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This quarterly newsletter contains a broad range of article topics, including strategic planning for practice management, tax law that affects the choice of accounting method and patient confidentiality issues. There also are articles offering tax advice, practice management topics and articles concerning Medicare and Medicaid issues.
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P
But, with the repeal of the income limit on conversions this year, you may now consider the advantages of a Roth IRA.
Keep in mind that funds converted from a traditional IRA to a Roth IRA are generally subject to tax at the time of conversion. If you have “basis” in your traditional IRA funds – which occurs if you made contributions to the account that were not tax-deductible – a portion of the amount transferred to a Roth IRA will not be taxed.
A one-time advantage is available only for conversions made during 2010. You can elect to defer the tax payment relating to the Roth conversion.
Any income relating to a conversion made during 2010 can be reported later – half on your 2011 tax return and half on your 2012 tax return. That means you can make the transfer on or before Dec. 31, 2010, and
pay the resulting tax on April 15, 2012, and April 15, 2013.If you decide to make a Roth conversion, you will need
to consider a number of factors.If the investments in your traditional
IRA are temporarily depressed in value because of a moribund stock market, the amount of income subject to tax may be lower than after the stock market recovers. In addition, tax rates will probably be higher in future years. So paying the tax in 2010 may actually result in a lower tax bill than taking advantage of the two-year deferral.
No one likes to pay taxes early. But assuming your retirement investments will increase in value, transferring money to a Roth IRA sooner rather than later may result in a lower tax liability.
That fact, combined with the tax payment deferral available for 2010 con-versions, means that you should at least
consider a transfer before the end of this year. – Michael Redemske, CPA
Roth IRA conversion continued from page 2
Physicians need to act fast if they want to apply for up to $44,000 in federal subsidies available to those who can show meaningful use of certified electronic health records.
The Centers for Medicare & Medicaid Services (CMS) released the final rule on July 13, relaxing some of the requirements for “meaningful use” of an electronic health record (EHR) system. To satisfy Stage 1’s definition of meaningful use, physicians will need to show they have met the measures associated with 15 core objec-tives. They must also fulfill at least five of 10 additional objectives,
the balance of which can be deferred to the following year. Eligible providers must meet all Stage 1 requirements by 2014 to receive payments.
Those providers who do
not meet meaningful use of EHRs by 2015 will face reduced Medicare payments under a 2009 American Recovery and Reinvestment Act penalty provision.
For a complete list of measures and objectives, visit www.cms.gov/EHRIncentivePrograms. CMS established the website to provide up-to-date, detailed information about the incentive program.
In addition to the definition of meaningful use, the website includes fact sheets detailing pro-vider eligibility, registration steps and other requirements. Physicians should check the website periodi-cally for a listing of educational events scheduled to help them understand how to take advantage of the program.
Physicians who want to apply for the federal incentives should prepare now because changes may be needed to their practices’ documentation processes, work f lows and
other procedures.Medical practices
that are already using EHRs have a leg up. They may be able to upgrade their systems or add
needed components that have been tested and certified. A certified EHR can include a complete system or a
combination of modules.See Meaningful use inside
I n s i d e
I n s i d e
Fall 2010➜Roth IRA conversion: Just
what the doctor ordered?
➜How to plan for a future of higher income tax rates
With the repeal of the income limit on
conversions this year, you may now consider
the advantages of a Roth IRA.
The timing may challenge your practiceMeaningful Use
If you don’t meet meaningful use of electronic health
records by 2015, you will face reduced Medicare payments.
A financial and management bulletin to physicians and medical practices from:
The technical information in this newsletter is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS. © 2010 CPAmerica International
Your Healthy Practice
CERTIFIED PUBLIC ACCOUNTANTS
3330 W. Esplanade AvenueSuite 100
Metairie, Louisiana 70002
The prognosis for income taxes points to a future with higher rates.
If your medical practice operates as pass-though entity, with the income tax on your profits paid on your personal income tax return, there is a good chance you will experience higher tax rates in the coming years.
An increase in the Medicare tax is already in place. Beginning in 2013, the employee’s share of the Medicare tax will increase from 1.45 percent of earned income to
2.35 percent of earned income. At the same time, a new 3.8 percent Medicare tax will apply to most income from investments. The new Medicare taxes apply to singles with modified adjusted gross income in excess of $200,000 and to joint filers with modified AGI of $250,000.
