Medical Practice Accounting

Net Operating Losses Provide Tax Benefits

Net Operating LossFor many businesses, profits vary from year to year. However, with proper planning, even a bad year can be helpful from a tax perspective. Where business deductions exceed gross income, a taxpayer may have a net operating loss (NOL) that can be used to offset income in another tax year, potentially generating a refund of previously paid taxes.

Who May Use an NOL?

NOLs are available to individual business owners, corporations, estates, and trusts. Partnerships and S corporations do not take NOL deductions, though their partners and shareholders may use “passed through” losses on their own returns.

How Is an NOL Applied?

The general rule is that a taxpayer may carry an NOL back two years and forward 20 years, though certain limited exceptions may apply. For example, an individual with an NOL that was caused by a casualty, theft, or disaster may use a three-year carryback period.

In general, the taxpayer will carry back an NOL to the earliest year it can be used and then carry it forward, year by year, until it is used up. The taxpayer may also elect to forego the two-year carryback and carry the loss forward for the 20-year period. However, the general preference is to use an NOL sooner rather than later because a dollar of tax saved today is generally worth more than a dollar saved in the future.

How Is an NOL Calculated?

Calculations of NOLs can be complicated. For example, a noncorporate taxpayer’s NOL is calculated without regard to any personal exemptions or NOLs from other years, and certain deductions for capital losses and nonbusiness items are limited.

If you are tired of overpaying taxes, call 949-759-5626 and ask for Jerry Morey.  Lowering your taxes legally is our specialty.

Office Space Decisions for Small Business Owner

Office SpaceBuy or lease?

It’s a decision many Orange County businesses face. Owning real estate certainly can have advantages, including the opportunity to build equity. But many small businesses in need of space choose the rental route instead.

Cash Flow Considerations

By leasing, a company can avoid taking on debt to acquire a property. Less debt on the balance sheet may allow the company to finance other things, such as receivables or inventory and equipment purchases. And the upfront cash commitment needed to enter a lease agreement may be much lower than the down payment required for a property purchase.

Shopping Tips

If your business is looking around for the right rental location, here are a few suggestions to keep in mind. Not all of these tips are appropriate for all businesses, but some may help you get a lead on a good spot — and a good deal.

  • Find an eager landlord. Rental spots that have been on the market for a while could have some negative features, but they may be worth a look. If you find a location that suits you, you might also find a landlord who is anxious to negotiate.
  • Think about the term. A long-term lease locks in your rental rate — and that can be an advantage if you expect the market to trend upward. But leasing for short periods is often less expensive than leasing for longer periods. If your business is in its formative years, significant changes may lie ahead, so a short-term arrangement could be more practical, too. Adding an “option to renew” clause can help keep your costs down and your options open.
  • Divide and conquer. Could you make do with two smaller spaces instead of one large space? The more flexible you can be, the better your chances of finding a good deal.
  • Check rental comps. Commercial property markets can be very localized. Rents may vary considerably between one locality and another just a few miles away. Unless you’re limited to a specific location, compare rates in several areas.

At Morey & Associates, we help many of our small business clients with the office space decision and help them lower their overall taxes.  If you are struggling with this decision, simply call 949-759-5626 and ask for Jerry Morey.

 

Morey & Associates works with all types of small businesses throughout Orange County to minimize their taxes legally.  We provide additional expertise in real estate accounting, dental practice accounting and high net worth accounting.

3 Tasks Entrepreneurs are Better Outsourcing

OutsourceAs a business owner, it can be difficult to delegate important tasks. When you complete them yourself, you know they will be done correctly and in a timely manner. Even so, if you want your business to grow, and keep expenses low, there are three tasks that you should consider outsourcing.

 

Website and Graphic Design

By outsourcing your website and graphic design, you will have access to an expert in the field, on demand. The person or company you outsource to will have the equipment, experience, training and knowledge to provide you with design concepts that would otherwise be beyond your reach.

You will also receive a professional product which is doubly important as your website is your online business card. This is one area that you want and need a professional’s assistance.

Payroll

As your company grows, the complexities of your payroll grow as well. In addition to saving time and money, payroll is one area of your business that the government takes great interest in. Payroll specialists make it their job to stay current in government regulations which means they will keep you and your company compliant.

In addition, payroll companies can provide you and your employees with an added layer of security. This can reduce the risk of embezzlement, identity theft, and interference, by an employee, with company records for financial gain.

