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The Health Insurance Portability and Accountability Act of 1996 (HIPAA) obligates medical practices to require their business associates to abide by the same privacy standards as those mandated for medical practices. The definition of “business associate” is broad and encompasses anyone who has access to, uses, or stores protected health information. “Protected health information” means any information a health care provider puts in a patient’s medical record, including notes of conversations regarding treatment. It also includes patient billing information.
Billing information is easily overlooked when practices are determining who is a business associate. If a medical practice is giving an outside accountant or tax preparer an electronic accounting file, such as a QuickBooks back-up file, it needs to know what patient information is included. Files that include billing information, such as patient accounts receivables and refund check information with specific patient information, will most likely make the accountant or tax preparer a business associate.
The 2009 Health Information Technology for Economic and Clinical Health Act (HITECH) expands many of the requirements of HIPAA relating to the privacy and security of protected health information. For example, HITECH directly regulates business associates. Business associates are now under the same HIPAA requirements as medical practices. They must follow the same due diligence procedures medical practices follow to ensure electronic protected health information is safeguarded. In addition, they must develop and enforce essential policies and maintain proper documentation. HITECH also expands the civil and criminal penalties for failure to follow HIPAA regulations.
With an effective date of February 17, 2010 for the new standards required by HITECH, now is a good time to review your vendors and determine who qualifies as a business associate. Any vendor you determine to be a business associate who has not signed a business associate agreement should be given one. You should also consider seeking guidance to determine if, as a result of HITECH, you need to amend existing business associate agreements.
You’ve read the entire 2,409-page health care reform bill, right? Right. And like many other people, you’re wondering how these dramatic changes in the nation’s health care system will be paid for. Strange as it may sound, lawmakers are looking to the humble 1099 form to help foot the bill for health care reform.
Beginning January 1, 2012, all businesses will be required to provide a 1099 form to every vendor with whom they do more than $600 worth of business over the course of a year. This includes inventory purchases, office supplies, gas for business vehicles, rent, etc. The idea seems to be that using 1099 forms that must be filed with the Internal Revenue Service will capture unreported income. This in turn will generate more tax revenue and help offset the costs of the health care bill. Understandably, this section of the bill has met a great deal of opposition. Legislation has already been introduced to repeal this section of the law, but as of now it will become effective January 1, 2012. Stay tuned!
Are you considering selling your medical practice? If so, you need to be aware that there are three areas of regulation that should be considered when valuing a medical practice: Medicare fraud and abuse, Internal Revenue Service private inurement, and the Stark law.
Medicare has an anti-kickback statute that makes it illegal to pay, offer, or induce any compensation for patient referrals. Because of this, any overvaluation of the practice could look like the seller is being compensated for a doctor’s patient referrals. Also, if goodwill or other intangibles are valued too high when selling a practice, the government could argue that the excess payment was for future patient referrals.
The private inurement rules apply when you are selling to a tax exempt entity, such as a hospital. Under these laws, no part of the tax exempt entity’s net earnings may inure to the benefit of a private individual. If this occurs, the buyer could jeopardize its tax exempt status. Generally, a tax exempt hospital acquires a physician’s practice to provide a charitable service to the community as well as to acquire the practice’s revenues. Private inurement generally involves situations where doctors, who because of their relationship to the buyer, can influence control over the buyer. In other words, they’re insiders. If the buying hospital pays more than fair market value for the practice, it could be considered to be providing excess benefit to a specific individual versus serving the community as a whole.
The Stark law is a federal statute intended to curb the potential abuses inherent in physician self referral arrangements. The law prohibits compensation arrangements between physicians and entities in which a payment is made to physicians for referring their patients to the entity. The purchase of a practice by an entity could be considered to be a compensation arrangement with the selling physician under the Stark law.
One of the exceptions to the Stark law’s compensation arrangement prohibitions is an isolated financial transaction, such as a one-time sale of a practice. The exception applies if:
It’s important, therefore, that the sales price represent fair market value and the purchase price be paid in full at the time of sale and not be made in installments.
None of the above issues should inhibit your ability to sell your practice, but all of them need to be adequately considered when negotiating a potential sale.