Unlike the existing Medicare tax, which is paid through payroll withholding, the new taxes will be paid as part of your annual federal income tax return filing. Unless your medical practice pays its own taxes as a corporation, the profits from your practice will be added to your other income to possibly increase your AGI to a level at which the new Medicare tax applies, beginning in 2013.
For 2010, the highest marginal individual tax rate is 35 percent, while dividends and long-term capital gains are taxed at no more than 15 percent. The top tax rate is scheduled to rise to 39.6 percent beginning Jan. 1, 2011. At the same time, the maximum tax rate on long-term capital gains will increase to 20 percent, and dividends will be taxed at the same rate as ordinary income.
If all these changes come to pass, your marginal tax rate could be as high as 40.5 percent on earned income, 43.4 percent on dividends and interest, and 23.8 percent on long-term capital gains.
With tax rates expected to rise, the traditional tax-planning technique of deferring income to future years and accelerating deductions into earlier years may prove to be counterproductive. If you expect to face higher marginal tax rates in the future, you may consider options to accelerate income and defer deductions.
Here are two options to consider:
Slow down your depreciation deductionsBusiness assets, other than buildings, are generally
depreciated using an accelerated method that results in higher depreciation deductions in the early years of the asset’s use. Though seldom employed, the tax law lets you elect to use the straight-line depreciation method instead.
You can also forgo the expensing election that generally allows an immediate write-off of up to $250,000 (in 2010) of the cost of qualifying assets in the year they are first placed in service. These moves will not affect the total amount of your depreciation deductions, but they move deductions from early years to later years.
Control the timing of your income If your business uses the cash receipts and disburse-
ments method of accounting, you generally do not pay tax on income until you actually receive payment.
One choice to accelerate income is to switch to the accrual method of accounting. Another possibility is to offer discounts to encourage early payments. Cash method taxpayers generally try to pay their deductible expenses as soon as possible and delay the receipt of cash income. You may be able to reverse this strategy.
Keep in mind that Congress can change the tax law at any time. And even changes scheduled for future years may be modified or repealed before they take effect. Consult your tax adviser before adopting any radical tax-planning strategies. – Michael Redemske, CPA
How to plan for a future of higher income tax rates
Because many of the measures match those already being reported by physicians participating in the Physician Quality Reporting Initiative, practices already using EHRs are in the best position to take advantage of the stimulus money and are eligible to receive bonus payments from both programs.
Step by stepPractices should create a team of physicians and staff to be
responsible for developing and implementing steps and a timeline for meeting meaningful use. They will need to:
1. Review the final ruling and ensure a clear understanding of the required meaningful use objectives and measures. For example, a patient seen multiple times during the EHR reporting period is counted only once. Therefore, the problem list would not necessarily have to be updated at every visit.
2. Determine whether to seek incentive payments through Medicare or Medicaid, based on the practice’s patient base. Physicians can transfer from one to the other only once. Those participating in both the Medicaid and e-prescribing incentive programs can receive payments from both, but physicians eligible for the Medicare incentive cannot receive payment from the e-prescribing program.
3. Analyze the practice’s current system capabilities against the meaningful use measures.
4. Identify the gaps between current and required use. In some cases, a practice’s system may have the function-ality to meet some criteria, but it has not been utilized.
5. Determine system needs and begin the process of reviewing and selecting a vendor.
6. Analyze current office procedures, personnel and work flow to determine changes needed to comply with meaningful use.
7. Create written policies regarding new procedures and responsibilities needed, and ensure staff members understand them.
8. Implement any current system’s reporting capabilities that may not previously have been tapped.
9. Work with the selected system vendor to educate physi-cians and staff on the new system and processes.
10. Identify unanticipated problems that arise, and modify procedures as needed.
Offers of helpThe federal government has established a national network
of regional extension centers and cooperative agreements to help solo and small group practices of primary care physicians and other healthcare providers adopt meaningful use of EHRs.
The initiative is designed to support those predominately serving uninsured, underinsured or medically underserved patients.
The help offered includes, but is not limited to:
▲ Unbiased guidance on vendor selection and group purchasing
▲ Practice and work flow redesign
▲ Functional interoperability and health information exchange
▲ Project management and implementation
▲ Privacy and security best practices
▲ Local work force support
▲ Everything involved in ensuring meaningful use of EHRs
To find a regional extension center near you, visit http://healthit.hhs.gov/portal/server.pt. Click HITECH Programs and then the HIT Extension Program link. A table and an interactive map are at the bottom of the page. Also on this site, click State Health Information Exchange Program in the column on the left.
