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The air and the apples are crisp, and football is in full swing. What time is it? Time for some serious tax planning before the end of the calendar year, according to CPA Keith Kamperschroer, immediate past president of Nashville-based HCAA, the National CPA Health Care Advisors Association.

Physicians who are their CPA’s dream clients “usually appreciate the value of planning because planning helps them save,” said Kamperschroer, a shareholder and managing director of healthcare services for Kolb+Co in Brookfield, Wis. Dream clients, especially new ones, show up armed with federal and state tax returns for the prior two or three years. Some firms, including his, will review free of charge those returns and file an amended return if an error is found. “We then usually tend to provide a cost estimate, what the planning and tax preparation would cost,” he said.

Kamperschroer reeled off some common questions tackled on behalf of physicians: “Does it make sense to shift some investments to municipal investments? Are they getting long-term capital gains out of their mutual funds? Can they better time their bonus? Is it better to speed up deductions and pay more of their bills before Dec. 31 or not?” he asked.

Most practices are organized as personal service corporations with rates sometimes higher than personal rates. Thus, Kamperschroer said, “In most cases, all the profits are cleaned out of the corporation, so really anything left over is paid out in bonuses to the physicians, so you wind up paying little or no corporate taxes.”

Retirement Contribution

Kamperschroer’s No. 1 tax-planning tip is to maximize retirement contributions by the end of the year. “In many cases, when it comes to tax sheltering, many physicians might be at the top rates for federal and state taxes. Federal tax rates are at 35 percent at the top rates, so it’s usually a very, very substantial savings if you can put away money into the retirement plan and have money grow for a long period of time,” he said.

For 2008, the total retirement contribution from the company side and the individual side is $46,000 for one individual. Someone 50 or older may personally put away $20,500, meaning the practice may contribute an additional $25,500. Individuals under 50 may personally contribute up to $15,500.

Charitable Giving

Donating to charities is a worthwhile endeavor, and most physicians are in a position to do so. It helps with the tax bill, too. But should doctors donate personally or via the practice? “On a personal level, those dollars might be worth 35 percent. For our physician clients, we recommend always giving those charitable contributions not through their corporations, but on a personal level,” Kamperschroer said.

Charitable contributions by a personal service corporation are limited at the federal level to 10 percent of bottom-line profit. If the physician annually cleans out the profit at year’s end, then deductions for charitable contributions can’t apply.

Kamperschroer recommended that physicians consider the donation of appreciated stock, which the charity may convert to cash. The physician’s contribution is the fair-market value of the security deductible off personal taxes. If he or she sold the security personally and donated the cash, the donor would face taxes, probably a long-term capital gain. Note that there are specific limits on stocks and other goods as a ratio to total income.

Don’t discount the value of donating household items. “That can be substantial. Now, there are many limits and rules on how much and the forms to fill out, but the key is (donors) provide their own values. As long as it’s reasonable, the items are in good condition and they have a receipt, that’s extra deductions that they can get before the end of the year,” Kamperschroer said.

The “Kiddie Tax”

The so-called kiddie tax was devised to pull in the reins on families with means that conventionally shift income from parents to children to take advantage of the child’s lower income tax rate. Through 2007, the tax mainly affected the unearned income (from interest, dividends, capital gains) of children ages 14 to 18. Earlier this year, Congress upped the ante to include children as old as 23.

“That provides some planning opportunities, especially for kids who are in college and still dependents on parents’ returns,” Kamperschroer said. “If the parents have money in the child’s name, the parents maybe should be invested in municipal securities to avoid federal taxation, or they can put it in education programs where it’s sheltered. Every state has its own specific programs. Or they can invest in mutual funds that will kick off capital gains at lower rates.”

Alternative minimum tax

Generating the most buzz as tax time approaches is the alternative minimum tax, which could affect as many as 30 million Americans by 2010. “This is an area of high turmoil right now,” Kamperschroer said. In fact, bills are in the Congressional hopper to eliminate the tax altogether.

Put simply, the AMT is a different tax structure entirely, with its own rates and rules for deductions that are less generous than the traditional system. Established decades ago to ensure that fat cats paid some federal taxes, no matter how many shelters and deductions their CPAs could find, the AMT still today is owed if the regular amount of tax doesn’t exceed the AMT. Tax experts agree that if you earn more than $100,000, run the numbers to make sure you don’t owe the AMT. Because the AMT isn’t adjusted for inflation and takes into account capital gains, more and more people fall into the category annually and owe the extra money.

Kamperschroer recommended, “On an individual basis, all physicians should probably have a tax projection done for 2008 before the end of the year to know where they stand and especially to know if they fall into this alternative minimum tax bracket.”

About HCAA

Nearly 60 CPA firms nationwide are members of the National CPA Health Care Advisors Association, a network whose members are selected for their expertise and services to physicians and physician groups. HCAA sponsors educational programs to keep its members abreast of the ever-changing financial landscape in healthcare.

Looking for a CPA and business adviser for your practice? Call HCAA at 1-800-231-2524 or visit www.hcaa.com.

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