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With a busy practice, do you feel as though you are taking care of everyone but yourself? Not only do you need to get your annual physical, your practice needs a fiscal check-up as well. Many practicing physicians take time before year end to engage in tax planning.

Often the primary focus is twofold: decide the amount of cash to leave in the practice and how to split the distributable cash among the stakeholders and employees. While this exercise is certainly important, it is also interesting because the year-end planning process is mainly a matter of sorting out what has already happened. It is really not a proactive “planning” process at all. Far fewer owners actually take time at the beginning of the year to plan for the coming year, but the dawn of a new year is perfect for pondering what may be important in the near future and for reviewing the prior year to make sure nothing important has been overlooked.

In today’s changing tax world, January is also a good time to review new laws or rule changes that may impact your practice and to identify areas of potential tax savings.

Physicians will want to review their anticipated need for equipment purchases and the related tax rules. Although “bonus depreciation,” which allows the immediate write-off of half of the cost of new fixed asset purchases, was revived for 2010, it does not exist for 2011 as this article is being written.

However, the expanded Section 179 provisions which allows for deducting the cost of equipment purchases up to $500,000 is available for 2011, just like it was for 2010. If a practice has incurred or will be incurring significant building or leasehold improvement costs, now is a good time to consider tax savings that a cost segregation study (which maximizes tax depreciation through assigning shorter useful lives) may provide.

Medical practices should also consider issues related to any upcoming ownership changes. If there are new physicians or physicians leaving the group, consider how best to structure these transactions. Focus particular attention on whether the party who is paying the cash on the upcoming transaction will be able to receive a tax deduction. If not, consult with your advisors to determine whether an alternative strategy may allow for deductibility of the buy-in or buy-out payments.

The year 2010 was a busy one for political discourse, particularly the healthcare debates, and potential tax savings may have been overlooked in 2010 legislation. If you hired new workers, the New Hire Tax Credit may provide a tax savings opportunity and can be recovered through filing amended payroll tax returns for 2010 if it was missed initially. If you qualified, don’t overlook the potential additional credit that can be claimed in 2011 if the worker is retained and meets the credit requirements. Through the healthcare bill, many small practices may also be eligible to receive a tax credit for providing health insurance coverage to their employees if they meet certain requirements regarding the number of full-time employees, average wages and the portion of the insurance cost being borne by the practice.


For the owner, there are a myriad of considerations as well. The year 2011 may require analysis of potential Roth conversion (and decision of whether to pay tax in 2010 or 2011/2012 for a 2010 conversion), estate taxes, gifting to family members, required distributions from retirement plans, charitable planning, etc. At this time, there appears to be a compromise on income and estate tax reform. Any new laws should be thoroughly analyzed for tax planning opportunities.

For physician practices and entrepreneurs alike, numerous tax savings opportunities can be evaluated, and the beginning of the year is a great time to plan. But planning does require time. You simply have to stop and recharge your fiscal plan if you want to keep everything running at peak performance.



Jason Whaley, CPA, is a member of Watkins Uiberall, PLLC.

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