Other articles in Summer 2011
Tax Saving Options for 2011
Stephanie Zvolenski, MBA
Financial Manager, ABC
Several months ago you met with your accountant and filed your 2010 tax return. All of your debts have been paid to Uncle Sam. If you have not already done so, it is the time to make any necessary adjustments to your 2011 elections in order to maximize your tax savings and financial position in the coming year. Fortunately there exist some administrative opportunities to assist you in this goal. Provided here are some suggestions to spark your thoughts and serve as a reminder to be attentive to this very important issue.
Based on your accountant’s assessment of your 2010 personal income tax return, a Roth 401(k) versus a Traditional 401(k) to accompany your practice profit sharing plan may be more beneficial to your personal tax situation and/or vice versa. It is important that you make this election as soon as possible if you have not already done so.
Also, previous issues of the Communiqué contained articles on different types of retirement plans, especially one becoming more and more popular with small businesses and medical practices called a “Cash Balance Plan”. Depending upon the dynamics of the practice and the providers, this may be something to consider and investigate further as a way to save significant tax dollars and boost your retirement savings.
Make sure to confirm on your payroll records that your elections are being processed correctly by your payroll service. It is much better to make adjustments early in the year than to wait until the 3rd quarter only to find out that none of your deferrals have been made. For those over fifty-five (55) years of age, be sure that your catch-up contribution is being withheld if you made the election.
Although the Internal Revenue Service annual limits for retirement plans did not change in 2011 from 2010, they are provided here for your reference. These limitations are published annually typically in the fall of the current year for the upcoming year.
Ensure that not only the practice business professionals are aware of the updates but also the individual employees.
Medical Expense Plans
The rising cost of health insurance premiums, the federal healthcare reform legislation, uninsured, underinsured…the list of the hot topics surrounding medical coverage not only for our patients but for our practice employees and providers goes on. In an effort to maximize your tax savings and ultimately cash in your pocket, your practice may want to look at alternative health insurance plans and medical expense reimbursement options. There are a variety of plans being implemented across the country for practices of all sizes and complexities …High Deductible Health Plans (HDHP), Medical Expense Reimbursement Plans (MERP), Health Reimbursement Accounts (HRA), Health Savings Accounts (HSA), Cafeteria/Section 125 Plans and Section 105 Plans to name just a few.
Each of these plan types carries benefits and risks for the practice and should be investigated thoroughly with your business managers in order to determine the best option for your circumstances. The dollars in tax savings could be significant.
For your reference, here are the 2011 IRS Health Savings Account (HSA) contribution limits.
Dependent Care Expenses
In addition to deductible medical expense plans, many practices are considering and implementing administrative plans to allow for the deduction of dependent care expenses for their providers and employees. Again, like the medical plans, the administration of these plans can be complex and thus should be discussed with your practice business advisors; however, there could be significant tax savings available to you.
Deductible Business Expenses
Medical practices and providers incur many business expenses in the course of everyday work. Discuss with your accountant and business managers those business expenses approved by the IRS for deduction from taxation. Items like dues and license fees, education expenses, publication and journal subscriptions are just a few examples that may be deductible and could save you significant money in reduced tax liability.
If you have explored any and all of the tax saving plans and opportunities with your personal accountant and business advisors and still find that you may be facing an additional tax burden in 2011, work with your business manager to estimate your potential tax liability as soon as possible. At least on a quarterly basis, your practice should be reviewing the estimated year- end profits and the residual provider wages and bonuses. It is much easier to make additional tax payments on a more frequent basis (bi-weekly, monthly, quarterly) than to pay one lump sum next spring, especially if the debt is large enough to trigger additional penalties and interest.