash drawers to specific staffers during the day, and have at least one other employee count the cash at least once a day. Of course, don’t mingle cash payments with petty cash. And never borrow from the cash drawer (even $10 for lunch!) or others will, too.

• Reconcile promptly. Consider splitting morning and afternoon front desk collections and reconciliations at lunch breaks or when the afternoon shift begins.

• Close out correctly. At the end of the day, account for all patients, charges and receipts. Check that all patients scheduled for the day have had charges and payments posted to them. Code appointments as "cancelled" or "no-show" for patients who did not show up for their appointment and close them out. Finally, reconcile the receipt total with the day’s bank deposit.

• Deposit cash daily. The less cash you have on hand, the less exposure you have to theft or loss. Count cash in a non-public area not easily visible to others, and use a “buddy system” when funds are carried from one location to another. Finally, compare deposit receipts from the bank with your general ledger deposit records.

Establishing good cash handling procedures and internal controls is a vital defense against theft and fraud. Contact our office today for an in-depth review.

Individuals

Charitable Deductions

Charitable Travel

1. You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. 
2. You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services.
3. The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.
4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
5. Deductible travel expenses may include:

    

   • Air, rail and bus transportation
   • Car expenses
   • Lodging costs
   • The cost of meals
   • Taxi fares or other transportation costs between the airport or station and your hotel

Renting Your Vacation Home

Businesses

Traveling for Business

Entertaining Clients

Using Your Home Office  

With expenses rising faster than revenues, making more money often starts with gaining an understanding of your cost structure in order to achieve cost reduction. For many practices, that entails first taking a critical look at overhead, as well as the specific expenses involved in providing patient care. Here’s how:

Start with Good Information

Understanding your practice costs requires relevant, reliable data — preferably a well-though-out report that groups expenditures logically at a reasonable level of detail. Unfortunately, this is typically where the problems start. Sure, your practice income and expense statement has expenses listed by category (generally defined by the practice’s general ledger categories). But problems occur when the statement doesn’t provide enough detail for informed decisions.

For example, a line item titled “supplies” or “salaries and wages” simply does not tell you enough. Detailed sub-categories — such as “drug supply,” “medical and surgical supply,” “office supplies,” “mid-level salaries and wages,” “nursing salaries and wages” and “office salaries and wages” — enable you to make better decisions about how to manage those costs. Detailed categories also allow you to compare practice expenses and overhead against national benchmarks, such as data from the Medical Group Management Association's Annual Cost Survey or your local medical or dental association.

Depending on the practice, even more detailed categories may be appropriate. For example, primary care practices are incurring more costs these days for injections — thanks in large part to changes in Medicare reimbursement and to increasing costs of new medications. Here, it might make sense to break out those injection costs into more specific categories, such flu vaccine, pneumonia vaccine, etc. Proper expense data can help with better drug purchasing and inventory control.

Conduct a Unit Cost Analysis

After grouping expenses logically and at the appropriate level of detail, you’ll want to get a handle on the actual cost of providing particular services. The most effective way is through a unit cost analysis.

1. Define the unit of service. First, identify the type of service (such as adult physicals, well-baby check-ups, and injections). Then define the unit based on what makes the most sense for your practice. For example, if you and your staff are already accustomed to thinking in terms of 15-minute increments, use that as your basic unit of service. You can further break down units of service to provide more detailed cost data about particular types of patients (e.g., a diabetic patient who requires more time with the physician or mid-level provider and also patient education time with a nurse).

2. Determine how many units of service were provided. Now that you’ve defined what a unit of service is (e.g., 15-minute intervals), use your practice management software to determine the number of units of that service that were provided during a given time period.

3. Calculate the direct costs. Of course, the most substantial direct cost to know is the provider time (physician or mid-level) allocated to a unit of service. You can capture this data using anything from a simple provider time diary to tracking patients from check-in to checkout (cycle times). You can use the same methods to determine time for other clinical staff. Plug in salary or hourly wage data, and you should be able to determine your cost for those 15 minutes. You’ll also need to determine the cost of drugs and medical supplies, lab tests, specialized equipment and other resources associated with the given service.

4. Add in the indirect costs. Make a list of indirect costs, such as administrative staff salaries and benefits, facility costs, office equipment and supplies, insurance and other general and administrative expenses. Next, decide how much of these costs should be allocated to the service in question. For example, if 15 percent of a practice's visits are for diabetes management, then it’s probably safe to attribute 15 percent of the practice’s indirect costs to diabetic care.

5. Tally it up. Add the costs from steps 3 and 4, and you should get a total cost per unit of service. Armed with solid unit-cost data, you can then make sound financial decisions to keep your practice successful.

Our experienced accounting professionals can provide anything from a full-scale unit cost analysis to simply helping you determine what the data from your own analysis means to your practice.