As a result of the Economic Stabilization Act of 2008, certain farm machinery must now be depreciated over a five-year period (instead of the previous seven years). To be eligible for this shortened depreciation period, the equipment must be new and purchased after 2008. Grain bins, fencing, and land improvements are not included in the list of eligible expenditures.
Be aware, though, that in years of low income, accelerated depreciation doesn’t always provide the best results. If you’re in the lower income tax brackets, you can opt out of the accelerated five-year depreciation and use a ten-year recovery life for the equipment. In addition, you can further slow depreciation by electing the straight-line method over the ten-year recovery period. However, this election must be applied to all property in the five-year recovery period that is placed in service during the year.
Exhausting these options may still result in your current year’s income being taxed at a lower than normal tax rate. As future years’ incomes begin to rise, you can elect to use farm income averaging to further even out the tax impact.
Many producers prepay for farm supplies prior to the tax year end in an effort to reduce their current year’s income taxes. The deductibility of these prepayments, however, may be limited.
Generally, prepaid farm expenses are the amounts paid during the year for feed, seed, fertilizer, and similar farm supplies not used or consumed during the year. Amounts paid for supplies on hand that would have been consumed if not for a casualty, disease, or drought are not considered prepaid farm expenses.
You can deduct the expense of prepaid supplies if it does not exceed 50% of your other deductible farm expenses in the year of payment. The deduction for any excess prepaid farm supplies can be taken only in the tax year you use or consume the supplies.
The costs of soil and water conservation measures are generally capital expenses that must be added to the basis of the land. If you’re in the agriculture business, however, you can choose to deduct these expenses on your tax return for the first year you pay or incur the costs.
To be eligible, the expenses must be incurred under a plan approved by the Department of Agriculture’s Natural Resources Conservation Service (NRCS). If no such federal plan exists, the expenses must be consistent with a comparable state agency’s soil conservation plan in order to be deductible.
The amount deducted cannot be more than 25% of your gross income from farming. If you choose to deduct eligible soil and water conservation costs, you must deduct the total allowable amount in the year the expenses are paid or incurred. If you do not deduct the expenses, you must capitalize them.
By Tiff Hanson
Congress is currently considering legislation that will increase the amount of tax paid by owners of small personal service S corporations. The bill reinstates a set of expired tax breaks, and the tax increase for owners of small personal service S corporations is meant to offset these tax breaks. Businesses where the skill and knowledge of three or fewer employees comprise the organization’s primary assets and overall reputation would be affected starting January 1, 2011.
The bill proposes that each shareholder of a small personal service S corporation become subject to the 15.3% self-employment tax in addition to ordinary tax on the net earnings of the corporation. Businesses likely to be affected include small accounting, law, engineering, architectural, and brokerage firms. Physician’s offices, consulting businesses such as lobbyists, investment managers, and sports managers, and those in the performing arts could also be affected. As of August 2010 this bill is stalled in Congress, and it appears the tax hike may not occur right away. However, this may be a short-lived reprieve as it’s believed this provision may come up again early next year when Congress begins work on other changes in the income tax system.
You’ve read the entire 2,409-page health care reform bill, right? Right. And like many other people, you’re wondering how these dramatic changes in the nation’s health care system will be paid for. Strange as it may sound, lawmakers are looking to the humble 1099 form to help foot the bill for health care reform.
Beginning January 1, 2012, all businesses will be required to provide a 1099 form to every vendor with whom they do more than $600 worth of business over the course of a year. This includes inventory purchases, office supplies, gas for business vehicles, rent, etc. The idea seems to be that using 1099 forms that must be filed with the Internal Revenue Service will capture unreported income. This in turn will generate more tax revenue and help offset the costs of the health care bill. Understandably, this section of the bill has met a great deal of opposition. Legislation has already been introduced to repeal this section of the law, but as of now it will become effective January 1, 2012. Stay tuned!
By Tiff Hanson
It’s not too early to start thinking about year-end compliance items for partnerships or LLCs (with 2 or more members) and S corporations. These items often apply to smaller businesses where the owners are heavily involved and the business itself is a professional service or consulting business.
