Year-End Tax Moves to Boost Your Practice’s Health
Originally published on October 11, 2023
The April 15th tax deadline might be months away, but now’s the time to start planning your tax return. The strategies you use at the end of the year can pay off at filing time! Here are some year-end tax moves you can make now to benefit you and your healthcare practice.
Buy large equipment to take advantage of expensing and depreciation.
Medical machinery, software and more can be expensed through Section 179 and bonus depreciation. This popular year-end tax move allows you to deduct a large portion of the cost up front instead of depreciating it over a period of many years.
For the 2023 tax year, you can deduct 80% of the amount of these qualified purchases. While this is a sizeable chunk, it’s the first in a series of reductions. Bonus depreciation was introduced in the Tax Cuts and Jobs Act (TCJA) of 2017; at that time, it was a 100% deduction. However, the TCJA specified an annual reduction of 20 percentage points per year beginning with 2023. After the 2026 tax year, bonus depreciation won’t be available at all.
So if you’re thinking about a new MRI machine, a patient transport van, billing software or even an office building (certain elements may qualify for bonus depreciation), purchase them now while the rate is still 80%. Just remember that to leverage this year-end tax move, the equipment has to be not only purchased but also placed in service by Dec. 31, 2023. While that might feel rushed, waiting until next year can cost you thousands of dollars in deductions.
Minimize your income and self-employment tax obligation.
If you own your practice as a sole proprietorship or partnership, you may have self-employment tax in addition to your regular income tax. That’s an additional 15.3% levied on the money you earn, and it really adds up.
You can minimize how much is collected for both tax types by reducing your taxable income. The quickest way to do this is with business deductions — a popular year-end tax move. While work-related car mileage and business meals are the more commonly known deductions, you might not be aware of others. For example, you can often deduct:
- Home internet fees if you use your network for work purposes (like updating patient files)
- Cellphone fees if you use your phone for patient calls or other practice business
- Conference and CME fees (along with the travel and meals purchased while attending them, if the sessions are in person)
- Professional association dues
- Your own healthcare insurance premiums
Take a good look at your expenses. Any you can solidly connect to your business operations is a candidate for possible deduction on your tax return. You can also delay billing and receipt of revenue if you are on the cash accounting basis. So consider this strategy as well if you can.
Make a late entity selection.
If your practice is an LLC or corporation, making the election to treat your business as an S corporation can quickly reduce your tax burden. This is because S corporations allow you to take part of your income as a distribution instead of a salary. Distributions aren’t subject to Social Security and Medicare (or self-employment tax) possibly saving you tens of thousands of dollars per year.
You can change your business structure pretty quickly to take advantage of this year-end tax move. However, we generally only recommend it if your income hits at least $100,000 and is expected to stay there or higher. Once your practice becomes an S corporation, you can elect out of S corporation treatment in the future as needed. However, if you do, you can’t file an S corporation election for the next five years. Also note that S corporations bring their own costs and complications (for example, the requirement of a separate business tax return and payroll).
Take advantage of the Augusta Rule.
Do you rent space on your property for overnight guests during home football game weekends or other local events? That income is tax free as long as you don’t exceed 14 rental days during the year!
It’s a loophole called the Augusta Rule, so named for a group of Augusta, Georgia residents who rented space for visitors attending The Masters golf tournament. There are no qualifications for the space itself. It can be a single room or your whole house, and it doesn’t require a separate entrance. You just need to keep it at 14 days or under. This makes it a perfect year-end tax move; apply it to past rentals, or make your property available for local stays before December 31.
By the way, you can also apply the Augusta Rule when renting your home to your business for work purposes. For example, let’s say you want to host an all-day retreat or planning session for your staff. You can host the event at your home to earn tax-free income. Just find out the cost for the event if it were held at a local hotel or conference center. Your practice would then write a check to you for that amount.
The 14 day threshold is retroactive if crossed so if you exceed it by even one day, the income from all rental days during that year becomes taxable. Track your rental times and rates carefully to avoid being taxed. It’s another way your home can provide a tax-free boost to your income!
Now’s also the time to look at your revenue cycle.
It’s not a year-end tax move per se. But examining your revenue cycle helps you find “hidden” money while wrapping up your operations for the year. It can also help you recover money you might’ve missed otherwise.
For example, examine your outstanding receivables. Make sure everything possible is coded, billed and collected by the end of the year. You can also follow up on rejected claims to see if they can be fixed and resubmitted before the time period expires. Practices often neglect this aspect of their revenue cycle. But it could send a lot of money left on the table straight to your bottom line.
These are just some of the ways you can help keep more money in your pocket and send less to the IRS. Check with your healthcare CPA for more information and additional year-end tax moves you can leverage.
All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.
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