Summertime tax saving ideas

Individuals

Charitable Deductions

Summertime means cleaning out those often neglected spaces such as the garage, basement, and attic for many of us. Whether clothing, furniture, bikes, or gardening tools, you can write off the cost of items in good condition donated to a qualified charity. The deduction is based on the property's fair market value. Guides to help you determine this amount are available from many nonprofit charitable organizations.

Charitable Travel

Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year:

1. You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. 
    
2. You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services.
    
3. The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.
    
4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
    
5. Deductible travel expenses may include:
   • Air, rail and bus transportation
   • Car expenses
   • Lodging costs
   • The cost of meals
   • Taxi fares or other transportation costs between the airport or station and your hotel

Renting Your Vacation Home

A vacation home can be a house, apartment, condominium, mobile home or boat. If you rent out a vacation home, you can generally use expenses to offset taxable income from the rental. However, you can't claim a loss from the activity if your personal use of the home exceeds the greater of fourteen days or 10% of the time the home is rented out. Watch out for this limit if taking an end-of summer vacation at your vacation home. 

Businesses

Buying New Equipment

Two key tax incentives for acquiring qualified business property have either expired for property placed in service in 2014 or have been greatly reduced. The additional first year “bonus” depreciation provision for qualified property expired at the end of 2013 and is not currently available for business equipment purchased in 2014. 

The election to expense the cost of qualifying property under Section 179 is still available for property placed in service in 2014, but the deduction is limited to $25,000 of qualifying property, as long as the qualifying property placed in service by the business during the year is $200,000 or less. The deduction is reduced dollar for dollar as the amount of qualifying property placed in service in 2014 exceeds $200,000 and is completely phased out if the amount of qualifying property placed in service during the year exceeds $225,000.

The Section 179 election to deduct the cost of equipment placed in service during a year has been one of the most useful tax deductions available for small business. The Senate Finance Committee approved the Expiring Provisions Improvement Reform and Efficiency Act of 2014 on April 3, 2014, which extends the $500,000 Section 179 limit of recent years for tax years 2014 and 2015. It also allows businesses to use Section 179 to deduct the cost of off-the-shelf software and the costs of improvements to certain leased business properties. At this time, it is unclear whether this bill will be passed by Congress and signed by the President before December 31, 2014.

Traveling for Business

When you travel away from home, you may deduct your travel expenses – including airfare, train, bus, taxi, meals (generally limited to 50%), lodging – as long as the primary purpose of the trip is business-related. You might have some downtiem relaxing, but spending more time on business activities is critical. Note that the cost of personal pursuits is not deductible.

Entertaining Clients

If you treat a client to a round of golf at the local club or course, you may deduct qualified expenses – such as green fees, club rentals, and 50% of your meals and drinks at the nineteenth hole – as long as you hold a "substantial business meeting" with the client before or after the golf outing. The discussion could take place a day before or after the entertainment if the client is from out of state. For information on what does and does not qualify,please contact us.

Using Your Home Office  

Home office expenses are generally deductible if part of a business owner's personal residence is used regularly and exclusively as either the principal place of business or as a place to meet with patients, customers or clients. The IRS recently provided an optional safe-harbor method that makes it easier to determine the amount of deductible home office expenses. Starting in 2013, the new rules allow you to deduct $5 per square foot of home office space (up to 300 square feet). In addition, deductions such as interest and property taxes allocable to the home office are still permitted as an itemized deduction for taxpayers using the safe harbor.

There are many reasons to keep household records, including keeping track of your expenses, maintaining records for insurance purposes or getting a loan. You should have the same approach to managing your tax records, even after your tax return is filed. Records you should keep include bills, credit card and other receipts; invoices; mileage logs; canceled, imaged or substitute checks; proof of payments; and any other records to support deductions or credits you claim on your return. Read our quick tips below for more detail on what to keep and for how long.

Here are some quick tips for keeping your tax return records:

• If you file a claim for credit or refund after you file your return, you’ll want to keep your records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.
• Supporting documentation for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
• If you claim depreciation, amortization, or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records.
• If you claim special deductions and credits, you may need to keep your records longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for seven years).
• If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
• If you claim any other special tax benefits not mentioned above (for example, the first time homeowner’s credit), a good rule of thumb is to keep your records for as long as the tax benefit runs plus three years.
• If you have property that will result in a taxable event at sale or disposition (like stocks, bonds or your home), you’ll want to keep records which support your related tax consequences (capital gains, etc.) until the disposition of the property plus three years.
• If you receive property as the result of a gift or inheritance, you’ll want to keep records that support your basis in that property. Generally, if you inherit property, your basis is the stepped up value as of the date of death; if you receive a gift, your basis is the same as the donor’s basis. Don’t toss those old records just because you’re the new owner of the assets.

You should keep copies of your tax returns as part of your tax records. In the event of your death, copies of your returns and records can be helpful to your survivor or the executor, or administrator, of your estate. You may also need tax returns from previous years for loan applications or to estimate tax withholding.