For additional links to information on the incentive programs, go to www.cms.gov/EHRIncentivePrograms, and scroll to the bottom of the page. – Irene Lombardo
Meaningful use continued from front
Physicians who want to apply for the federal
incentives need to prepare now because changes
may be needed to their practices’ documentation processes, work flows and
other procedures.
If all these changes come to pass, your marginal tax rate could be:
40.5% on earned income43.4% on dividends and interest23.8% on long-term capital gains
▲ Accelerate income
▲ Defer deductions
If you expect to face higher marginal tax rates in the future, you may consider options to:
If you have retirement money accumulated in a traditional IRA, you may want to consider transferring some or all of those funds to a Roth IRA before the end of this year.
This is a new opportunity. Prior to 2010, you were not permitted to convert funds from a traditional IRA to a Roth IRA if your adjusted gross income, not including any income caused by the conversion, exceeded $100,000.
But beginning this year, the income limit for a conversion is repealed. Anyone who has funds in a traditional IRA can convert those funds to a Roth IRA on or after Jan. 1, 2010.
It’s true that you will have to pay income taxes on the amount transferred. But you may still gain an overall tax advantage.
Roth IRAs have been around since 1997. The advantage of
having funds in a Roth IRA rather than in a traditional IRA is two-fold:
▲ Roth IRAs have no minimum distribution requirements. With a traditional IRA, you must begin withdrawals by April 1 of the year following the year in which you reach age 70½.
▲ Unfortunately, most physicians and other higher-income earners have not been able to take advantage of Roth IRAs. In 2010, contributions to a Roth IRA are not allowed if you are unmarried and your modified adjusted gross income exceeds $120,000. The comparable amount for joint filers is $177,000 in 2010.
Roth IRA conversion: Is it just what the doctor ordered?
See Roth IRA conversion on page 4
Fall 2010 Your Healthy Practice2 Fall 2010 Your Healthy Practice 3
The prognosis for income taxes points to a future with higher rates.
If your medical practice operates as pass-though entity, with the income tax on your profits paid on your personal income tax return, there is a good chance you will experience higher tax rates in the coming years.
An increase in the Medicare tax is already in place. Beginning in 2013, the employee’s share of the Medicare tax will increase from 1.45 percent of earned income to
2.35 percent of earned income. At the same time, a new 3.8 percent Medicare tax will apply to most income from investments. The new Medicare taxes apply to singles with modified adjusted gross income in excess of $200,000 and to joint filers with modified AGI of $250,000.
Unlike the existing Medicare tax, which is paid through payroll withholding, the new taxes will be paid as part of your annual federal income tax return filing. Unless your medical practice pays its own taxes as a corporation, the profits from your practice will be added to your other income to possibly increase your AGI to a level at which the new Medicare tax applies, beginning in 2013.
For 2010, the highest marginal individual tax rate is 35 percent, while dividends and long-term capital gains are taxed at no more than 15 percent. The top tax rate is scheduled to rise to 39.6 percent beginning Jan. 1, 2011. At the same time, the maximum tax rate on long-term capital gains will increase to 20 percent, and dividends will be taxed at the same rate as ordinary income.
If all these changes come to pass, your marginal tax rate could be as high as 40.5 percent on earned income, 43.4 percent on dividends and interest, and 23.8 percent on long-term capital gains.
With tax rates expected to rise, the traditional tax-planning technique of deferring income to future years and accelerating deductions into earlier years may prove to be counterproductive. If you expect to face higher marginal tax rates in the future, you may consider options to accelerate income and defer deductions.
Here are two options to consider:
Slow down your depreciation deductionsBusiness assets, other than buildings, are generally
depreciated using an accelerated method that results in higher depreciation deductions in the early years of the asset’s use. Though seldom employed, the tax law lets you elect to use the straight-line depreciation method instead.
You can also forgo the expensing election that generally allows an immediate write-off of up to $250,000 (in 2010) of the cost of qualifying assets in the year they are first placed in service. These moves will not affect the total amount of your depreciation deductions, but they move deductions from early years to later years.
