Implementing Financial Planning Into Your Practice Post-COVID-19

At Dermatology Times’® Road Map to Recovery webinar, sponsored by Aerolase, Zoe Diana Draelos, MD, founder, Dermatology Consulting Services, PLLC, High Point, North Carolina brought the focus to financial matters and asked Carole Foos, CPA and tax consultant at OJM Group, headquartered in Cincinnati, Ohio, about taxes and loans when purchasing devices.

Foos pointed out how the low interest rate environment is helping practices borrow money they may need. It’s important to keep in mind what equipment is needed, how many patients you have, and how many times a month it will be used combined with the monthly price of the device. As debt is cheap right now, it can be a revenue pathway to explore. 

Foos also advises that practices talk to an accountant before making a large financial decision. “If you're cash basis, taxpayer, and it's towards the end of the year, for instance, in 2020, if revenues were way down, is it better to have that expense last year when you might have even fallen below the top tax bracket or better push the expense into January when your revenues are probably going to be back up?”

One of the proposed changed is that the top individual tax rate is going up from 37% to 39.6%, according to Foos. This will affect taxpayers making more than $400,000 a year. However, does this apply to single filers or could this effect joint filers?

The proposal is that it would affect single filers who make $452,700 and joint filers who have an income above $509,300. There has also been talk of an increase in capital gains rate that would affect people with an adjusted gross income of over $1 million, from 21% to 28%.

“Now, for those of you who were C corporations prior to this latest tax law that came into effect when President [Donald] Trump was the president, it used to be that all medical practices were considered personal service corporations. If they were C corporations, you are taxed at a flat 35% rate,” Foos said. “It's about a 25% increase from what you're currently paying as a C corporation.”

For S corporations or partnerships, income from those types of practices that aren’t taking in the form of W-2 wages isn't subject to Medicare tax. It also isn't subject to the net investment income tax if you're an active business owner. The proposal would be that all of flow through business income, whether active or not, would be subject to either the net investment income tax or a Medicare tax, according to Foos. It would be another 3.8%. 

State taxes will most likely be affected. With President Joe Biden’s tax proposal, there is talk of a reduction in federal estate tax exemption. 

“So right now, when someone dies, and you pass assets on to your beneficiaries, they get what's called a stepped-up basis. Meaning if I own stock, Apple stock right now, that's worth a million dollars, and I only paid $100,000 for it. My beneficiaries get it, and they could sell it the next day for a million dollars and not pay any capital gains tax,” Foos said. “So, if that goes into effect, and I die, and my beneficiary sold, they've got $900,000 of capital gains. Now they're saying they would allow potentially $500,000 of stepped-up basis for single taxpayer up to a million for married.”

Regarding for how much income that a dermatologist should put aside, Foos said to ask an accountant. There are many things to consider such as state or local tax, deductions, and Medicare taxes. Also, if they are planning to sell a practice that clinicians need to consider what their gross income could be. She suggests, if a deal is about to be made, to have it completed sooner rather than later and to keep some of that income in case of tax issues. 

Reference:

1. Draelos ZD, Jackson S, Foos C, Staback J. Road to Recovery. Webinar presented at the: Dermatology Time’s Roadmap to Recover; June 16, 2021.