When your primary focus lies in serving your patients, navigating the intricate maze of tax rules and regulations for the healthcare industry can feel overwhelming.
As a professional advisory and accounting firm that guides many private practices like yours, we know that having a stable tax plan is critical for any medical or dental practice: It not only empowers your private practice to optimize its profitability but also enables you and your staff to provide higher-quality patient care.
In this article, we’ll guide you through some of the most important aspects of preparing a favorable year-end plan, arming you with clear and actionable information you’ll need to navigate the upcoming fiscal year — and make the best-informed decisions.
The Key to Year-End Planning: Accurate, Continually Updated Information
Although year-end planning is typically done toward the end of the fiscal year, tracking key performance indicators (KPIs) on a monthly or quarterly basis will ensure you have the necessary information to make an actionable plan for the next year. Is your practice actively tracking its KPIs? How often?
Rehmann advisors track KPIs as part of the financial assessments we conduct for our private practice clients each month. We find that a fully comprehensive assessment is best, looking beyond top-line revenue and expenses to reveal any underlying information that can provide more meaningful financial statements and better guide future planning.
What to Watch For
Here are a few things that our advisors look at that you should consider too:
- Adjustments by type, related to insurance participation and other courtesy write-off
- Income available for owner after all general overhead expenses are paid
- Production by provider and collections by provider, important in reviewing the profitability of non-owner providers — specifically, hygienists in dental offices or midlevel providers in medical practices
- Costs as a percentage of revenue for your largest cost centers (e.g., staffing, clinical supplies, lab fees, etc.)
Are You Taking Advantage of All Possible Deductions?
No doubt you want to know if your practice is doing well or if there is something you should be doing differently. But we recommend you or your accountant goes beyond the big picture to consider smaller details that can make a big impact to your practice’s bottom line. An important one, often overlooked: making sure that any and all applicable expenses are actually being deducted.
For example, it’s not uncommon to accidentally use your personal credit card for business expenses. Are you saving those receipts and regularly tracking those purchases to make sure each expense is reflected on your financial statements?
Another common example is if you perform accounting or patient charting at home. A home office deduction can be taken for the space you use exclusively for business. If you’re using a computer that uses your home internet, it won’t be 100 percent deductible, but you can deduct a portion of your home internet expense too. This also applies to your cell phone and other home office supplies.
Other Considerations for Your Year-End Planning
Retirement Accounts
Reviewing retirement accounts is crucial for year-end planning. It allows individuals in your practice to optimize their tax strategies and make the most out of tax advantages offered by different retirement plans. Some important elements of what to review include but are not limited to: maximizing joint retirement deferrals, proper utilization of employer profit-sharing plans, and ensuring owner compensation is at the level needed to make the employer contribution as efficient as possible for the owners.
Equipment Purchases and Deductions
It can be beneficial to review past and future equipment purchases, as well as the planned depreciation of equipment that has been purchased. Reviewing past purchases and optimizing those expenses are big year-end tasks but exceptionally worthwhile; they can often deliver a big tax advantage. The IRS requires equipment deductions over five years unless you elect a bonus or section 179 expense. Cost-segregation studies come into play with large leasehold improvements or building purchases, which will allow you to expense those items quicker than a traditional 39-year write-off.
The Augusta Rule
Named after the city where golf’s storied Masters Tournament is held, this section of the tax code allows homeowners in any income bracket to exclude up to 14 days of rental income from their taxable income. For example: If you rent your home to your practice for a Christmas or summer staff party, you can expense it to the practice.
Operations
Taking time to review and make improvements to operations not only boosts overall business performance but also has the secondary benefit of enhancing your practice’s planning efforts. An often-overlooked method is looking at the entire healthcare experience from the patient’s perspective. From booking the appointment on your website to sitting in your waiting room, putting yourself in the shoes of your patients as they move through the entire care experience at your practice will help you identify improvements that need to be made.
Human Resources
Another often overlooked practice that makes it easier to plan taxes is reviewing your HR team and processes as part of year-end planning. HR plays a crucial role in your practice that impacts every facet of your business. From the hiring and retention of employees to managing benefits, policies, and compliance rules, their proactive involvement in your practice will make your work during tax-planning season significantly easier. We recommend connecting with your HR team or point person now to make certain all necessary procedures have been followed.
Cybersecurity
Due to the large amount and nature of the data healthcare practices hold, they continue to be a prime target for cyberattacks. Reviewing and strengthening your cybersecurity infrastructure and policies ensures that both your and your patient’s private data is secure from outside threats. Staying prepared and minimizing risks can ensure long-term financial success and resilience.
You Don’t Have to Plan Alone
Your patients come to you because they know you’re best equipped to improve their quality of life through the practice of effective healthcare. To ensure you’re positioned to put your patients first, you must have your back-office financials and taxes in order.
While many private practices opt to do their own taxes and financials, others rely on healthcare practice management advisors with years of experience, who not only understand and can navigate the unique challenges private practice finances face but are uniquely equipped to help private practice clients successfully respond to the myriad of changes CMS and other entities enact each year.
If you own or lead a private medical practice and would like to learn how having a healthcare practice management advisor on your side can benefit yourself, your patients, and your practice’s tax and financial operations, reach out to our team at 989.799.9580.