SKR+Co

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:

You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status.
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.
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.
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.
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

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 downtime 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 provides an optional safe-harbor method that makes it easier to determine the amount of deductible home office expenses. These 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.

It’s summertime! And although that means vacations and tans for many of us, it may also mean for students that it’s time to get a summer job. Whether your student finds work mowing lawns, babysitting or working in a restaurant, there are some things they should be aware of. If it’s their first job, it gives them a chance to learn about the working world – and that includes taxes!

Below is a list of eight things that students who take a summer job should know about taxes:

1. Don’t be surprised when your employer withholds taxes from your paychecks. That’s how you pay your taxes when you’re an employee. If you’re self-employed, you may have to pay estimated taxes directly to the IRS on certain dates during the year. This is how our pay-as-you-go tax system works.

2. As a new employee, you’ll need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use it to determine how much federal income tax to withhold from your pay.

3. Keep in mind that all tip income is taxable. If you get tips, you must keep a daily log so you can report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.

4. Money you earn doing work for others is taxable. Some work you do may count as self-employment. This can include jobs like baby-sitting and lawn mowing. Keep good records of expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction may help lower your taxes.

5. If you’re in ROTC, your active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training isn’t taxable.

6. You may not earn enough from your summer job to owe income tax. But your employer usually must withhold Social Security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count toward your coverage under the Social Security system.

7. If you’re a newspaper carrier or distributor, special rules apply. If you meet certain conditions, you’re considered self-employed. If you don’t meet those conditions and are under age 18, you are usually exempt from Social Security and Medicare taxes.

8. You may not earn enough money from your summer job to be required to file a tax return. Even if that’s true, you may still want to file. For example, if your employer withheld income tax from your pay, you’ll have to file a return to get your taxes refunded.

Contact your CPA or visit IRS.gov for more about the tax rules for students.

See if you qualify for the Child and Dependent Care Credit

If you haven't already, you may be planning to enroll your kids in daycare or a camp this summer to keep them well cared for while having fun and staving off boredom. While many parents use child care year-round, summertime can offer unique opportunities and challenges.

The costs can certainly add up, but you may qualify for a federal tax credit that can lower your taxes. The IRS has put together some facts you should know about the Child and Dependent Care Credit.

10 Facts you should know about the Child and Dependent Care Credit:

1. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.

2. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.

3. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return.

4. As a rule, if you’re married you must file a joint return to take the credit. You can still take the credit, however, if you’re legally separated or if you and your spouse live apart.

5. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.

6. The credit is a percentage of the qualified expenses you pay. It can be as much as 35 percent of your allowable expenses, depending on your income.

7. The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.

8. Some exclusions to note: Overnight camp or summer school tutoring costs do not qualify. You can’t include the cost of care provided by your spouse or your child who is under age 19 at the end of the year. You also cannot count the cost of care given by a person you can claim as your dependent. Special rules apply if you get dependent care benefits from your employer.

9. Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return.

10. Remember that this credit is not just a summer tax benefit. You may be able to claim it for care you pay for throughout the year.

These tips are taken from IRS Special Edition Tax Tip 2016-10, June 21, 2016

Collections are the lifeblood of any medical or dental practice. But do you really know if you’re doing a good job of collecting receivables? Find out for sure by monitoring these three collections performance indicators:

1. Days in Accounts Receivable

To find out how long it takes to collect a day's worth of gross charges, add up the charges posted for a specific period of time and divide by the total number of days in that period. Then divide the total accounts receivable by the average daily charges.

For instance, if you have charged $640,000 in the past 12 months, or 365 days, your average daily revenue is $1,753. Then, if your total accounts receivable today are $80,000, the days in accounts receivable is 45.6. That means it is taking an average of 45.6 days to collect your payments. Note that if this number is consistently high — or you notice a jump in the number of days outstanding from one month to the next — it could be sign of problems caused by anything from coding errors and incomplete documentation to claims rejections caused by patient registration errors.

Recommendation: We recommend that you use a rolling average of 12 months of charges for this computation. The results will vary by specialty and payer mix, but a typical goal for days in accounts receivable is 35 to 40 days.

Action: Determine how your practice’s days in accounts receivable compares with other practices using a source such as the Medical Group Management Association (MGMA) annual Cost Survey Report or Performance and Practices of Successful Medical Groups Report.

2. Accounts over 90 days

The practice’s aging report, based on date of entry and NOT ”re-aged,” should be reviewed monthly. Obviously, the longer an account remains unpaid the higher the risk of it becoming uncollectable. So, it’s critical to measure the percent of your accounts receivable in each “aging bucket.”

Recommendation: We recommend that you review a separate aging report for both insurance and patient receivables monthly, paying particular attention to outlier payers in the insurance aging report to spot any developing trends. Credit balances in accounts receivable should be investigated and manually added back to each aging “bucket” to get a clear picture of accounts receivable aging. An acceptable performance indicator would be to have no more than 15 to 20 percent total accounts receivable in the greater than 90 days category. Yet, the MGMA reports that better-performing practices show much lower percentages, typically in the range of 5 percent to 8 percent, depending on the specialty.

