255
Basic Medical Office
TaxReduction Strategies
Executing Innovative Techniques
Perry D’Alessio
10
CONTENTS
Introduction ....................................................................................................................................256
Business Tax Planning Process ...................................................................................................... 256
Organization .............................................................................................................................. 256
A Quick Accounting Lesson .....................................................................................................258
The Cash Basis of Accounting .............................................................................................258
The Accrual Basis of Accounting ......................................................................................... 258
Practice Entities Utilized by Healthcare Professionals ............................................................. 259
Corporations .........................................................................................................................260
Passthrough Entities and Favored Tax Status .......................................................................260
Sole Proprietors ....................................................................................................................260
General Tax Planning Issues ..................................................................................................... 261
Purchased Accounts Receivable ........................................................................................... 262
Organization Costs ...............................................................................................................262
Asset Expensing Election .....................................................................................................263
Purchase of an Entity ............................................................................................................264
Amortization of Goodwill ....................................................................................................265
Lease versus Purchase of Assets ..........................................................................................266
Working Capital Loans .........................................................................................................266
Capital Contribution versus Loans to Your Entity ................................................................267
General Tax Planning Issues: Income Statement Accounts ........................................................... 267
Interest Income ..........................................................................................................................267
Meals, Entertainment, and Travel Expenses .............................................................................268
Paying Employee Bonuses without Withholding ......................................................................268
Penalties and Fines ....................................................................................................................269
Disability Insurance ..................................................................................................................269
Ofcers or Owners Life Insurance ............................................................................................ 269
Professional and Trade Association Dues ................................................................................. 270
Political Contributions ..............................................................................................................270
Retirement Plans .......................................................................................................................270
401(k) Plans ..........................................................................................................................270
403(b) Plans ..........................................................................................................................270
SIMPLE Plans ...................................................................................................................... 271
Traditional IRAs ................................................................................................................... 271
Permanent versus Timing Differences in Tax Returns ...................................................................272
Tax Planning for C Corporations ..............................................................................................273
256 Comprehensive Financial Planning Strategies for Doctors and Advisors
The formulation and implementation of tax reduction strategies for the medical ofce shouldnt be
an all-consuming activity. Medical professionals should concentrate on what they know and do the
best, providing services to their patients. This is how they earn their living and should always be
their primary focus. However, all physician executives can better their nancial position by keeping
more of the money they earn. This is one reason ofce tax planning should be an important part of
each physicians short-term and long-term strategy.
INTRODUCTION
The objective of tax planning is to arrive at the lowest overall tax cost on the activities performed.
This means pushing as much income as possible beyond Uncle Sam and into personal or business
accounts to stay. Some have stated that income tax planning is like playing a game and those who
best know the rules of the game “win.” This section will address items to be aware of and meth-
ods and strategies to use to reduce federal and state income taxes. Winning is a relative term when
dealing with income taxes. A healthcare professional doesnt have to force t every tax planning
tool available in order to win. Winning is achieved each time a tip or strategy is utilized to help
reduce taxable income or increase a credit that can be taken to reduce taxes to be paid.
A former Commissioner of the Internal Revenue Service (IRS) once stated on national television
that the IRS wanted each taxpayer to pay no more to the government than what he or she actually
owed. The meaning was that each person or entity should take advantage of every deduction legally
available in order to arrive at the lowest possible taxable income. For those in the healthcare profes-
sions, this is a most important concept since, for many, managed care has had an extremely negative
effect on income. This being the general case, it is imperative to be frugal when dealing with Uncle
Sam at tax time.
BUSINESS TAX PLANNING PROCESS
orgAnIzAtIon
To ensure your entities success, breaking down the process that creates your year-end compliance
and planning is necessary. Sourcing the components separately can help save fees, and lends itself
to more timely information.
BookkeepingThis area is often underserved and at times improperly combined with
year-end tax services. Bookkeeping should be performed on a perpetual basis; it provides
clarity and timely management information to adjust your business. Current bookkeeping
Dividend Income .................................................................................................................. 274
Capital Gains and Losses ..................................................................................................... 274
Charitable Contributions ...................................................................................................... 274
C Corporation Summary ...................................................................................................... 275
Tax Planning/Awareness for Passthrough Entities and Their Owners ......................................276
Other Potential Deductions .......................................................................................................277
Conclusion .....................................................................................................................................278
Collaborate .....................................................................................................................................278
Acknowledgments ..........................................................................................................................278
Further Reading .............................................................................................................................278
Additional References ...............................................................................................................278

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