Medical Clients - Employment & 

Tax Deduction Information

Doctors' Employment (Forms W2's and 1099's)

The Medical Industry today is all about business. We will study and interpret your financial information and determine how we will help you improve your bottom line. We will find ways to reduce your taxes so that your profits and personal wealth increase. With us in your corner, you will always have a knowledgeable and valuable resource to turn to for practical and profitable advice if you need to invest in other industries.

#1) Hospital Staff (Form W2 only).:- The hospital owns/acquires all or part of a Doctor's medical practice and gives the Doctor an exclusive contract or Professional Service Agreement (PSA) to perform a comprehensive specialty and ancillary service on a full time basis for the duration of his/her tenure. All the management an administrative operations and oversight are controlled by the hospital.

#2) Independent Practice (Forms 1099 only):- A Doctor maintains a separate practice and staff, and operates as a Corporation. The medical practice and the Doctor are contracted by the hospital and private patients. The Doctor bills the hospital and insurance companies for services rendered and collect co-payments in Cash and Credit card from private patients.

#3) Hospital Staff and Independent Practice (Form W2 and 1099's):- This is a hybrid of #1and #2 above. The Doctor is an employee of a hospital (Form W2), and operates a private practice as an Corporation during off-days or days-off. The practice accepts private patients and processes payments for covered procedures from a variety of insurance companies, and collects co-payments from private patients. At the end of the year, every insurance company sends the practice a Form 1099.

Professional Services Agreement (PSA):- Regardless of the kind of employment (#1, #2 or #3 above), Physicians are subject to compensation that can be partially of fully guaranteed; and usually encompasses a bonus incentive plan that is based on individual and or group Income, Productivity, or Net Profit performance. Other incentives are provided and are referred to as "Soft Incentives". The PSA has various Stipulations, Restrictive Covenants, Non-Solicitation Agreement, and other requirements. The AMA opposes them and deems unethical any agreement that is excessive in terms of geographic scope or duration of time. Courts have said that continued care of patients outweighed the business interest of hospitals/clinics.

Medical Coding & Charge Indicators:- The level of coding recorded by a medical practice is a major component of revenue recognition, as is the overall fee schedule service mix and the amount of RVU (a numerical value that donates the amount of Physician effort, Risk, and resources for one service relative to all other services).  Measuring the proficiency of a medical practice coding and charges/billings is critical to the practice's Revenue, Cash-flow, and Long Term growth potential in a certain market and or service area.

Tax Preparation & Deduction Information

Social security cards and birth certificates
* Social security cards and birth certificates for every dependent you are claiming on your tax return. The IRS will not allow you to claim for a child that is receiving public assistance. Two persons will not be allowed to claim the same child in the same tax year [IRC Section 151(d)(2)]. Child support payments are not taxable to the recipient and they are not deductible by the payer [IRC Section 71(c)(1)]. If you paid a Baby Sitter, Day Care Center, or Summer Camp to look after your dependent child/children under age 13 [IRC Section 21 and regulation 1.44A-2(a)]; or if you paid a Nursing Home to care for your dependent child or parent. To be eligible for the credit, you must give the IRS and State the care provider's full name, full address, social security number or business identification number, and the amount you pay the provider. The day care provider must give you a receipt as proof of payment every time you pay; and a letter at the end of the year.

Forms W2:- Paper copy of ALL Forms W2. You would receive a tax CREDIT if you were employed by two or more employers and you paid EXCESS social security tax. However, if you were employer by one employer and you paid EXCESS social security tax, that employer would have to reimburse you. The IRS would not give you the credit.

Donations:- Charitable contributions (IRC Section 2522). You can deduct the number of miles you drive to perform charitable services, in addition to the Cash and Non-Cash contributions (Food or Groceries) you gave to a charitable organization. You can deducted donations that were taken from your paychecks by your employer, and from your pledge cards. A written letter or  acknowledgments from the charitable organization is required. According to the IRS, you can deduct the full appraisal value for furniture and vehicles you donated to a charitable organization. Hence, you must have a letter from the appraiser and the charitable organization. The IRS would allow no more than $500 for clothing and other household items that were not appraised. If you perform voluntary work for a charitable organization, you can deduct travel expense of 14 cents per mile plus toll and parking. No deduction for meals and lodging.

