Published: Tax Experts Share Last Minute Tips for Physicians - ETMN, April 2007

Tax Experts Share Last Minute Tips for Physicians
Gloria Butler Baldwin

'Tis the tax season and as if you're not busy enough, now you have to squeeze in time to fill out dozens of forms, gather volumes of documentation, and somehow manage to get to your CPA's office.

Janice Sansing, tax partner in the Decosimo Knoxville office, cited numerous changes taking place that won't give you more time but can help you hang onto more of your money.

"On the business side there is section 179, an accelerated expensing allowance that allows you to write off large purchases all in the same year rather than depreciating them over many years. That really helps in the purchase of equipment for a physician's practice," Sansing said. "There is a phase out if you buy in excess of $430,000 in one year. However, most physicians don't have to worry about the phase out because most of the equipment they need is less than that. The maximum amount of purchases to be written off in one year during 2006 is $108,000 and that goes up to $112,000 in 2007."

Another positive change is regarding retirement plan contributions. The 401(k) limit, which was $15,000 in 2006, is being raised to $15,500 in 2007. Taxpayers over the age of 50 can add an additional $5,000 each year making it $20,500 in 2007.

The "kiddie tax" also changed in 2006. In 2006, unearned income under $1,700 for children under the age of 14 was taxed at the parent's rate. In 2007, the long arms of the government are reaching up to grab certain unearned income for all children under the age of 18 and taxing them at the parent's rate.

Sansing said one thing that can benefit large practices is the telephone tax refund for 2006. "Individuals can claim a credit for a whopping range of $30 to $60, depending on whether you're single or married or have one or more kids," he said. "But businesses that can actually calculate the long distance service federal excise tax they paid may get a little more. Some bigger offices may keep track of those bills, but to most practices, it won't be worth it. There is a formula we use." For physicians who have been considering that new car, boat or RV, 2007 is the time to buy it. Since Tennessee, unlike most states, doesn't have a state income tax, all sales tax for these large items can be deducted this year on your federal income tax return. The actual sales tax can be deducted on your 2006 taxes if you have a record of the sales tax you've paid. Otherwise, you can use the standard sales tax deduction from the IRS tables.
Sansing said practitioners should be sure to keep up with mileage on any business trip made by automobile. Although you don't have to keep receipts for gas purchased, you do have to document the miles.

Mileage deduction rates for 2006 were 44.5 cents per mile. For 2007, it's 48.5 cents per mile.

"One of the very best things if they have an employee-sponsored retirement plan is that they can deduct their contributions on the 2006 return, but don't have to fund it until the due date of their tax returns including extensions," Sansing explained. "The most typical plan doctors have is a contribution limit of $44,000, which includes deferrals. For 2007, the maximum for defined contribution plan goes up to $45,000, assuming the doctor has annual compensation of at least $220,000 in 2006. For 2007, he has to have at least $225,000 to get the maximum pension contributions."

Don Royston, a principal with Dent K. Burk Associates in Johnson City, said Congress continues to tinker with the tax code every year.

"As late as the middle of December, they were at it again, reducing tax rates, adding new credits and increasing phase out limits," he said. "Changes were made so late in the year that the IRS forms are not correct. For the 2006 tax year, numerous new provisions have been introduced."

Royston pointed to the April 17 deadline physicians have this year to make deductible contributions to SEP-IRA and Keogh plans.

"Some plans must have been established by year end to qualify," he said. "This reduces current taxes at the practice level and defers taxes at the individual level until retirement and possibly beyond."

Royston mentioned tax credits that may be available for energy efficiency. "Purchasing a hybrid or alternative vehicle in 2006 may make you eligible for a credit of up to $3,400 depending upon the type of car," he said. "Also, you may get a break for making energy-efficient improvements to your home or business. Installing new windows, skylights, outside doors, high-efficiency furnaces or central air conditioning in 2006 may qualify for a credit of up to $500. An additional credit of up to $2,000 is available on the purchase of solar panels or solar water heating systems put into use in 2006.

Even though there are no deductions for the value placed on services provided to a charity, some costs associated with volunteering may be deducted, Royston said.

"Deductible expenses include out-of-pocket costs for transportation, lodging and meals when you travel in connection with charitable work, as long as there is no significant element of personal pleasure or vacation," he said. "You can also take a deduction of 14 cents per mile plus parking fees and tolls for philanthropic driving. Other charitable deductions include the cost of supplies such as stamps, stationery and the like that your charitable work requires."

Click here to read the article at the East Tennessee Medical News website.