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'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.

Tax accountants offer numerous tips when filing this year's taxes and some projections that can make future tax planning easier.

Certified public accountant George Butler of GranthamPoole CPAs in Jackson, said tax benefits are still available if you're in the Hurricane Katrina Gulf Opportunity Zone (GO Zone). One is the work opportunity credit and another is an increase in bonus depreciation deductions.

"One thing we're looking at that affected employers in 2005, 2006 and part of 2007 is the work opportunity credit," Butler said. "If they hire a new employee that resided in the GO Zone as of Aug. 28, 2005, the first $6,000 in wages they pay that employee are eligible for calculation of the credit, as long as they're in the GO Zone. It works out to be a $2,400 credit for each new hire that is paid $6,000 or more. And, they provided in tax laws a GO Zone depreciation deduction that is allowing businesses to write off assets in the GO Zone much faster. This bonus depreciation, referred to as section 179, allows a maximum deduction of $108,000 for 2006. For businesses in the GO Zone, that maximum is increased to $208,000."

Butler said physicians and clinics should maximize retirement plans for 2006 and 2007. While all plans aren't for everyone, there is a plan for everyone.
For 2006, the maximum 401(k) deferrals were $15,000. In 2007, that will be increased to $15,500, Butler said.

"If you're 50 or over you can defer an additional $5,000 in 2007," he pointed out. "And, another retirement planning technique people are beginning to look at for 2006 and beyond are nondeductible IRAs."

A new law enacted in September removes income restrictions for Roth IRA conversions. Starting in 2010, high-income individuals can roll the IRA contributions into a Roth IRA.

According to Butler, a common oversight he sees physicians make is that they don't get reimbursed for business expenses that they pay out of their own funds.
"Keep up with your expenses," he said. "If it's anything work-related, you can get reimbursed and the company can take the deduction," Butler said. "And watch for alternative minimum tax (AMT). It's affecting more and more people. Really the best way to avoid it is to discuss it with their CPA before the end of the year. You need to run a tax projection to find out if they'll be impacted or not. That helps determine whether they should take certain deductions in the current year or wait until the following year. If AMT will apply you may be better off not taking a deduction this year, but the following year so you need to talk to your advisor in advance. Timing your deductions can save significant money when AMT comes into play."

Butler also recommended that physicians who practice as an S corporation pay themselves a reasonable salary from that corporation.

Marsha Dieckman, Horne LLP, called the tax situation since Katrina "a long, strange trip."

"Since Hurricane Katrina in 2005, Congress has been busy passing lots of legislation," Dieckman said. "Three tax acts were enacted in 2006. The benefits are certainly great, but keeping up with the changes has been overwhelming at times. Most recently, Congress passed the Tax Relief & Health Care Act, ninth hour legislation to extend a lot of tax benefits that expired after Dec. 31, 2005. Items such as the sales tax deduction for individuals, tuition and fees deduction, and the 15-year depreciable life for leasehold improvements were extended, just to name a few.

"The 'Health Care' part of the name comes from the numerous improvements to the Health Savings Accounts (HSAs). For practices struggling with rising health insurance costs for their employees, this is the way of the future to help curb those costs. Many practices will begin investigating the benefits of incorporating these rules into their own healthcare plans."

Dieckman said retirement plans are a very important planning tool for physicians and every group should be under the counsel of a tax advisor and benefits administrator to maximize the benefits. Under the Pension Protection Act of 2006, numerous retirement plan provisions were extended. Increased pension contribution limitations that were scheduled to revert to lower levels were made.

"And of course, there remain the provisions for those physicians practicing in the GO Zone," said Dieckman. "Purchases of assets through Dec. 31, 2007 are eligible for the increases in the section, expensing up to $208,000 in 2006, as well as the 50 percent bonus depreciation deduction. The bonus depreciation applies to real property placed in service through Dec. 31, 2008. These provisions are of particular importance to practices trying to rebuild and those who may be considering that new EKG machine."

Another new item to take advantage of for 2006 only is the long-distance telephone excise tax refund. Phone companies were found to have charged taxes they shouldn't have and they have to refund those taxes. For a 41-month period beginning March 2003 through July 2006, the federal excise taxes on these long-distance charges are available.

"There is a short and sweet formula method that can be used or you can choose to gather the actual charges paid over this time period," noted Dieckman.
Remaining in touch with your tax advisor throughout the year helps prevent unwanted tax consequences on tax filing day, Dieckman said.


April 2007

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