Job/Work-Related Expenses:- 

* Education & Job related expenses (IRC Sections 162, 212, and 274):- You can deduct expenses you paid for job related seminars and continuing education (seminar registration fee, airfare, taxi, lodging, & meals). In addition you can deduct expenses you paid for job search.

*Uniforms & maintenance:- (shoes, pants, hat, cap, scrubs, lab coat, gloves, masks, and laundry), IRS rules specify that work clothing cost and the cost of maintenance are deductible if work clothing are uniforms that are required by your employer they are not adaptable to ordinary street wear. Hence, If a medical facility requires you to have an emblem, name, or logo on your uniforms, then your uniform expenses are qualify as a tax deduction.

*Ordinary & necessary expenses:- Lab fees, tolls & bridges, parking, professional dues, referral service, attorney fees, accounting fee, secretary, union dues, medical instruments, medical journals, board exams, medical bag, briefcase, business liability insurance, recertification fee, DEA registration/recertification, research services, transcripts, business cards & stationery, photo copies, reference materials, software, computer, printer, fax machine, professional license, office telephone, pager, recorder & tapes, answering service, patient calls, duty watch & repair, placement fees, work visa & legal expense, office rent, electricity, medical supplies, office supplies, office cleaning, waste disposal fee, sanitation, malpractice insurance, etc.

*Job-related travel expenses:-Traveling expenses you paid from your home to your job are COMMUTING expenses and they are NOT deductible. If you work as an employee for a hospital during the day, and you travel from that hospital to working at another hospital or nursing home (2-jobs) during the same day (traveling between jobs), you could claim travel expenses of 53.5 cents per mile. In addition, you may qualify to receive credit for paying excess social security tax for working on two or more jobs.

If you are a traveling health care professional (locally and out of town) you can deduct job related travel expenses (gas, repairs, registration, insurance, lease payment) if you used your vehicle to travel to multiple locations to visit patients (home health care, dialysis, wound care, etc.) during the same day, as a requirement of your job, if you did not received reimbursement from your employer. Bring or send us a copy of your records; or fill out our "Tax Organizer for Medical Clients." It contains a partial list of deductions. However, we would work with you to ensure that you receive all your tax deductions.

Moving Expense:- (IRC Section 217):-We live in an increasingly mobile society where people choose to relocate to get better employment or are transferred by their employers every few years. Taxpayers who moved from New York State to live and work in another state; and taxpayers who moved from another state to live and work in New York State during the tax year are considered Part-Year residence in both states. 

You may deduct unreimbursed moving expenses if your new job is more than 50 miles away from your former residence and you were employed full time in the new location for at least 39 weeks (9.75 months) during the 12 month period immediately following your arrival in the new location [IRC Section 217(c)(2)(A)]. The 39 month rule does not apply to you if you were a full time employee with your company and were transferred to a new location as a condition of employment that benefits your employer. Expenses not reimbursed to you by your employer such as the cost for transporting household goods and storage of household goods and personal effects and Plane tickets for you and your family, and lodging expense in the new location are "above-the-line" items and they are tax deductible whether or not you itemize your deductions [IRC Section 62(a)(15)]. You can deduct 19 cents per mile if you drive to the new location. Moving expenses, down payment or closing costs on your new residence that your employer reimburses you for are taxable income -IRC 82. However, your employer may exclude this amount from your gross income by treating it as a fringe benefit qualified moving expense reimbursement under IRC Section 132(a)(6).

Medical & Dental Expenses:- (IRC Section 213). Expenses you paid for yourself, your dependent children and your parents that were not reimbursed to you by your insurance are tax deductible. They including co-payments for hospital, clinics, x-rays, eye glasses, dental, contact lenses, acupuncture, artificial limbs, prescription drugs, wheel chair, crutches, special bed for arthritic patients, medications, and health insurance premiums you paid. Your medical deduction is also allowable for payments you made during the year even if the medical care was received in a prior year. You can deduct 20 cents per mile for traveling to the hospital to see your doctor and up to $50 per night per person for lodging.