S Corporations:
Partnerships/LLCs:
In General:
By Carol Jaeger
On July 2, 2010 President Obama signed into law the Homebuyer Assistance and Improvement Act of 2010 (Public Law 111-198). This law extends the closing date deadline for purchasing a home under either of two types of homebuyer credits included in the act:
The new law extends the closing date deadline from June 30, 2010 to September 30, 2010 for qualifying taxpayers with binding sales contracts executed before May 1, 2010. To qualify for either of the homebuyer credits, the home purchase price cannot exceed $800,000. In addition, the homeowner’s adjusted gross income must be under $125,000 for singles and $225,000 for joint filers.
By Carol Jaeger
The IRS has issued a correction to its 1998 instructions for Form 4562 (Depreciation and Amortization) and Publication 527 (Residential Rental Property) regarding the classification of certain assets used in a residential rental property. These assets include such items as appliances, furniture, and carpeting. The correct depreciation recovery period to be used for these assets for regular tax is 5 years.
So how does this apply to you?
If you’ve not yet filed a tax return
For the above residential rental property placed in service during any tax year for which a return has not yet been filed, taxpayers must use a 5 year recovery period for regular tax.
If the current year’s return has already been filed using a 7 year recovery period
If this is your situation, you have the following options:
For prior years’ filed tax returns
Here are your choices for prior year filed returns:
Please remember that recovery periods for alternative minimum tax can be different than regular tax depending on the year the asset was placed in service.
If you need further assistance you should contact your tax advisor.
By Carol Jaeger
The popularity of using Self-Directed IRAs to invest in real estate is on the rise, and it’s not hard to figure out why. Self-Directed IRA holders can use their retirement funds to purchase real estate without incurring early distribution taxes or penalties. In addition, they can realize the rental payments as tax-deferred income within their Self-Directed IRA.
The challenge comes in finding a way to purchase real estate when the purchase price of the real estate is more than the funds accumulated in the Self-Directed IRA. The Internal Revenue Code does not allow IRA account holders to extend credit (a personal guarantee) to their own IRA accounts. This means you must have sufficient funds in the Self-Directed IRA to cover the purchase price of the real estate you want to buy unless a non-recourse loan is used. A non-recourse loan is a loan made to an IRA, not to an individual, and is based solely on the value of the property acquired with the loan. Since there is a higher risk to the lending bank with non-recourse loans, interest is typically higher than normal rates and a 30-50% down payment on the real estate purchased is common. In addition, the Self-Directed IRA account holder must show the lending bank that the rental property will provide a positive cash flow.
If you currently have a traditional IRA, 401(k), Roth, etc., it can be rolled over into a Self-Directed IRA. Prohibited transactions exist for Self-Directed IRAs and some possible tax deductions (such as depreciation) may not be allowed.
If you’re interested in this powerful wealth management option, your first stop should be a knowledgeable and experienced Self-Directed IRA provider. You’ll also want to consult a tax professional, as there are many property management, tax treatment, and financial pros/cons that need to be carefully considered as you weigh your choices.
It's no secret that Montana is one of the deadliest places to work. According to Bureau of Labor statistics, the number of workers killed on the job in Montana is three and a half times the U.S. average. Our poor safety environment costs businesses, individuals, and the government millions of dollars each year in lost productivity and wages.
Communicating your commitment to safety in the workplace is essential to reducing the number of work-related injuries and is especially relevant in the construction industry. In construction, safety is typically communicated through committees and safety meetings. Here are some things to keep in mind about these important avenues of communication.
Safety Committees
According to the Construction Industry Field Guide published by the Montana Department of Labor and Industry, all employers are required to establish a safety committee made up of employees and employer representatives. The committee is required to meet at least once every four months and is responsible for documenting and reporting to the employer its activities in the following areas:
Safety Meetings
Safety meetings should be held on a regular basis (daily, weekly, or monthly) to train workers in how to identify and avoid unsafe conditions. Careful selection of topics will help keep employees engaged during the meeting and help maintain the credibility of company management. Safety meetings can be a forum to:
Despite huge advances in technology, no device yet exists to accurately predict the future. Unforeseen events can prove especially challenging in the construction industry. Once a construction job is underway, circumstances frequently arise that could not have been anticipated when the bid was awarded: changes in material quantities, design errors, and other issues that may significantly affect the scope of the job. Contractors often find themselves in situations where customers ask for extra work to be done. In an effort to please, verbal agreements to perform additional work are made. If a company doesn't use a formal change order to document the new agreement, it risks not getting paid for the extra work.
