For physicians who own their own practice, tax season can be daunting. To help you through the complicated process of filing taxes, reduce the risk of an audit and keep your mind focused on your patients, consider the following suggestions:
1. Be on top of managing payroll
It seems simple, but many physician practices wind up with unexpected taxes and penalties related to payroll. If the proper taxes are not withheld on an employee’s paystub, the IRS and State can retroactively collect the taxes. The employer could be liable for tax that otherwise would have been withheld from the employee.
Beginning January 22, 2017, employers must use a revised I-9 Employment Eligibility Verification form. If the form is not filled out correctly your practice could be liable for penalties.
The bottom line? A good payroll company is well worth the investment.
2. Be ready for different business tax deadlines effective for the 2017 filing season and beyond
The deadline for Form 1120 U.S. Corporation Income Tax Returns has been moved back to April 15th (April 18th for 2017, due to holidays) versus the traditional March 15th deadline.
On the other hand, if you file Form 1065 U.S. Return for Partnership Income or Form 1120S U.S. Income Tax Return for S-Corporation Income, you need to get into gear earlier. The deadline for both forms is now March 15th. If your practice is a partnership and you habitually delay getting started, you need to be working on your taxes NOW. A six month extension period will apply to both forms.
3. Consider how Roth IRA conversions might be part of your tax and investment planning strategy
If you do not have a Traditional IRA or a Simplified Employee Pension (SEP), you may be able to contribute to a non-deductible IRA and then convert it to a Roth IRA at a later date. The earnings in the Roth IRA will grow tax-free. This could be a smart move that helps to permanently defer tax on the earnings while saving for retirement.
4. Maximize your pre-tax deductions
This takes a bit of planning, and too many physicians don’t think about the various pre-tax deductions that are available to them. Taking advantage of retirement plans like 401(k)s, SEPs and profit sharing could help you minimize your taxable income because contributions to these plans are pre-tax or deductible.
Finally, in this mix don’t forget your Health Savings Account (HSA). This is another area that sounds simple, but often physicians don’t think about it and underfund the account.
5. Proceed with caution regarding your business vehicle
Many physicians are interested in the possibility of claiming their vehicle as a business vehicle. Make sure you understand the requirements before going down this road. Special rules apply if a vehicle is not used for business at least 50% of the time. Commuting miles usually cannot be included in the calculation of business use. You also need a detailed log of miles travelled throughout the year, delineating personal versus business use. Vehicle or mileage expense can be a focus area in the case of an audit, so be diligent about maintaining a log for any business vehicle used in your practice.
During the busy tax season, following these fix tax-filing tips can help you greatly reduce your risk of being audited and avoid costly penalties.
About the Author: Kelly Garrison is a Frazier & Deeter Tax Partner who specializes in tax and accounting services for privately-held businesses and their owners and executives. Kelly focuses on planning opportunities to minimize personal, trust and estate tax liabilities.