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Medical Practices

Should I Pay my Spouse a Salary?

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 It’s not worth the Taxes, Right? 

Spouses Working Together

It is not uncommon for one’s spouse to work in the family business, whether as manager or in some other capacity. Assume that Nicole Neurologist owns a medical practice. Her husband, Josh, supervises billing and IT operations. Is it worthwhile for both spouses to receive a salary? It may seem pointless. After all, their money ends up in the same bank account anyway. If Nicole has reached the maximum Social Security and unemployment thresholds, why pay Josh a salary and incur additional steep payroll taxes? While that is true, there are several advantages to employing the spouse that are worth considering.

Social Security Disability Benefits and Lost Wages

If Josh became permanently disabled, he would not receive Social Security benefits for his disability unless he satisfied two different earnings tests.  He must meet a “recent work” test based on his age at disability. For example, at age 31 or more, an individual must work five out of the ten years prior to claiming disability. He must also satisfy a “duration of work” test based on his age at disability. At age 50, he needs to have worked seven years in total prior to his disability.  If Josh was injured by an insured party, unless he has proof of a history of employment, he would not be able to recover any lost wages.

Enjoy Self-Employment Tax Savings

If Nicole’s business income is reported on Schedule C, she deducts the medical insurance expense for her and her family on page 1 of Form 1040. However, if Josh is an employee, then he can be the insured. She can deduct the medical insurance as a business expense on Schedule C.  This would result in significant tax savings, as she now saves the 3.8% Medicare portion of the self-employment tax; good deal for an expense she is incurring anyway.

Good Credit is Essential

Even if Nicole is the breadwinner, there may come a time that Josh will need to rely on his own credit history. If he is paid a salary it will be easier to obtain the credit he will need.

Boost his Social Security Benefits

The amount of Social Security benefits one receives is determined by the average of the 35 highest yearly salaries. Even if Josh’s earning power appears meager, one never knows what the future holds. If he eventually gets a more lucrative job, the years he received a salary from Nicole’s firm may ultimately boost his benefits significantly.

Maximize Pension Contribution

As an employee, Josh can be enrolled in the company pension. This allows the company to make contributions on his behalf. By adding Josh’s pension contribution to Nicole’s, the couple will enjoy increased tax free growth on their retirement funds, while the couple saves on both US and NJ income taxes.

Get a Dependent Care Credit

Unless both spouses have earned income they are not entitled to the dependent care credit, which is currently up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children.

Additional Benefits

There are additional benefits to paying your spouse a salary. Call for a consultation.

 

 

Upcoming UA Seminar: Do You Know the Real Value of Your Medical Practice?

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You probably think you already know the value of your business. After all, who would know it better than the owner? The reality is, however, that there are several factors that impact the value that many business owners are unaware of.  This topic will be addressed at the upcoming complimentary U&A seminar, the first installment in a four part series tailored to medical and healthcare professionals. Issues covered will include:

  • What elements and factors enter into the value of your healthcare practice?
  • How can you increase and maintain the value of your medical practice?
  • How and why CPT codes and RVUs impact value
  • Value for Divorce vs. Value for Buy-Ins/Buy Outs
  • Starker I and II: a brief overview of these fundamental laws 

 The seminar will take place in our office (1581 Route 27, Edison, NJ) on Tuesday morning, Dec. 10th, at 8:30 am to 10:00 am and will be presented by Jeffrey D. Urbach CPA/ABV (Accredited in Business Valuations). Jeff, who has co-authored Continuing Professional Education (CPE) courses in the field of business valuation, will explain the benefits of understanding your practice’s value. He will also highlight the various factors that can impact its value.

For more information, click here: Medical Seminar Flyer

 

 

Tax Planning Tips for the new 3.8% Net Investment Income Surtax

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With a new 3.8% tax on “unearned” income kicking in in 2013, it’s very difficult to limit your tax to just “ordinary” income tax. If your income is earned, you pay 15.3% Self-Employment (Social Security) tax. If your income is un-earned, you now have the new 3.8% Net Investment Income (NII) tax to pay.