Accounting and Tax Returns

Much like payroll, your accounting and tax returns are not an area of your business where you can afford errors. Without specialized tax knowledge, you run the risk of missing deductions leading to paying higher taxes than necessary or to making errors that result in penalties.

One of the main benefits of outsourcing any task is that while you may pay more per hour for the task to be completed, you will save much more money, in the long run, than if you hired a full-time employee when you take into consideration salary, benefits, taxes, health insurance, as well as the overhead to provide space for the employee to work. In the end, outsourcing can be a cost efficient way to expand your business.

 

If you are interested in outsourcing payroll and/or outsourced accounting, then call 949-759-5626 and ask for Jerry Morey.  Our initial consultation is free.

 

Morey and Associates is an Orange County California CPA Accounting Firm.  We service small businesses and high net worth individuals throughout Orange County and have convenient offices in Newport Beach and San Clemente.

Tax Treatment for Bitcoin Payments

BitcoinIf you’ve paid attention to the news the last few years, you will have heard of Bitcoins. In fact, you may even have considered accepting them as payment for services or product sales. Before you do, you’ll want to make sure you have an understanding of how the IRS treats Bitcoin payments.

First, it’s important to be aware of the fact that the IRS does not consider Bitcoins, which are virtual currency, as a legitimate state-backed currency. Instead, they see Bitcoins as property.

This means that the tax rules that apply to property transactions will also apply to payments received in Bitcoins. When a person, or business acquires property, they are required to record the fair market value of the property. This will become the owner’s basis for the property.

Once the property is sold or exchanged, if the fair market value of the property has increased, then the owner will have a taxable gain. On the other hand, if it has decreased in value, the owner will have a loss.

This means that if a business owner sells a product today and receives Bitcoins worth $100 but then converts them to dollars next week and the value has increased to $120, they will have a gain of $20 that will be taxed as capital gains.

This becomes even more complicated when multiple Bitcoin transactions take place. Each transaction needs to be tracked separately and each will have its own gain or loss depending on the current valuation of Bitcoins when they are converted to dollars.  The amount of paperwork and record-keeping becomes significant.

There are a couple of workarounds for this. First, each transaction can be converted to dollars immediately. Secondly, there are now Bitcoin merchant service providers that will deal with all of the backend record-keeping that is necessary. This allows businesses to accept Bitcoins without ever actually dealing with them.

The IRS ruling treating Bitcoins as property turned the Bitcoin world and those who want to accept them on their heads, but technology and even the IRS will eventually catch up to the new reality of virtual currencies, but it may take awhile.

If you are tired of paying too much in taxes, call 949-759-5626 and ask for Jerry Morey.

 

Morey and Associates is a Southern California CPA Firm with offices in Newport Beach and San Clemente.  We service all types of businesses and high net worth individuals.  We also have additional expertise with real estate accounting, dental accounting and medical practice accounting.

 

Section 179 Tax Deduction for Orange County Businesses

Section 179 allows a business to deduct the total cost for qualified leased, financed, or purchased equipment in the year it was purchased instead of depreciating the cost over the life of the equipment. Typically, however, Congress waits until after the first of the year to renew this section which can hurt small business owners and manufacturers as well as farmers, dentists, and medical providers.

Very often, Congress doesn’t get around to renewing tax breaks, such as Section 179, until well after the end of the year. Then they make it retroactive. This creates all sorts of issues for businesses who attempt to plan purchases with tax breaks in mind. Often, small businesses will miss out on the tax altogether.

Section 179 2While tax breaks such as Section 179 are typically renewed each year, it isn’t a given. That means businesses as well as farmers and even those in the medical profession won’t know if they are allowed to deduct $25,000 or $500,000. The final approved amount depends on whether or not the larger deductions are renewed. If not, the limit reverts to the original $25,000.

This can make a buying decisions difficult. For example if a farmer needs to buy a new combine, the farmer is looking at an investment of up to half a million dollars. If Section 179 isn’t renewed at the higher levels, this investment may need to be reconsidered. The same goes for medical or manufacturing equipment.

Still, for a small business, even the limit of $25,000 can make a tremendous difference. As off-the-shelf software also qualifies for this deduction, a small business could update their software to enhance efficiency therefore increasing their bottom line.

