Charles Blair, DDS
John McGill, MBA, CPA, JD
My dental practice is organized as a C corporation, which, in Virginia, is allowed to make investments in its name. I am interested in purchasing a piece of waterfront property and building a house on it in five or six years.
If I purchase the property in the corporation`s name, would I be able to deduct any improvements to the land, such as installing a driveway or bulkhead along the waterfront? If so, how would I claim these deductions and how would they affect the cost basis when I buy the property from the corporation? My accountant tells me that if I don`t pay at least the purchase price to the corporation in five or six years, I would be inviting an audit.
We would not recommend that you acquire the real estate through your professional corporation. The corporation`s subsequent sale to you will trigger double taxation on any appreciation in the value of the property, since the gain will be taxed at both the corporate and individual levels.
You will obtain a more favorable tax result by holding the property either individually or in a limited-liability company where only a single level of tax will be imposed.
You would not be able to deduct any improvements to the land given that it is held as an investment and not otherwise used in your trade or business. If you incur interest expense in connection with the property, it would be investment interest and only deductible to the extent of investment income.
I read your recent article regarding the deductibility of disability insurance premiums that had been reimbursed to the doctor for those years in which a claim was not made. What do I have to do to make these reimbursements tax-de-ductible? Do I need a corporate resolution? I practice as a C corporation.
The correct strategy for the payment of disability insurance premiums is to have the doctor personally pay the premiums when they are due. In the event the doctor does not become disabled, the corporation will reimburse him or her for the premium payments made, following the close of the policy year. The reimbursements are fully deductible to the corporation under Code Section 162(a) and the regulations thereunder.
The critical issue in this area is the taxation of disability benefits. Code Section 104(a)(3) provides that gross income does not include the benefits when the premiums are paid by the employee, but would include the benefits when the premiums are paid by the employer.
In Private Letter Ruling 8027088, the IRS rules that where a doctor paid disability premiums personally in the year of his disability, the proceeds are completely tax-free despite the fact that in the previous two tax years the premiums had been paid and deducted by his professional corporation.
I support my elderly mother whose only source of income is approximately $10,000 a year in Social Security benefits. I have been told that you cannot claim a dependency exemption for someone who is making more than $2,650 in annual income.
Is there any way I can claim her as a dependent?
Under Revenue Ruling 74-543, Social Security benefits do not count as gross income for purposes of determining eligibility for dependency exemptions. Accordingly, you can claim your mother as a dependent on your federal income-tax return as long as any other income she receives does not exceed the $2,650 threshold. However, to qualify for the exemption, you must prove that you have provided more than 50 percent of her total support.
Dr. Blair is a nationally known consultant and lecturer. McGill is a tax attorney and MBA. They are the editors of the Blair/McGill Advisory, a monthly newsletter helping dentists to maximize profitability, slash taxes and protect assets. The newsletter ($149 a year) and consulting information are available from Blair/McGill and Company, 4601 Charlotte Park Drive, Suite 230, Charlotte, NC 28217 or call (704) 523-5882.
