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Tax Strategies: Make year-end tax planning moves before it’s too late!

Jacob Courtright on September 24, 2024

With the arrival of fall, it’s an ideal time to begin implementing tax strategies that could reduce your tax burden for both this year and next.

One of the first planning steps is to ascertain whether you’ll take the standard deduction or itemize deductions for 2024. You may not itemize because of the high 2024 standard deduction amounts ($29,200 for joint filers, $14,600 for singles and married couples filing separately, and $21,900 for heads of household). Also, many itemized deductions have been reduced or suspended under current law.

If you do itemize, you can deduct medical expenses that exceed 7.5% of adjusted gross income (AGI), state and local taxes up to $10,000, charitable contributions, and mortgage interest on a restricted amount of debt, but these deductions won’t save taxes unless they’re more than your standard deduction.

The benefits of bunching

You may be able to work around these deduction restrictions by applying a “bunching” strategy to pull or push discretionary medical expenses and charitable contributions into the year, where they’ll do some tax good. For example, if you can itemize deductions for this year but not next, you may want to make two years’ worth of charitable contributions this year.

Here are some other ideas to consider:

Postpone income until 2025 and accelerate deductions into 2024 if doing so enables you to claim larger tax breaks for 2024 that are phased out over various levels of AGI. These include deductible IRA contributions, the Child Tax Credit, education tax credits, and student loan interest deductions. Postponing income may also be desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. However, in some cases, it may pay to accelerate income into 2024 — for example, if you expect to be in a higher tax bracket next year.
Contribute as much as you can to your retirement account, such as a 401(k) plan or IRA, which can reduce your taxable income.
High-income individuals must be careful of the 3.8% net investment income tax (NIIT) on certain unearned income. The surtax is 3.8% of the lesser of: 1) net investment income (NII), or 2) the excess of modified AGI (MAGI) over a threshold amount. That amount is $250,000 for joint filers or surviving spouses, $125,000 for married individuals filing separately, and $200,000 for others. As year-end nears, the approach taken to minimize or eliminate the 3.8% surtax depends on your estimated MAGI and NII for the year. Keep in mind that NII doesn’t include distributions from IRAs or most retirement plans.
Sell investments that are underperforming to offset gains from other assets.
If you’re age 73 or older, take the required minimum distributions from retirement accounts to avoid penalties.
Spend any remaining money in a tax-advantaged flexible spending account before December 31 because the account may have a “use it or lose it” feature.
It could be advantageous to arrange with your employer to defer a bonus that may be coming your way until early 2025.
If you’re age 70½ or older by the end of 2024, consider making 2024 charitable donations via qualified charitable distributions from a traditional IRA — especially if you don’t itemize deductions. These distributions are made directly to charities from your IRA, and the contribution amount isn’t included in your gross income or deductible on your return.
Make gifts sheltered by the annual gift tax exclusion before year-end. In 2024, the exclusion applies to gifts of up to $18,000 made to each recipient. These transfers may save your family taxes if income-earning property is given to relatives in lower-income tax brackets who aren’t subject to the kiddie tax.

These are just some of the year-end tax strategies that may help reduce your taxes. Contact us to tailor a plan that works best for you.

Cutoffs: When to report revenue and expenses

Jacob Courtright on September 23, 2024

Timing is critical in financial reporting. Under accrual-basis accounting, the end of the accounting period serves as a “cutoff” for when companies recognize revenue and expenses. However, some companies may be tempted to play timing games, especially at year-end, to boost financial results or lower taxes.

Observing the end-of-period cutoffs

Under U.S. Generally Accepted Accounting Principles (GAAP), revenue should be recognized in the accounting period it’s earned, even if the cash is received in a subsequent period. Likewise, expenses should be recognized in the period they’re incurred, not necessarily when they’re paid. And expenses should be matched with the revenue they generate, so businesses should record expenses in the period they were incurred to earn the corresponding revenue.

However, some companies may interpret the cutoff rules loosely to present their financial results more favorably. For example, suppose a calendar-year car dealer allows a customer to take home a vehicle on December 28, 2024, to test drive for a few days. The sales manager has verbally negotiated a deal with the customer, but the customer still needs to discuss the purchase with his spouse. He plans to return on January 2 to close the deal or return the vehicle and walk away. Under accrual-basis accounting, should the sale be reported in 2024 or 2025?

Alternatively, consider a calendar-year, accrual-basis retailer that pays January’s rent on December 31, 2024. Rent is due on the first day of the month. Under accrual-basis accounting, can the store deduct an extra month’s rent from this year’s taxable income?

As tempting as it might be to inflate revenue to impress stakeholders or defer taxable income to lower the current year’s tax bill, the cutoff for a calendar-year, accrual-basis business is December 31. So, in both examples, the transaction should be reported in 2025.

