Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices are closed tomorrow 1/7/25 from 8am – 1pm for a firm event. Thank you.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices are closed tomorrow 1/7/25 from 8am – 1pm for a firm event. Thank you.
Because many of our clients use a vehicle for both business and personal use, we thought a refresher on this topic would be useful. It is quite acceptable to use a vehicle for both business and personal use but important to understand the deductibility of expenses associated with the vehicle.
Business use is determined by the number of miles traveled between two business locations. The business use percentage is simply the ratio of total business miles for the year to total miles for the year for the vehicle. As a reminder, commuting miles to and from your normal place of business are not considered to be business miles.
When you use a vehicle for business purposes, the business portion of depreciation and ordinary and necessary vehicle operating expenses are deductible. The tax regulations provide two methods for calculating the business portion of vehicle expenses which can be used by self-employed taxpayers and employees:
(1) the deduction may be computed using the standard mileage rate for the number of business miles driven during the year, or
(2) the business portion of actual vehicle expenses, including depreciation and the Section 179 deduction, may be deducted.
The standard mileage rate varies from year to year and is computed by the IRS to represent the cost of fuel, oil, insurance, repairs and maintenance and depreciation or lease payments for the vehicle. The standard mileage rate method is available regardless of the cost of the vehicle. For 2015, the standard mileage rate is $.575 per mile.
In addition to the standard mileage rate, the costs of business-related parking and tolls are 100 percent deductible. The standard mileage rate can only be used if this method was used to compute the business auto deduction for the first year the vehicle was placed in service and each subsequent year. If the standard mileage rate is used to calculate the vehicle expense deduction for a vehicle, straight-line depreciation must be used if there is a subsequent switch to the actual expense method.
To use the actual expense method, first determine the entire cost of operating the vehicle for the year, including vehicle depreciation and Section 179 expense, if any.
Taxpayers who use a vehicle more than 50% of the time for a qualified business use can deduct Section 179 expense and/or MACRS accelerated and bonus depreciation, as well as other ordinary and necessary expenses. If the vehicle is used less than 50% for qualified business use, straight line depreciation over a 5-year life must be used to compute depreciation on the vehicle and the Section 179 deduction is not available for the vehicle.
The above rules are subject to the limitations on luxury vehicles. Certain trucks, vans and sports utility vehicles with a gross loaded vehicle weight rating exceeding 6,000 pounds are not subject to the luxury auto depreciation limits. However, vehicles with a weight rating of 6,000 pounds or less are considered passenger autos and are subject to the luxury vehicle limitations.
To satisfy the more than 50% qualified business use test, only use in a trade or business can be considered. Investment use and other use in other activities conducted for the production of income are not included in the qualified business use test, although total business and investment use can be used for determining the deductible portion of vehicle expenses.
If qualified business use falls below 50% in subsequent years, then depreciation and Section 179 deductions in excess of the straight-line method and deducted in previous years must be recaptured in the year that qualified business use falls below 50%.
Of course, we recommend that you keep excellent vehicle expense documentation and contemporaneous usage records. We have included a vehicle mileage log (click here) that we recommend you keep to corroborate auto usage documentation from repair and maintenance records.
If you have questions regarding the information in this article or if you’re interested in special tax deductions related to the purchase of a truck, van or sports utility vehicle in 2015, please give us a call at (719) 630-1186 to learn more.
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.
– 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?
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.
Charitable Deductions
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:
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.
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 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.
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:
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.
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.
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.
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.
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:
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.
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.
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:
It is also important to note that selecting a return for audit does not always suggest that an error has been made.
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!
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.
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.
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.
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.