Action: Consider establishing a target AR range for your practice. For example, you might shoot for having 60 percent of receivables fall into the 0-30 days bucket, 20 percent in 31-60 days, 5 percent each at 61-90 days and 91-120 days, and 10 percent falling over 120 days.

3. Net Collection Percentage

This is the bottom-line number that reveals how successful you were in collecting the money you are entitled to collect. Add up your total collections and divide by adjusted charges (charges less contractual adjustments) to determine how much you have actually collected. For example, if your practice only collected $50 on a procedure contracted for $75, your net collection rate would be 67 percent (50 divided by 100 minus 25).

Recommendation: We recommend that you use a rolling average of 12 months of net charges and receipts for this calculation. In general, a net collection percentage of 97 percent or higher will help ensure a healthy bottom line for the practice.

Action: If your net collection rate is lower than this, drill down and calculate the net collection rate by each of your payers to determine if the problem is coming from a particular source. If net collection percentage is consistently down across all of your payers, you’ll know that the problem is internal (e.g. your front-end billing process is resulting in rejected claims).

Contact our office today for help in monitoring your practice’s collection performance.

Stay on top of filing and reporting deadlines with our tax calendar! Our tax calendar includes dates categorized by employers, individuals, partnerships, corporations and more to keep you on track.

The evolution to value-based payment is well underway as payers are increasingly tying reimbursement to the achievement of quality-related goals — everything from patient satisfaction scores to specific measures of quality and efficiency. In fact, it is estimated that 50 percent of physician compensation will be value-based in the next 10 years.

Still, fee-for-service is slow to die. Most physician groups are operating with physician compensation plans that are based at least in part on production. For many, the emphasis remains on volume over value.

The challenge is for physician groups to at least begin adjusting their compensation methodology to include incentives for quality, outcomes and reduced costs. Here’s how:

Convene a Committee

The first step is to convene a compensation committee that asks this critical question: “How do we remain economically viable in the future of value-based care?” The answer starts by evaluating current compensation, with an eye toward integrating value-based incentives into the plan.

Here, it’s important to get representation from throughout the practice — a physician leader and other key physicians as well as practice administrators and outside consultants, such as your CPA.

Determine Value Metrics and Incentives

Next determine how to gradually incorporate value metrics into the current compensation model. Consider the addition of just one quality metric now to the current compensation method. The goal is to create incentives that 1) make sense to the physicians, and 2) represent a fair measure of the value metric selected.

For example, a practice might choose patient satisfaction as the quality target. A pool of 5 percent of net income could be created (or withheld) and distributed back to physicians who achieve targeted goals: 2.5 percent for patient satisfaction scores and 2.5 percent for meeting productivity targets. Patient satisfaction could include a number of patient care measures such as the number of referrals, inpatient admissions, length of stay, ancillary services, patient panel size and patient satisfaction survey results.

Here, it might pay to work with several payers over a period of time to establish a physician compensation methodology based on attaining aligned quality metrics.

Keep the Data Transparent

It’s critical that the data being used to allocate compensation is perceived as relevant — and reliable — by physicians. Use the practice’s own data, not data from a payer or outside source. Then, ensure that data used is both transparent and accessible so that physicians can easily project their income for the year.

Start Small

Consider “shadowing” any changes to the compensation model for a year. A delayed implementation allows for glitches to be discovered and corrective changes implemented. Physicians then would have an opportunity to understand and adjust their practice style and methods to the new quality incentive methodology before implementation.

Ultimately, healthcare reimbursement is moving slowly but inevitably from paying for volume to rewarding value. Savvy practices are beginning to adjust their physician compensation methods now to ensure economic viability down the road in the brave new world of value-based payment.

Our accounting professionals are uniquely qualified to help with the financial modeling and guidance you need you to incorporate quality measures into your physician comp plan. Contact us if you would like us to assist you.

Colorado offers a conservation easement tax credit program that could save you money while at the same time help preserve Colorado’s natural treasures. Landowners who permanently preserve part of their land for agriculture, scenic views or wildlife habitat can generate Colorado income tax credits that can then be sold to taxpayers.

Purchasing these tax credits could be an excellent strategy if you have a Colorado income tax liability of at least $10,000. The tax credit is not a tax deduction, but rather is a dollar-for-dollar reduction of state tax liability.

Background on conservation easements in Colorado

Landowners who desire to conserve the special qualities of their land — for example, its productive farm soils, scenic beauty or valuable wildlife habitat – can choose to place a conservation easement on all or a portion of it. Conservation easements give people the assurance that the places they love will be protected forever. A conservation easement is a legal agreement that runs with the land, in perpetuity. Conservation easements may or may not allow public access to the protected property. Over two percent of the land in Colorado is protected by conservation easements, including land in every county.

