Fourth Quarter Legal and Financial Planning Issues for Physicians

September 10, 2013

Don't wait until the final two weeks of the year to address legal and financial planning issues. Here's what physicians should focus on now.

The fourth quarter of the year presents a variety of challenges and opportunities for medical practice owners. To avoid the traditional yearend "rush and panic drill" that many doctors go through, start examining these issues today.

Many of these details will add to both the profitability and longevity of your practice and financial plan if done right. This takes time, due diligence, and individualized attention from professionals. You cannot be "too busy" to tend to these issues as many physicians tell their advisers due to the demands of their practice schedule. Ignoring these issues or rushing through them will cost you money in the long run.

Tax Planning

We’ve addressed both the importance of having a top-notch CPA  and some of the common tax time scams targeting doctors in past articles. The fourth quarter of the year is a huge marketing opportunity for tax plan promoters - both genuine and fraudulent. The No. 1 reason we see people make ignorant choices in their tax planning? They wait until the last minute and "buy" a plan in a panic, often with disastrous results.

Start investigating options now and involve your CPA in the due diligence process. A planner that objects to answering educated questions by a qualified professional you already work with should be examined carefully. Options range from traditional and self directed IRAs and 401(k) plans to more complex structures like defined benefit plans and defined contribution plans. Be aware that many structures are wrapped in a tax planning blanket when they should not be including Offshore Employee Leasing (OEL) plans and captive insurance companies, which are not primarily a tax planning tool as we have previously discussed.

Remember two basic rules:

• No matter how much you pay for a plan or what promises are made by any plan’s "experts," the legal and financial liability is ultimately yours, including up to the limit of criminal penalties;

• The rule of three: If income goes into plan tax-free, grows tax free, and comes out tax free, there’s likely a serious problem. Most plans can’t provide more than two of the three benefits under the current tax code no matter how nice the brochure saying otherwise is.

Capital Expenditures and Equipment Purchases

Related to the tax planning issues above we often see successful medical practices make equipment purchases and other capital expenditures at the end of the year to offset taxable income with legitimate business expenses. Unfortunately we also often see physicians make some really bad impulse purchases at year end, the idea being it’s better to buy something with excess cash than to pay taxes on it. If you are on track for a profitable year, work with your CPA now to determine how much you’ll have to work with and look at your practice objectively to see what areas need the most help.

Some of the better expenditures we seen or helped doctors make on a recurring basis:

• New computers, scanners, and professional IT support to help your staff process patients more safely and efficiently under the increasingly onerous EHR rules. If this is on your list, make sure you have a plan to safely dispose of the old equipment - it’s loaded with dangerous info;

• Paying a marketing consultant and buying advertising (yes, many successful doctors we work with actually have a business plan and a marketing plan that protects their market share);

• Upgrading physical facilities including fixing any potential premises-related liability issues including Americans with Disabilities Act compliance, paint, décor, furniture, and signage (a medical office that looks "old fashioned" or worse, run down is never confidence or loyalty inspiring);

• Updating employment manuals and your office work flow, policies and procedures. This is a natural time to do so to start the new year with better guidelines; and

• Reviewing and updating your liability insurance and risk management program. I almost guarantee there are a couple of exposures on our list of essential insurance coverage for medical practices that you don’t have covered adequately.

As always, a list like this is just a start and we will continue our discussion of these issues through the fall. No matter the specific issues however, there is one constant I will warn you about clearly: Addressing these issues in the last two weeks of the year guarantees fewer options, less peace of mind, rushed work even by skilled practitioners, and higher expenses.

Your advisers like the holidays too. Maybe they’ll fit you in between Christmas and New Year's?