by John K. McGill, JD, CPA, MBA, and Rebecca Rodriguez, CPA
For years, employees have faced a decrease in benefits as doctors have endured a tough economy. Many practitioners feel a strong sense of loyalty to these employees and wish to reward their years of service. Is there a way to reward employees while recovering some benefit for the doctor as well? Our answer is yes.
Small business health care credit
While many doctors will not be affected by the mandated health-care offering requirements based on the number of workers employed, several will be impacted by discrimination issues. Should a doctor decide to add coverage for his or her employees, it is possible to recoup part of the added expense through the Small Business Health Insurance Tax Credit. For 2013, the credit is a maximum of 35% of the premiums paid for the employees, as long as the employer covers at least 50% of the premium. The credit expands in 2014 to max out at 50% of premium costs, providing even greater benefits.
There are two additional qualifications that must be met in order to claim the credit. The average wages (excluding owners and family) need to be less than $50,000, and the number of full-time equivalent employees cannot exceed 25. Based on the average dental practice, many doctors will be successful in claiming this credit. While there are several ways to compute the calculation, the "weeks worked" method or the method that "maximizes full-time equivalent employees" have both produced the most favorable results. The credit begins to be phased out as full-time equivalent employees exceed 10, and as average wages exceed $25,000 approaching the maximum of $50,000. Doctors' credits normally range from $500 to more than $7,000.
If you have yet to start a company retirement plan, now is the time! In addition to being one of the most tax-advantageous ways to save for retirement, there is a credit for Small Employee Pension Plan Startup Costs. This is a benefit for small employers with fewer than 100 employees during the year. If a doctor has not maintained a qualified employer plan for the previous three years, the doctor may be eligible for this credit. The credit is the equivalent of 50% of the qualified costs paid or incurred up to $500 during the first year the plan is established, as well as the two following tax years. While the credit value may seem minimal, establishing a company-sponsored plan still remains one of the best methods for doctors to reduce taxable income, save for retirement, and reward the staff.
Most doctors hold regular staff meetings, and midyear and holiday parties. In cases where the staff meetings are held on office premises, and food is provided for the majority of staff, those meals become 100% deductible. If the meetings are held off-site, the cost of renting the space is also a deductible business expense. Many doctors choose to host meetings or holiday parties at their own residence or second residence. If the practice is incorporated, it can pay fair market value rent for the space the doctor provides, creating a deductible expense for the dental corporation under Section 162 of the tax law. Additionally, the rent is not required to be included as personal income to the doctor under Section 280(A)(g) of the tax law, assuming the home is rented for 14 days or less during the year, thus providing tax-free income to the doctor.
Many doctors are taking advantage of attending continuing education meetings, seminars, or association meetings that take place in destination sites. While meal and entertainment costs incurred while travelling are still subject to the 50% limitation, it is important to remember that employee travel and lodging, along with the cost of the meetings, are 100% deductible for business purposes.
These are just a few activities that benefit the staff and provide potential savings opportunities and/or tax credits for doctors. Providing these benefits in lieu of compensation bonuses through payroll will provide the staff with tax-free benefits while reducing payroll taxes for the doctor. As a result, it is critical that doctors take advantage of these areas to ensure they do not overpay their taxes.
John McGill provides tax and business planning exclusively for the dental profession and publishes the McGill Advisory newsletter through John K. McGill & Company, Inc., a member of the McGill & Hill Group, LLC. Rebecca Rodriguez provides accounting and CPA services through Elliott Davis, affiliate of the McGill & Hill Group, a one-stop resource for tax and business planning, practice transition, legal, retirement plan administration, CPA, and investment advisory services. Visit www.mcgillhillgroup.com for more information.
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