Keeping good records will help us explain any tax position we take on your return and arrive at the correct amount of tax with a minimum amount of effort on your part. If you don’t have records, you may have to spend time getting statements and receipts from various sources. In the event of an IRS audit, if you cannot produce the correct documents you may have to pay additional tax and be subject to interest and penalties.

We are happy to answer any questions you may have about what records you should keep and for how long in your particular situation. For general guidelines, you can download or print our Tax Records Retention Schedule here.

Separating fact from fiction

It is human nature to fear the unknown. The thought of being audited by the IRS strikes fear in even the calmest of individuals. Many of us picture the man in the dark suit or trench coat, wearing dark sunglasses appearing on our doorstep and announcing he's with the IRS. So when a letter comes in the mail or a call is received from the IRS, even the most prepared individual will get a knot in their stomach. For someone who is not prepared or for those whose records are not in the best of shape, then there can be a real dread associated with that notice.

So let's take a look at IRS audits and separate the fact from fiction. Knowing what to expect can alleviate many of our fears.

Fiction: It's just a matter of time before I'm audited
Fact: On average, the IRS audits only about 1% of individual tax returns

It is far more likely that your return will not be chosen for audit. It helps to understand how returns are selected for audit. According to the IRS, returns are selected using a variety of methods, including:

• Random selection and computer screening – sometimes returns are selected based solely on a statistical formula.
• Document matching – when payor records, such as Forms W-2 or Form 1099, don't match the information reported.
• Related examinations – returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

It is also important to note that selecting a return for audit does not always suggest that an error has been made.

Fiction: I should not claim all of my deductions to avoid the risk of being audited
Fact: Taking deductions to which you are entitled does not increase your chances of being audited

Taxpayers often fear that claiming tax deductions will raise eyebrows at the IRS. That’s not true unless the deductions are excessive as compared to your level of income. When returns are filed, they are compared against “norms” for similar returns. The “norms” are developed from audits of a statistically valid random sample of returns. If you have the documentation to prove your deductions are legit, whether few or many, an audit should not be worrisome. So go ahead and take those deductions!

Fiction: Any correspondence from the IRS means an audit
Fact: Receiving a notice from the IRS could mean any one of a number of things

Many people assume that any correspondence from the IRS means they are being audited, but this is rarely the case. When you get a letter from IRS, open it – don’t ignore it because it is usually not as bad as you think and most correspondence is time sensitive. Sometimes it’s an informational letter (advising you that you might need to file a certain form, etc.), sometimes it’s simply a notice of adjustment in which case you pay what you owe or work something out, and only rarely will it be notification of an audit. 

We've only touched on a few of the more common concerns regarding an IRS audit. If you have additional questions, see the IRS' FAQs on the topic here. And remember, if you receive a notice or you are chosen for an audit, fear not! Your tax preparer can assist you.

There are many factors that contribute to the growth and improvement in the financial performance of a medical or dental practice.  One very important factor requires management to pay close attention to where money could be leaking out of the practice, whether those leaks are due to errors or fraud. 

What does the term “internal controls” really mean?  

• Protect assets from accidental loss or from fraud
• Ensure the reliability of financial information
• Ensure compliance with federal, state and local laws affecting the operations of the practice
• Promote efficient and effective operations

1. Segregate financial/accounting duties, rotate responsibilities and require employee vacations so that no one person can control a transaction from beginning to end.  

Proper separation of duties is enough to deter many would-be fraudsters, since getting around it requires collusion between two perpetrators.  In addition, careful monitoring of financial processes and internal controls creates a perception of detection and will help to close gaps in your financial systems and processes. We recommend separation of duties for the following functions in a professional practice:

• Opening mail

• Preparing payment posting batch

• Posting payments to billing system 

• Deposit to bank

• Approval of write-offs and adjustments to accounts receivable

• Bank reconciliation

For small practices, owner participation may be required for one or more of the above duties to provide necessary separation of duties.

Stop cash from walking out the door

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify you can claim the deduction whether you rent or own your home. If you qualify for the deduction you may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction. 

1. Regular and Exclusive Use.  As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:

    

   • Your principal place of business, or
   • A place where you meet clients or customers in the normal course of business, or
   • A separate structure not attached to your home. Examples could include a garage or a studio.
      
2. Simplified Option.  If you use the simplified option, you multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the criteria for who may claim a home office deduction.
    
3. Regular Method.  If you use the regular method, the home office deduction includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.
    
4. Deduction Limit.  If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.
    
5. Self-Employed.  If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.
    
6. Employees.  If you are an employee, you must meet additional rules to claim the deduction. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

For more on this topic, see Publication 587, Business Use of Your Home or consult your tax professional.

This information provided by IRS Tax Tip 2015-42, March 19, 2015

If you paid for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you claim allowable expenses on Schedule A, Itemized Deductions. Here are six tax tips that you should know about this deduction.