An ADA tax credit?

May 1, 2002
Last year, I purchased an intraoral camera system to provide dental services to hearing-impaired patients, as well as to my other patients.

Last year, I purchased an intraoral camera system to provide dental services to hearing-impaired patients, as well as to my other patients. I was planning to take the Section 44 Americans With Disabilities Act (ADA) tax credit for this purchase, but my accountant told me that I can no longer do this. Is this correct?

Yes. The Tax Court ruled in Fan vs. Commissioner, 117 TC 3 (6/24/01) that the purchase of an intraoral camera system for use in a dental practice was not an "eligible access expenditure" under Section 44(c) of the tax law, since the system was not marketed as, acquired, or used specifically as an auxiliary aid or service to ensure communications to comply with the applicable requirements of the ADA.

Even though the system represented a more effective, efficient way to communicate with hearing-impaired patients, the $5,000 tax credit was disallowed.

My practice has grown in recent years, and I would like to substantially increase the amount of money I save for retirement. This past year, I have only funded an IRA contribution for myself and my wife. Now, my stockbroker recommends a Simplified Employee Pension Plan (SEP). Is this the way to go?

Not likely. For most doctors, the next retirement plan that they should establish once they have fully funded their IRA accounts is a SIMPLE-IRA plan.

Under this plan, a doctor and each participating employee can elect to defer up to $7,000 of their salary into a SIMPLE-IRA account on a tax-deductible basis. In addition, the practice makes a matching contribution equal to the salary percentage deferred, up to a maximum of 3 percent.

In situations like yours, we recommend employing your spouse in the practice, if feasible. As long as your spouse provides reasonable services in ex change for compensation, she can be paid a salary, allowing her to defer up to $7,000 in a SIMPLE-IRA account, as well as qualifying her for the 3 percent matching contribution.

Very few setup or administrative costs are involved with SEP or SIMPLE-IRA plans. The main advantage of a SIMPLE-IRA plan, though, is much lower staff-funding costs.

As a general rule, doctors sponsoring SEP plans must contribute the same percentage of pay for staff members as they do for themselves, resulting, many times, in contributions of 10 to 15 percent on behalf of the staff. In comparison, SIMPLE-IRA matching contributions are required only for those employees who actually participate, and then up to a maximum of 3 percent of pay. Most doctors find that they can save thousands of dollars in staff-funding costs through operating a SIMPLE-IRA plan, rather than a SEP.

For more information about selecting retirement plans under the new tax law, send a self-addressed, stamped envelope (55

Recently, I read that all interest on student loans is now fully deductible. Is this true?

Section 221 of the new tax law continues to allow deductions of student loan interest each year up to $2,500. Under the new law, interest paid during the entire loan repayment period can be deducted, instead of only that paid for the first 60 months.

Moreover, the income limits for deducting student loan interest also have been increased. Beginning this year, the deduction is phased out for single doctors whose modified adjusted gross income (AGI) exceeds $50,000 and for married doctors whose modified AGI exceeds $100,000.

Dr. Blair is a nationally known consultant and lecturer, and is a member of the American Academy of Dental Practice Administration.

Mr. McGill is a tax attorney, CPA, and MBA, and is the editor of the Blair/McGill Advisory, a monthly newsletter helping dentists to maximize profitability, slash taxes, and protect assets. The newsletter ($177 a year) and consulting information are available from Blair/McGill and Company, 2810 Coliseum Centre Drive, Suite 360, Charlotte, NC 28217 or call (704) 424-9780.

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