The best time to do tax planning and look at ways to save money in taxes is before the end of the year. This is also the time to set up a retirement plan or to make sure your retirement plan is being fully funded for the year.

In talking with medical professionals I find they are often focused on doing a great job in taking care of their patients but are not as involved in reviewing the business finances and looking for ways to save money in taxes. In this article I want to share with you some ideas for improving the practice bottom line, provide ideas for saving money in taxes and suggestions for retirement financial planning for the future.

Every business or practice keeps a set of books with all of the bank and credit card transactions recorded each month. The first step in the tax planning process is to get the 2011 medical practice books up to date so that you have solid financial statements such as a Profit and Loss Statement and Balance Sheet to review. The Profit and Loss or Income Statement will show the revenue the practice has received from patients and the various expenses in the practice. It will also show the Net Income or Profit that has been made in the practice for the year through the current month. Your accountant or CPA can assist in putting together this information for you.

The next step in the tax planning process is to have you or the office administrator  estimate for the tax professional the projected revenue or expenses that will occur for the remainder of the 2011 tax year. With this information the tax professional can receive an estimate of income and expenses in order to determine the estimated bottom line net income or profit that the practice will achieve by the end of the year.

The tax professional will use the total year 2011 estimated net income for the practice combined with information from the previous year 1040 individual tax return to provide an estimated individual tax liability for the 2011 tax year.  With this information the tax professional can provide some tax planning strategies that can reduce your taxes and are listed below:

• Reduce Current Year Revenue – By delaying the year end receipt of patient billing or revenue it is possible to defer the income and taxes to the following year. The practice should have the use of the funds in early 2012 but the taxes are deferred until the 2012 estimated taxes are paid or a final 2012 tax return is filed.
• Increase Current Year Capital Equipment Expenses – In most cases a practice is looking for ways to reduce expenses. However, at the end of a year it may create   tax savings by purchasing medical equipment or office furniture and equipment in order to take advantage of the write offs at the end of the year. The tax law provides for 100 percent bonus depreciation and also Section 179 first year expensing of equipment. By buying the furniture or equipment in 2011 that you may have purchased in the first months of 2012 you are able to reduce your tax liability in 2011. The tax savings are dependent on your corporate tax rate if a C Corporation or individual tax rate if a partnership or S Corporation is used for filing tax returns for the practice.
• Increase Current Year Purchases of Medical or Office Supplies – As stated above practices are typically looking for ways to reduce expenses. Again it may provide a tax savings to buy medical or office supplies by December 2011 that would normally be purchased in the month of January. .
• Set Up or Add to Your Retirement Plan – Another method to reduce the tax bill and put money away for your future is by setting up or funding the retirement plan for the practice by year end. Depending on the plan and how it is funded this could represent significant tax savings. It is recommended that you discuss these decisions with your CPA, tax or financial advisor to make sure the right retirement plan is being used and to determine the level of funding that would be appropriate for your situation. As an example, if a medical professional in a 35 percent tax bracket invested $10,000 in their retirement plan it could allow them to save $3,500 in taxes.
• Prepare a 2012 Budget for The Medical Practice Income and Expenses – Another strategy that can benefit your practice is to meet with your office administrator or accountant to have them prepare a budget for the 2012 year of the medical practice income and expenses. This will enable the medical professional to review with their staff ideas to increase income and reduce the expenses for 2012. By taking a proactive approach it will provide for better management of the medical practice finances in 2012 and provide tax planning opportunities for the future.

We have found that the medical professionals that take a more proactive approach to the business finances of their practice particularly at year end are able to save money in taxes and insure that their retirement plans are properly funded to enable them to save money for the future.

Don Thomas is a Certified Public Accountant with over 24 years as a CPA and 13 years assisting businesses and medical professionals in the Central Florida area. Sign up for a free monthly e-mail tax newsletter with money saving tax tips at www.donthomascpa.com. He can be reached by e-mail at don@donthomascpa.com.

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