Control the timing of your income If your business uses the cash receipts and disburse-
ments method of accounting, you generally do not pay tax on income until you actually receive payment.
One choice to accelerate income is to switch to the accrual method of accounting. Another possibility is to offer discounts to encourage early payments. Cash method taxpayers generally try to pay their deductible expenses as soon as possible and delay the receipt of cash income. You may be able to reverse this strategy.
Keep in mind that Congress can change the tax law at any time. And even changes scheduled for future years may be modified or repealed before they take effect. Consult your tax adviser before adopting any radical tax-planning strategies. – Michael Redemske, CPA
How to plan for a future of higher income tax rates
Because many of the measures match those already being reported by physicians participating in the Physician Quality Reporting Initiative, practices already using EHRs are in the best position to take advantage of the stimulus money and are eligible to receive bonus payments from both programs.
Step by stepPractices should create a team of physicians and staff to be
responsible for developing and implementing steps and a timeline for meeting meaningful use. They will need to:
1. Review the final ruling and ensure a clear understanding of the required meaningful use objectives and measures. For example, a patient seen multiple times during the EHR reporting period is counted only once. Therefore, the problem list would not necessarily have to be updated at every visit.
2. Determine whether to seek incentive payments through Medicare or Medicaid, based on the practice’s patient base. Physicians can transfer from one to the other only once. Those participating in both the Medicaid and e-prescribing incentive programs can receive payments from both, but physicians eligible for the Medicare incentive cannot receive payment from the e-prescribing program.
3. Analyze the practice’s current system capabilities against the meaningful use measures.
4. Identify the gaps between current and required use. In some cases, a practice’s system may have the function-ality to meet some criteria, but it has not been utilized.
5. Determine system needs and begin the process of reviewing and selecting a vendor.
6. Analyze current office procedures, personnel and work flow to determine changes needed to comply with meaningful use.
7. Create written policies regarding new procedures and responsibilities needed, and ensure staff members understand them.
8. Implement any current system’s reporting capabilities that may not previously have been tapped.
9. Work with the selected system vendor to educate physi-cians and staff on the new system and processes.
10. Identify unanticipated problems that arise, and modify procedures as needed.
Offers of helpThe federal government has established a national network
of regional extension centers and cooperative agreements to help solo and small group practices of primary care physicians and other healthcare providers adopt meaningful use of EHRs.
The initiative is designed to support those predominately serving uninsured, underinsured or medically underserved patients.
The help offered includes, but is not limited to:
▲ Unbiased guidance on vendor selection and group purchasing
▲ Practice and work flow redesign
▲ Functional interoperability and health information exchange
▲ Project management and implementation
▲ Privacy and security best practices
▲ Local work force support
▲ Everything involved in ensuring meaningful use of EHRs
To find a regional extension center near you, visit http://healthit.hhs.gov/portal/server.pt. Click HITECH Programs and then the HIT Extension Program link. A table and an interactive map are at the bottom of the page. Also on this site, click State Health Information Exchange Program in the column on the left.
For additional links to information on the incentive programs, go to www.cms.gov/EHRIncentivePrograms, and scroll to the bottom of the page. – Irene Lombardo
Meaningful use continued from front
Physicians who want to apply for the federal
incentives need to prepare now because changes
may be needed to their practices’ documentation processes, work flows and
other procedures.
If all these changes come to pass, your marginal tax rate could be:
40.5% on earned income43.4% on dividends and interest23.8% on long-term capital gains
▲ Accelerate income
▲ Defer deductions
If you expect to face higher marginal tax rates in the future, you may consider options to:
If you have retirement money accumulated in a traditional IRA, you may want to consider transferring some or all of those funds to a Roth IRA before the end of this year.
This is a new opportunity. Prior to 2010, you were not permitted to convert funds from a traditional IRA to a Roth IRA if your adjusted gross income, not including any income caused by the conversion, exceeded $100,000.
But beginning this year, the income limit for a conversion is repealed. Anyone who has funds in a traditional IRA can convert those funds to a Roth IRA on or after Jan. 1, 2010.
It’s true that you will have to pay income taxes on the amount transferred. But you may still gain an overall tax advantage.
Roth IRAs have been around since 1997. The advantage of
having funds in a Roth IRA rather than in a traditional IRA is two-fold:
▲ Roth IRAs have no minimum distribution requirements. With a traditional IRA, you must begin withdrawals by April 1 of the year following the year in which you reach age 70½.
