You can still act to lower this year's taxes
■ A column answering your questions about the business side of your practice
By Karen S. Schechter amednews correspondent— Posted Dec. 17, 2007.
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Question: I am in solo practice. As 2007 (and my fiscal year) comes to a close, I want to make sure I've maximized tax benefits as much as possible. What advice can you provide?
Answer: Here are some suggested strategies that might save your practice income tax. Please note that these moves must be taken no later than Dec. 31 and are directed specifically to businesses on the calendar year. Also, do not make these or any moves before consulting your personal financial or tax adviser.
Expense acceleration. Businesses can elect to expense the cost of most new equipment up to a fixed amount. For 2007, expensing is allowed up to $125,000 (subject to a dollar-for-dollar reduction in that $125,000 for such purchases over $500,000). To get the benefit for a tax year beginning in 2007, the equipment should be put into use before the end of this year.
State tax law might not allow for the maximum federal deduction. In this case, two sets of depreciation records will be needed to track the federal and state tax impact.
Timing of purchases. If you intend to purchase business equipment this year, the proper timing of purchases might increase your tax benefit from equipment depreciation.
The tax rules for depreciation include conventions for determining how many months' worth of depreciation you can claim in the year you first place property in service. The conventions that come into play with equipment are the half-year and the mid-quarter conventions. When the half-year convention applies, all property that you begin using during the year is treated as placed in service at the midpoint of the year.
The mid-quarter convention must be used if the cost of equipment placed in service during the last three months of the tax year is more than 40% of the total cost of all property placed in service for the entire year. If the mid-quarter convention applies, you treat all equipment placed in service during the year as if it were placed in service at the midpoint of the quarter in which you began using it.
Partnership or S corporation losses. Partners or S corporation shareholders in entities that have a loss for 2007 can deduct that loss only up to their basis in the entity. Partners/shareholders can increase their basis in the practice, in order to allow a larger deduction, by lending the practice money or making a capital contribution by the end of the practice's tax year.
Retirement plans. Self-employed doctors who have not yet done so should set up self-employed retirement plans before the end of their individual tax year 2007 in order to gain the tax benefits for that period.
Budgets. Year-end is the time to look at revenues and expenses and prepare a budget for the new year. A budget is extremely effective in ensuring that a business has adequate cash flow and also can help you determine your potential tax load for the year, and what benefits you might seek out.
Karen S. Schechter amednews correspondent—