Auditing cutoffs

Auditors use several procedures to test for compliance with cutoff rules. For example, to ensure revenue is recorded in the correct accounting period, auditors may review:

Shipping documents and customer invoices,
Sales transactions near the cutoff date, and
Returns and allowances near the cutoff date.

Similarly, to ensure expenses are recorded in the correct accounting period, auditors may inspect contracts and invoices near the cutoff date. They also check that expenses are matched with the revenue they help generate, in accordance with the matching principle. An accrual (a liability) is recorded for expenses incurred in the current period that still need to be paid later. Conversely, prepaid assets represent expenses paid in the current period that will be reported later when they’re used to generate future revenue. Auditors also may perform analytical procedures that compare expenses as a percentage of sales from period to period to identify timing errors and other anomalies.

It’s important to note that updated guidance for reporting revenue went into effect for calendar-year public companies in 2018 and for calendar-year private businesses starting in 2019. Under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, revenue should be recognized “to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.”

Although this guidance has been in effect for several years, implementation questions linger, especially among smaller private entities. The guidance requires management to make judgment calls each reporting period about identifying performance obligations (promises) in contracts, allocating transaction prices to these promises, and estimating variable consideration. The risk of misstatement and the need for expanded disclosures have caused auditors to focus greater attention on companies’ recognition practices for revenue from long-term contracts. During audit fieldwork, expect detailed questions about your company’s cutoff policies and extensive testing procedures to confirm compliance with the accounting rules.

Now or later?

As year-end approaches, you may have questions about the cutoff rules for reporting revenue and expenses. Contact us for answers. We can help you comply with the rules and minimize audit adjustments.

Silent PPO – Dental News Client Alert

Jacob Courtright on September 20, 2024

For many years, the ODA has reported on their vigilant attempts to silence the “silent PPO.” Also known as ghost or blind PPOs, these revenue-stealing entities are disallowed in Ohio (Moore, 2015; 2024). Under Ohio law (Ohio Revised Code 3963), PPO’s are prohibited from giving, renting, or selling their participating dentists’ services unless one of the following conditions apply:

The PPO provides either administrative or claims processing services to an employer or other entity that offers benefits to its employees or members or
The PPO has an administrative services agreement with one of its affiliates or subsidiaries or
The actual contract signed by the dentist states that the contract allows network rental agreements and that the PPO intends to sell, rent, or give its rights over the dentist’s services to other PPOs or provider entities. In exchange, the secondarily contracted PPO must comply with the terms and conditions of the original PPO contract with the dentist and follow the original PPO agreements regarding patient lists, timeliness of payment, and manner of reimbursement.

If a PPO rents, sells, or gives its rights to another PPO, the entity must maintain a web page or set up a toll-free number for participating dentists to use that provides access to the lists that the PPO plans to contract with, which must be updated every six months to maintain its accuracy. Providers may not share information about the other PPOs on the list with anyone since this information is considered proprietary.

One of the most irritating aspects of the silent PPO is that dentists and patients find out about its existence only after treatment is done and the payment received is less than anticipated and capped such that the dentist cannot collect any additional monies from the patient. The dentist is forced to offer a discount to the patient that was not anticipated since the dentist was not aware of the relationship between the contracted payors. Remember, silent PPOs intend to take advantage of dentists without their knowledge. Patients have likely been informed by the front staff that the office is not on their list of providers. The dentist is unaware of any obligations to the secondarily contracted PPO and is surprised to receive payments from this unknown entity. The patient is surprised that their original out-of-pocket estimate is suddenly much lower than anticipated.

Two other considerations about silent PPOs are the following:

The silent PPO is not motivated to steer patients to the dentist, so patients arrive at an office without help from the silent PPO; therefore, the dentist gets no benefit from the relationship with the entity.
PPOs cannot require dentists to agree with their plan to distribute the dentist’s services to other PPOs; however, with 180 days’ written notice, the plan may terminate a network agreement with the dentist who refuses to participate in future PPO additions, which soils the relationship with the primary PPO.

Dentists should carefully read any contract they sign to protect themselves, looking for suspicious language. Contract language that indicates the PPO can “assign” the agreement “at any time” with all its rights and privileges to affiliated companies is a red flag that should cause dentists to pause and think through the agreement more carefully. If in doubt about contract language, consult an attorney or use the ODA or ADA contract analysis services to help you understand the contract better. The ODA offers this service free of charge. Use the contact information below to learn more.

If you think you have been disadvantaged by a silent PPO, contact the ODA via email at dentist@oda.org or call (614) 486-2700.

