There's Still Time for Year-end Tax Strategies

You must act fast to maximize one major deduction.

By Chris Kolenda Esq, CPA, MBA, & Jerry Helzner, Senior Editor

Every year around this time, a spate of articles appears urging businesses and individuals to hurry and take advantage of money-saving year-end tax strategies before the calendar turns from December to January. There's no denying that this is going to be one of those articles — but 2009 is no ordinary year for ophthalmology practices seeking to trim their federal tax bill.

What makes this year different than most years is that one major tax break peaks out in 2009 and will be sharply reduced starting next year. If your practice wants to get the full advantage of this deduction, it must act quickly.

Given this short window of opportunity, ophthalmology practices that are already planning to buy or lease a significant amount of business-related equipment may want to consider the idea of obtaining and installing the equipment before the end of 2009.

Peak Year for Section 179

The specific reason for pushing up these purchases, which cover a broad range of business-related equipment, is that the Section 179 federal tax deduction was increased to $250,000 by the Economic Stimulus Act of 2008 and later extended until the end of this year. The Section 179 deduction will revert back to a maximum of $125,000 in 2010.

The Section 179 deduction applies to purchased equipment or "in substance" purchases (usually a "capital lease"). Large companies (those whose purchases exceed $800,000) do not qualify for the full Section 179 deduction.

There is also a 50% bonus deduction good until December 31, 2009, that can be taken on the remainder of the value of the equipment after the initial Section 179 deduction is calculated. Thus, if the total value of the equipment purchased and installed in 2009 is $800,000, the initial Section 179 deduction is $250,000 and the 50% bonus deduction can be taken on the remaining $550,000.

"The Section 179 deduction is most important because I believe that the amount of the deduction will never be this high again," says Michael Spoll, CPA and partner in Isdaner & Company, LLC, in Bala Cynwyd, Pa. "But simply ordering equipment is not enough. It must be placed in service prior to December 31."

"Basically, if a practice is planning to obtain major bigticket equipment, it may be wise to investigate the possibility of doing it this year," adds Mark Kropiewnicki, Esq, LLM, of The Healthcare Group in Plymouth Meeting, Pa.

To qualify for the deduction, the equipment must actually be in use by the practice by December 31. Meeting that time frame would probably be possible for installation of a femtosecond laser, SD-OCT or most basic diagnostic equipment. The Section 179 deduction will not totally disappear at the end of this year. It still be in effect in 2010, but at a reduced level with a maximum deduction of $125,000.

Practices should be especially aware that signing a contract in 2009 for installation of an EMR system does not in itself qualify for the deduction. As mentioned, the system must be up and running by year-end to qualify for the deduction, which would be an almost impossible task to accomplish in so short a time frame with an EMR system.

Practices interested in obtaining more complete information about Section 179 deductions should visit the informative Web site www.section179.org or check with their own accountant.

Cash Payments Can be Advantageous

Other tax advantages that ophthalmology practices can still utilize this year are limited to those practices that use a cash accounting basis. Most medical practices do use cash accounting, so the following deductions may be applicable to your practice:

► Accelerate expense deductions by paying bills before year-end.

► Maximize retirement plan contributions for 2009 (though the plan can actually be funded later).

"If practice income is relatively high and the doctor is over 50, in solo practice or with few employees, he might consider a very aggressive defined benefit pension plan to maximize his retirement deduction until retirement," notes Mr. Spoll.

► Use credit cards for late-in-the-year payments. The practice can deduct these payments as of the date charged and not the actual date when the credit card bill is paid.

The 12-Month Prepayment Rule

In general, expenses that are prepaid with cash can be deducted in the year of payment, as long as the full benefits are received within one year of payment. One possibility is to pay future malpractice premiums in 2009.

"Prepaying 2010 malpractice premiums only works if the policy period begins in 2009," advises Mr. Spoll. "Prepayment of expenses that are for future periods is generally not allowed. Also, if the current malpractice premiums are being paid monthly to the insurance carrier, only the payments made can be deducted. If that is the case, it might be better to borrow the money, and pay the premium in full. This is true for any type of insurance."

But note, the 12-Month Prepayment Rule does not apply to contracts with terms in excess of one year.

Use of the "Mail Box" Rule

The IRS considers a payment to be made if the check is timely mailed (postmarked) on December 31 and there are funds available in the bank account to cover the check. For very late in the year payments, date and mail checks before December 31. This would still be considered a 2009 payment.

Additional Tips

► Have the practice reimburse physicians for any out-ofpocket expenses such as licensing fees, books or continuing education fees. It is better for the practice to take the deduction than the individual

► Keep careful track of all practice and personal business deductions, involve your accountant early and make sure the accountant knows of all your legitimate deductions. OM