Colorado requires a conservation easement holder (typically a land trust) to have the responsibility of stewardship for the land. Landowners retain full ownership of the land. Once the easement is in place, the landowner receives Colorado conservation easement tax credits which can be used against their Colorado tax liability or sold to a third party.

Who can purchase conservation easement tax credits?

Individuals and entities with Colorado state income tax liability may purchase tax credits. There is no limit to the amount of tax credits that any individual or entity may purchase.

The cost and benefit of purchasing a conservation easement tax credit

The major benefit of purchasing conservation easement tax credits is that they can be purchased at a discount, often at a savings of 10-14%. For example, if you have a $100,000 state income tax liability, you can purchase $100,000 worth of tax credits for between $86,000-90,000, thereby saving $10,000-14,000.

Here is an example to illustrate how purchasing conservation easement tax credits could benefit you:

The Sellers place a conservation easement on part of their land which generates Colorado conservation easement tax credits.
They want to sell their tax credits, so they work with a broker to find a buyer.
The Buyers have a Colorado tax liability of $100,000. They want to offset their tax liability by purchasing tax credits so they contact a conservation easement tax credit broker.
The Buyers purchase $100,000 worth of credits through the broker for the discounted rate of 87%, or $87,000.
The Buyers can use the $100,000 of purchased credits against their $100,000 Colorado tax liability, reducing their liability to $0.
Thus, instead of paying $100,000 in taxes, they paid $87,000 in conservation easement tax credits which both saved them $13,000 and also helped preserve some of Colorado’s land – a win-win!

The process

First, it’s good idea to have an idea of what your Colorado tax liability will be for the upcoming year. Your tax advisor can assist you in this.

Secondly, although not a requirement, it is advisable to purchase tax credits through a reputable broker. Brokers know this process intimately and can efficiently guide a buyer through each step. There are some risks involved when purchasing conservation easement tax credits; these can be greatly minimized by using a reputable broker.

A tax credit broker will match you up with a conservation easement seller and will verify the validity of the credits. The broker also prepares the documents to transfer the credits from the seller to the buyer.

Next steps

In addition to conservation tax credits, Colorado also offers environmental remediation (Brownfield) tax credits and historic preservation tax credits. If you think you have a Colorado tax liability of at least $10,000 and would like more information on tax credits, please contact our office to discuss the details of your specific situation. Tax credits are in high demand and as a result some brokers have waiting lists already forming, so do not hesitate for long.

The research and development tax credit has been a great tax savings incentive to companies looking to increase their internal research and development activities. When President Obama signed the Protecting Americans from Tax Hikes (PATH) Act on December 18, 2015, the research and development (R&D) credit was finally made permanent (retroactively as of January 1, 2015). In addition, the credit now contains two new options for utilization that did not previously exist which broadens the impact of the credit for many small to mid-sized businesses.

Two New Provisions

Previously, the R&D tax credit could only be used to offset regular tax; this rule limited many small to mid-sized businesses in their ability to use the credit if they were subject to the alternative minimum tax (AMT). Beginning in 2016, businesses with less than $50 million in gross receipts will be free to use the credit to offset AMT.

In addition, certain start-up businesses (with less than $5 million in gross receipts) that may not have an income tax liability will be able to offset payroll taxes with the credit to the tune of $250,000. No longer will they have to wait until they generate taxable income to take advantage of the credit savings.

Four Part Test

Businesses should be aware of the four part test that research activities must pass before the corresponding expenditures related to those activities will qualify for the tax credit. The four part test is as follows:

The R&D activity must be intended to be useful in the development of a new or improved business component for the taxpayer, such as a product, process, technique, formula, invention or software.
The project must be undertaken for the purpose of discovering information that is technological in nature. Thus, the activity must rely on the principles of physical sciences, such as engineering, biology or computer science.
The project must be intended to eliminate uncertainty related to the development or improvement of a business component. Uncertainty can include the capability, development method or optimal design of the business component.
The project must evaluate one or more alternative solutions through the development, refinement and testing of different options. Furthermore, technical risk must be present, which means that there is a chance the project will not be successful.

If you are planning on claiming an R&D tax credit on your business’ next tax return, please consult your tax advisor. Although the benefits of the R&D credit make it attractive, now more than ever, you will want to make certain that you meet the requirements because it has become one of the most heavily audited tax credits by the IRS in recent years.

Reposted from AICPA Insights, January 25, 2016 Post by James B. Jordan, CPA, CGMA

Contributions – whether by cash, check, or online giving – are the lifeblood of faith-based organizations. Many do not realize how often these donations get into the wrong hands.

There are primarily two types of theft that occur in faith-based organizations –larceny and skimming. Larceny occurs after the money has been counted, deposited, and recorded in the books of the organization. Skimming occurs when donations never get logged in the books; that is, they go missing before ever being recorded. It is the counting and depositing process that opens the organization up to skimming, and that is where fraud can be most difficult to detect.

Faith-based organizations need to take steps to ensure that contributions make it into the bank in the first place.

Read the full article here