References

Moore, C. (2015, Apr 13). Leased PPO networks and silent ppos. ODA.org. https://www.oda.org/news/leased-ppo-networks-and-silent-ppos/

Moore, C. (2024). ODA working to ensure silent ppos don’t become a thing in Ohio. ODA Today. ODA WORKING TO ENSURE SILENT PPOS DON’T BECOME A THING IN OHIO – Ohio Dental Association

Is your home office a tax haven? Here are the rules for deductions

Jacob Courtright on September 17, 2024

Working from home has become increasingly common. The U.S. Bureau of Labor Statistics (BLS) reports that about one out of five workers conducts business from home for pay. The numbers are even higher in certain occupational groups. About one in three people in management, professional, and related occupations works from home.

Your status matters

If you work from a home office, you probably want to know: Can I get a tax deduction for the related expenses? It depends on whether you’re employed or in business for yourself.

Business owners working from home or entrepreneurs with home-based side gigs may qualify for valuable home office deductions. Conversely, employees can’t deduct home office expenses under current federal tax law.

To qualify for a deduction, you must use at least part of your home regularly and exclusively as either:

Your principal place of business, or
A place where you meet with customers, clients, or patients in the ordinary course of business.

In addition, you may be able to claim deductions for maintaining a separate structure — such as a garage — where you store products or tools used solely for business purposes.

Notably, “regular and exclusive” use means consistently using a specific, identifiable area in your home for business. However, incidental or occasional personal use won’t necessarily disqualify you.

The reason employees are treated differently

Why don’t people who work remotely from home as employees get tax deductions right now? Previously, people who itemized deductions could claim home office expenses as miscellaneous deductions if the arrangement was for the convenience of their employers.

However, the Tax Cuts and Jobs Act suspended miscellaneous expense deductions for 2018 through 2025. So, employees currently get no tax benefit if they work from home. On the other hand, self-employed individuals still may qualify if they meet the tax law requirements.

Expenses can be direct or indirect

If you qualify, you can write off the total amount of your direct expenses and a proportionate amount of your indirect expenses based on the percentage of business use of your home.

Indirect expenses include:

Mortgage interest,
Property taxes,
Utilities (electric, gas, and water),
Insurance,
Exterior repairs and maintenance, and
Depreciation or rent under IRS tables.

Note: Mortgage interest and property taxes may already be deductible if you itemize deductions. If you claim a portion of these expenses as home office expenses, the remainder is deductible on your personal tax return. But you can’t deduct the same amount twice — once as a home office expense and again as a personal deduction.

Figuring the deduction

Typically, the percentage of business use is determined by the square footage of your home office. For instance, if you have a 3,000 square-foot home and use a room with 300 square feet as your office, the applicable percentage is 10%. Alternatively, you may use any other reasonable method for determining this percentage, such as a percentage based on the number of comparably sized rooms in the home.

A simpler method

Keeping track of indirect expenses is time-consuming. Some taxpayers prefer to take advantage of a simplified method of deducting home office expenses. Instead of deducting actual expenses, you can claim a deduction equal to $5 per square foot for the area used as an office, up to a maximum of $1,500 for the year. Although this method takes less time than tracking actual expenses, it generally results in a significantly lower deduction.

The implications of a home sale

Keep in mind that if you claim home office deductions, you may be in for a tax surprise when you sell your home.

If you eventually sell your principal residence, you may qualify for a tax exclusion of up to $250,000 of gain for single filers ($500,000 for married couples who file jointly). But you must recapture the depreciation attributable to a home office after May 6, 1997.

Don’t hesitate to contact us. We can address questions about writing off home office expenses and the tax implications when you sell your home.

03:Whalen Wisdom Hub – Interview with Dr.Bez – Niche Practices and Ownership

Jacob Courtright on September 11, 2024

Key Points from Dr. Bezbatchenko’s Interview

Career Transition and Specialization

Motivation: Dr. Bezbatchenko specialized in TMJD and dental sleep therapy to provide more comprehensive care to his patients.
Continuous Learning: He actively pursued additional education and certifications to stay up-to-date in his field.

Business and Practice Management

Referrals: Building relationships with other healthcare professionals was crucial for attracting new patients.
Billing Challenges: Dr. Bezbatchenko faced challenges related to medical and dental billing for specialized services.
Practice Growth: His practice experienced growth during the COVID-19 pandemic as more people sought treatment for stress-related conditions.

Patient Care

Holistic Approach: He emphasized the importance of addressing both TMJD and sleep disorders for optimal patient outcomes.
Patient Education: Dr. Bezbatchenko educated patients about the connection between these conditions and the importance of lifestyle factors.

Industry Trends

Evolving Landscape: Dr. Bezbatchenko highlighted the changing landscape of dentistry, including advancements in technology and the increasing demand for specialized care.
Advice for Young Dentists: He recommended a gradual approach to building a practice and emphasized the importance of gaining experience and developing strong clinical skills.

Overall, Dr. Bezbatchenko’s journey showcases the value of specialization, continuous learning, and adapting to the evolving needs of patients.

Category: Business

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