A change order form can be a very important tool to help keep a construction job on track. The form details the new plan, including services, materials, and designs to which the parties have mutually agreed. When signed, the change order becomes a valid contract, binding upon both the customer and the construction company. When the requested changes are put in writing and validated by signatures, there's no backing out on the customer's part when it comes time for payment.
Key components of a change order include a complete description of the extra work to be performed, materials required, time involved (if there is a need to extend the original estimated completion date), and the price to the customer for the extra work.
The more information a change order contains, the greater the likelihood there will be no misunderstandings at a later date.
Obtaining surety bonds for its contracts is an important part of any construction company's business. Bonds can usually be obtained from the insurance broker the contractor uses for its business-related insurance policies. Surety bond premiums are typically priced as a percentage of the contract amount.
It's important to understand that surety companies may have different criteria for deciding which contractors they will bond. From the surety's standpoint, the contractor's ability to complete the job must be carefully assessed, as it is the surety that guarantees performance of the contract. This evaluation is done through the underwriting process and includes an analysis of what is commonly known as the "four Cs": character, continuity, capital and capacity. When the surety company does its evaluation, favorable factors include succession plans, a strong cash position, and meeting certain financial ratios. Unfavorable factors include large bid spreads, a significant underbilling position, and increased or constant dependency on bank borrowing.
Surety bonds are an extremely important component of managing construction risk and can be a key to success, both for the contractor and the surety company.
By Tim Janiak
Lots of people are asking, “What’s up with taxes? Will the tax cuts expire? What should a small business owner do before the end of the year?” These are all very good questions, especially given the lack of direction coming out of Washington, D.C. lately.
What we do know is that Congress is now back in session following the midterm elections, that we’ll likely see a number of extensions to previously enacted tax measures, and that major new legislation before year-end is highly unlikely.
Most business professionals believe that the current federal tax rates are low and will only move upward. With the expected increase in tax rates, small businesses should look for opportunities to accelerate income into the current year and defer deductions (where possible) to 2011, when rates are expected to increase. This is contrary to how businesses have planned for the past several years and is directly related to the expectation that we’ll see much higher tax rates in the coming years.
One measure that has received a great deal of attention is the increase in the Section 179 deduction to $500,000. This provision allows small businesses to deduct current costs associated with the purchase of business assets. This has typically been seen as benefit to small business; it may, in fact, not be the best decision right now.
Please contact your Anderson ZurMuehlen advisor to discuss these and other tax planning opportunities for small businesses.
Live events are one of the best ways to learn new things! These sessions are highly interactive, giving participants great opportunities to learn from one another and share ideas. Our annual lunch and learn for QuickBooks users will be held in December and will provide important year-end information, helpful hints, and useful tips. Check our website at: www.azworld.com for more information.
By Tim Janiak
If you’re constructing or renovating a building, getting familiar with Section 179D of the Internal Revenue Code could produce some handsome benefits for your business. In effect since 2006 and not set to expire until December 31, 2013, Section 179D offers a variety of federal tax deductions for energy efficient construction or renovation. How much do you stand to save? The deduction could be as much as $1.80 per square foot for costs associated with interior lighting, HVAC systems, and the building envelope. Deductions are also available for architects, engineers, and contractors doing work on qualifying projects. If you believe your project may be eligible for any of these deductions, please contact your Anderson ZurMuehlen consultant for additional information.
By Tim Janiak
The R&D tax credit is designed to benefit business taxpayers (of any size) that design, develop or improve products, processes and techniques, formulas or software. Keying off of increases in research activities and expenditures, this credit rewards programs that pursue innovation with increased investment. Using an alternate method of calculating the credit, taxpayers may be able to claim tax credits even if their research costs remain the same or decline. Please contact an Anderson ZurMuehlen consultant if you believe you have expenses that may qualify your business for this tax credit. One note of caution: The R&D tax credit is among a number of “extender” provisions still awaiting congressional authorization for 2010.
By Tim Janiak
We take great pride in the work we do and in our constant efforts to deliver exceptional service on every engagement. Like you, we’re always interested in expanding the circle of clients we serve. A referral from you would mean a great deal to us. Please keep us in mind and let us know how we might be able to assist others like you.