Profits from an S corporation are just about the only income that escapes Self-Employment tax as well as the 3.8% NII tax. The S corporation is now an even more attractive form of entity to minimize taxes for owners of certain businesses, depending upon the facts and circumstances. After paying reasonable compensation to the owners, the remainder of the profits flow through to owner’s personal tax returns subject only to income tax, not Self-Employment or NII tax.

 There are several areas you can address to possibly reduce your overall tax. Is your “Reasonable Compensation” unreasonably high? If it is, you may be paying Social Security tax on that compensation unnecessarily. Even if you are over the Social Security wage limit ($113,700 in 2013) you still continue to pay the Medicare tax of 2.9% coupled with the new 0.9% Medicare surcharge for high-wage earnings totaling 3.8%. Find out what is the standard of executive compensation for companies of your size, industry niche and profitability. [Read more…] about Tax Planning Tips for the new 3.8% Net Investment Income Surtax

Prevent Headaches with our Free Physician’s Financial Checklist

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Maintaining a medical practice is becoming increasingly challenging from a financial standpoint. There are so many details to keep track of, and they are constantly evolving. Urbach and Avraham is proud to offer a free comprehensive physician’s financial checklist to help with this task. Our checklist, which is geared to the sole-practitioner as well as to larger medical practices, will help you:

  • Reduce your taxes
  • Secure your assets
  • Take advantage of various tax credit opportunities
  • Prepare your budget
  • Address compliance issues including DOL and sales tax issues
  • Grow and transition your medical practice

To view our physician’s checklist, click here:   Physician’s Financial Checklist

Congratulations to Claire Snow, Certified Public Accountant

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Congratulations to Claire Snow on her well-deserved designation as a Certified Public Accountant (CPA). Claire passed all four sections of the CPA exam on the first sitting. As an integral member of the Urbach & Avraham team for the past 7 years, Claire has continually refined her tax and accounting skills. Clients from a wide range of industries have benefited from her expertise, including medical and health care practices and staffing agencies.

Claire, who is also a Certified Fraud Examiner, has applied her forensic accounting abilities in the reconstruction of books and records, and has frequently prepared court accountings for executors, trustees and guardians. Her unique expertise and experience is reflected in the outstanding success of the U&A tax and forensic teams.

The Physician “Megagroup”: Pros and Cons

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The constantly evolving healthcare industry has caused many physicians to rethink their practice options. The most common options available today are to stay as is, become an employee of a hospital or healthcare network, or sell the practice to a hospital or healthcare network. There is another option which maybe the best choice for many medical practices: the “megagroup”.

A “megagroup” comprises several independent medical practices (referred to as divisions) that join together and become one larger practice. It can be a single specialty or multispecialty practice, usually staffing at least 30 to 40 physicians. As with most big decisions, there are pros and cons to consider.
A major advantage to joining a “megagroup,” rather than aligning with a hospital or healthcare network, is that you retain a high degree of autonomy while still maintaining, and very often improving, quality of care. It also can improve a physician’s bottom line, as many administrative positions (e.g billing, managed care contracting, human resources, purchasing, information technology, accounting) are centralized in a central business office (CBO). Other advantages include an increased likelihood of recruiting and retaining top physicians, greater access to information technology (IT), improved ability to deal with regulatory pressures, and greater access to bank financing.

There are a number of risks to consider as well. There is typically a large initial capital investment, and joining practices links the physician to the group debt of the “megagroup”. There is also a very considerable time commitment on the part of the founding partners in getting the operation going and keeping it afloat. Finally, if it is unsuccessful, the costs associated with member withdrawal (or even worse, an “unwinding” of the entire “megagroup”) are significant.

Is joining a “megagroup” the right decision for your practice? Call Urbach & Avraham today and let our experienced team of CPAs guide your medical practice in the direction that best suits your needs and aspirations.