by Charles Blair, DDS and John McGill, MBA, CPA, JD
I am currently working as an associate in a large group practice. The practice pays me a commission (35 percent of collections), but provides no additional fringe benefits for me. How can I receive medical insurance coverage, disability insurance coverage, medical reimbursement, child care, and other fringe benefits on a tax-free basis?
We would recommend that you have your employer pay all medical insurance premiums for you and your family, disability insurance premiums, medical reimbursement expenses (for items not covered by medical insurance), as well as your dues, subscriptions, licenses, fees, continuing education, business car, travel and lodging, and meals and entertainment expenses out of its funds. Then, your employer would simply deduct these amounts paid on your behalf from the compensation otherwise due to be paid to you before your salary is calculated and paid, to the extent that the employer is not otherwise obligated to pay any of these items on your behalf under the terms of your current employment agreement. By utilizing this strategy, you will be able to convert all of these expenses from an after-tax basis to a pretax basis, which is equivalent to giving you a tax deduction for them. Furthermore, this strategy also benefits your employer, since the amount of salary otherwise paid to you will be reduced, thereby reducing its federal and state payroll tax liability.
Several years ago, I paid $10,000 for 250 shares of stock in a publicly traded company at a price of $40 per share. Recently, the stock split three for two, and I received an additional 125 shares. Thereafter, I sold all of my shares for $45 each. What is my total gain on this transaction, and do I report this as a short- or long-term capital gain?
Following the stock split, you owned 375 shares, for which you had paid a total of $10,000, so that your cost basis per share is $26.67 ($10,000 ÷ by 375 shares). Accordingly, gain on the shares you sold is $18.33 per share, less any commission and other expenses of the sale.
Since you held the original shares for more than one year, those shares would qualify for long-term capital-gain treatment at a maximum federal income tax rate of 20 percent. Moreover, the shares received under the stock split will also qualify for long-term capitalgain treatment, so that the same favorable tax rate also applies for those shares.
Last year, I received a substantial inheritance, most of which was stock from my father's estate. He had held these shares for many years, and most of the shares had appreciated substantially since his date of purchase. I own shares of stock that have appreciated quite rapidly over the past two years, but which have realized a smaller gain than those which I inherited. I am contemplating making a large contribution to my church's capital building campaign, and I need to know which shares of stock I should contribute in order to receive the most favorable tax results.
Your shares. The shares of stock received from your father's estate received a stepped-up basis to their fair market value at his date of death. Given the recent stock market performance, it is unlikely that they have appreciated substantially since his date of death. Accordingly, there is probably little appreciation in these shares. So, you could sell these shares and owe little in the way of federal and state income tax on the proceeds.
On the other hand, you can reap substantial tax benefits by gifting the appreciated shares of stock that you have owned personally. By doing so, you can receive a federal and state income tax deduction equal to the fair market value of the stock at the date of this gift, with all unrealized appreciation going untaxed for federal and state income tax purposes.
Dr. Blair is a nationally known consultant and lecturer, and is a member of the American Academy of Dental Practice Administration. 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 ($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.