▲ Unfortunately, most physicians and other higher-income earners have not been able to take advantage of Roth IRAs. In 2010, contributions to a Roth IRA are not allowed if you are unmarried and your modified adjusted gross income exceeds $120,000. The comparable amount for joint filers is $177,000 in 2010.
Roth IRA conversion: Is it just what the doctor ordered?
See Roth IRA conversion on page 4
Fall 2010 Your Healthy Practice2 Fall 2010 Your Healthy Practice 3
P
But, with the repeal of the income limit on conversions this year, you may now consider the advantages of a Roth IRA.
Keep in mind that funds converted from a traditional IRA to a Roth IRA are generally subject to tax at the time of conversion. If you have “basis” in your traditional IRA funds – which occurs if you made contributions to the account that were not tax-deductible – a portion of the amount transferred to a Roth IRA will not be taxed.
A one-time advantage is available only for conversions made during 2010. You can elect to defer the tax payment relating to the Roth conversion.
Any income relating to a conversion made during 2010 can be reported later – half on your 2011 tax return and half on your 2012 tax return. That means you can make the transfer on or before Dec. 31, 2010, and
pay the resulting tax on April 15, 2012, and April 15, 2013.If you decide to make a Roth conversion, you will need
to consider a number of factors.If the investments in your traditional
IRA are temporarily depressed in value because of a moribund stock market, the amount of income subject to tax may be lower than after the stock market recovers. In addition, tax rates will probably be higher in future years. So paying the tax in 2010 may actually result in a lower tax bill than taking advantage of the two-year deferral.
No one likes to pay taxes early. But assuming your retirement investments will increase in value, transferring money to a Roth IRA sooner rather than later may result in a lower tax liability.
That fact, combined with the tax payment deferral available for 2010 con-versions, means that you should at least
consider a transfer before the end of this year. – Michael Redemske, CPA
Roth IRA conversion continued from page 2
Physicians need to act fast if they want to apply for up to $44,000 in federal subsidies available to those who can show meaningful use of certified electronic health records.
The Centers for Medicare & Medicaid Services (CMS) released the final rule on July 13, relaxing some of the requirements for “meaningful use” of an electronic health record (EHR) system. To satisfy Stage 1’s definition of meaningful use, physicians will need to show they have met the measures associated with 15 core objec-tives. They must also fulfill at least five of 10 additional objectives,
the balance of which can be deferred to the following year. Eligible providers must meet all Stage 1 requirements by 2014 to receive payments.
Those providers who do
not meet meaningful use of EHRs by 2015 will face reduced Medicare payments under a 2009 American Recovery and Reinvestment Act penalty provision.
For a complete list of measures and objectives, visit www.cms.gov/EHRIncentivePrograms. CMS established the website to provide up-to-date, detailed information about the incentive program.
In addition to the definition of meaningful use, the website includes fact sheets detailing pro-vider eligibility, registration steps and other requirements. Physicians should check the website periodi-cally for a listing of educational events scheduled to help them understand how to take advantage of the program.
Physicians who want to apply for the federal incentives should prepare now because changes may be needed to their practices’ documentation processes, work f lows and
other procedures.Medical practices
that are already using EHRs have a leg up. They may be able to upgrade their systems or add
needed components that have been tested and certified. A certified EHR can include a complete system or a
combination of modules.See Meaningful use inside
I n s i d e
I n s i d e
Fall 2010➜Roth IRA conversion: Just
what the doctor ordered?
➜How to plan for a future of higher income tax rates
With the repeal of the income limit on
conversions this year, you may now consider
the advantages of a Roth IRA.
The timing may challenge your practiceMeaningful Use
If you don’t meet meaningful use of electronic health
records by 2015, you will face reduced Medicare payments.
A financial and management bulletin to physicians and medical practices from:
The technical information in this newsletter is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS. © 2010 CPAmerica International
Your Healthy Practice
CERTIFIED PUBLIC ACCOUNTANTS
3330 W. Esplanade Avenue • Suite 100 • Metairie, Louisiana 70002
(504) 838-9991 • Fax: (504) 833-7971 • www.kl-cpa.com
100 Second Avenue South, Suite 600, St. Petersburg, Florida 33701www.gsscpa.com | [email protected]
(727) 821-6161If we may answer any of your questions on the information contained in this
publication, please contact us.