Tax planning is a critical component of a successful company. That’s why it is so important for Congress to act quickly and in a timely manner, so small businesses can plan for the next year while they still have the time to implement smart decisions. Small businesses are the backbone of this county and do drive the economy, and Congress shouldn’t forget that.

If you are seeking to lower your taxes legally, Morey and Associates can help.  Simply call 949-759-5626 and ask for Jerry Morey.

Morey and Associates is a California CPA Accounting firm with two convenient offices, Newport Beach and San Clemente.  For additional expertise, Morey and Associates provides boutique accounting services for real estate accounting and medical practice accounting.

Tax Planning for Medical Office Buildings – Doctors and Dentists

Recent tax law changes have created the need for thorough tax planning for dentists and doctors who own office buildings. This article will walk you through the maze of tax complexity to achieve the best tax outcomes for your valuable office real estate.

Medical Office BuildingSuppose that you’re about to build a new office at a cost of $500,000. Traditional planning for dentists and doctors who practice as S corporations would be to own the building in a separate LLC and lease the space to generate rental income from the medical practice. This is excellent planning to create a legal separation to protect the building asset.

But this structure can be the source of some major tax headaches, especially under recent tax provisions. For newly constructed buildings, this two-entity structure creates the potential for large lost tax deductions. This is due to the tax treatment of rental LLCs as passive activities.

Rental income is passive income. In most cases passive losses cannot be used to offset income from wages or income from the medical practice. Therefore, net rental losses may offer no tax benefit in the current year.

For new office buildings, there are two sophisticated planning steps that must be properly implemented to benefit from the large depreciation deductions available to medical practice who construct new office space.

According to building depreciation rules, the great majority of building costs must be depreciated over a 39-year life. This creates little potential for tax savings from constructing a building, however, under legal precedents set by tax court cases, dentists can segregate the costs of building components that are incurred directly for patient treatment.

These costs may be depreciated much more rapidly in as few as five to seven years. By performing a cost segregation study, dentists can reallocate as much as 25% to 40% of the building costs to rapid depreciation methods. The first step toward implementation is having a sophisticated cost segregation study performed.

Unfortunately, without implementing a second step, most of the tax benefits from performing a cost segregation study are lost.

Assume that with the cost segregation study, additional depreciation deductions in our building example in the first year are $50,000. Further assume that this large extra depreciation creates a tax loss in the building LLC of the same $50,000. Since this loss is a passive loss, in most cases it cannot be used to offset dental practice income. This is an effort in futility.

The important second step to avoid this outcome is a special election called an aggregation election. If the dentist meets the requirements to aggregate, the building and practice can be viewed under tax law as a single economic unit, and the large depreciation deductions in the LLC from cost segregation can be used to offset dental practice income, with an appropriate election.

For dentists and doctors who have owned existing office buildings for some time (as opposed to constructing new buildings), a different need for tax planning exists under new tax laws. With less depreciation and interest deductions, there is the potential for rental income in the building LLC, instead of rental losses.

As rent amounts grow and deductions decrease, the possibility of significant rental net income is normal. Passive income in the past was viewed as a good thing since it was not subject to the same payroll taxes as dental practice earned income.

Under new tax laws, passive income is a bad thing, subject to the new 3.8% Medicare surtax, which is in addition to any income taxes. Without proper planning, medical practices can convert earned income subject to normal income taxes to passive income in the LLC, subject to the new Medicare surtax of 3.8% for married couples with incomes of more than $250,000. Further tax planning is needed.

Under the laws that exist in 2013, the appropriate strategy to minimize taxes for medical practices with existing office space is quite complex. The first step is minimizing rental income from building rents from the practice to avoid passive income. The IRS can challenge rents that are under fair market value norms, so one must be wary of making rents too low.

An alternative approach would be to implement a large deductible retirement plan arrangement to drop married income below $250,000. The retirement plan strategy can be a double win with dental office building rents.

In summary, dental and doctor office buildings present significant tax planning opportunities under the current tax environment, along with the need for sophisticated tax planning strategies.

Morey and Associates is a CPA Accounting Firm serving Orange County CA.  In addition to serving most businesses, we have additional expertise in real estate accounting and medical practice accounting.  Our medical practice clients include dentists, oral surgeons, physicians, medical groups, and nursing facilities.

Call us at 949-759-5626 and ask for Jerry Morey.