The cost of participating in a weight reduction program is not deductible. Beginning in 1991, expenses paid for cosmetic surgery are no longer deductible. However, the amount you paid for Restorative Surgery is tax deductible if the surgery is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident, trauma or disfiguring disease. You may also deduct the cost (buying, training and maintaining) of having a Guide Dog, the cost of installing and maintaining a Hot Tub & Swimming Pool in your home, or an elevator, escalator, or air conditioning system in your home if your doctor prescribed them for a specific ailment and signed off on them as being medically necessary. Auditors from the IRS may contact your doctor for details and pay a visit to your home (field audit). Life insurance premiums you paid as a beneficiary under a policy is not tax deductible [IRC Section 264(a)(1)]. However, Life insurance proceeds you received as the beneficiary as a result of the death of a family member who owned the policy is not taxable to you [IRC Section 101(a)(1)]. Funeral expenses you paid on behalf of a friend or relative is not deductible. If you want your money back, you can seek reimbursement from the estate of the deceased person.

Court Settlements:-

* Court awards/legal settlements for physical injury and illness are not taxable. However, settlement for emotional distress and employment discrimination is taxable; and the legal expenses are deductible.

* Alimony paid or received [IRC Sections 61(a), 215(a), and 682(a)]. If your divorce decree or separate maintenance agreement requires you to pay alimony and child support and you pay less than the annual total amount, your payment will first be applied to child support. The balance of your payment will be applied to alimony. Alimony received is taxable to the recipient/former spouse. It is deductible from gross income by the payer/former spouse. It is an "Above-the-line" item. Therefore, the payer spouse does not have to itemize deductions to be allowed the deduction.

*Child support is not taxable to the recipient/former spouse and it is not deductible by the payer/former spouse.

*Rent-Free Occupancy:- Divorce decrees sometimes give the wife and children rent-free occupancy of the family home. Usually the rental value is not taxable to the ex-wife and not deductible by the ex-husband.

Real Estate:-

*Form(s) 1098 for residential and rental property:- Every bank or mortgage company you paid during the year sends Form 1098 and the actual figures /numbers to the IRS. Hence, you must bring the Form(s) 1098 that you received. Estimates cannot be use because it would contradict what the IRS has in your file; and your will be audited. Mortgage interest, property tax, Insurance and points are huge tax breaks for rental property. If you did not receive a form 1098 statement by January 31, call the bank or mortgage company for the information.

*New property and refinance property:- Bring us the closing documents that your Attorney gave you when you buy a new property or refinance an existing property. Those documents contain important information that can qualify you for tax deductions.

*For residential property (single family home):-If you own one or more residence (a home and a vacation home), you can deduct the mortgage interest and Real Estate Tax you paid for each property. Get Form 1098 form your mortgage company. Estimates cannot be use because it would contradict what the IRS has in your file; and your will be audited. The Law/IRS would not allow you to deduct expenses for repairs, heating, electricity, water, etc. because that is not a Rental property or Tenant occupied property. However, you MAY be qualified for the Federal Residential Energy Credit of 30% of the cost of installing Solar Energy Systems in your home; or New York State tax credit (Form-IT-241 "Claim for clean heating fuel credit") for using clean fuel oil in your boiler. For example, 1,800 gals of oil can get you back an extra $270. Bring us the documents you received from the Solar and oil company.

*For rental property (Tenant Occupied):- You must report the amount of rent you actually received for each property during the year [IRC Sections 61(a)(5), 109 and 856(d)(1)] plus an itemized list of rental expenses you paid during the year for each property (IRC Sections 163, 164, and 212), such as mortgage interest, property tax, school tax, county tax, community fee, water, gas/oil, electricity, insurance, legal and eviction fee, advertising, extermination, cleaning and maintenance, carpet, management fee, and travel to the property. Minor repairs for plumbing, electrical, patch roof, and carpentry are deductible in full in the year paid (Treasury regulation 1.162-4). Equipment and capital improvement such as boilers, refrigerators, stoves, central air conditioning, new bathrooms, complete renovation of apartments and kitchens, including structural improvements made to the property such as a new roof, sidewalk, driveway, garage, fence, and basement are depreciated and deducted annually over a period of 3-15 years [IRC Sections 167, 168, and 1016(a)(1)].

Actual Client Cases:-

1) Claims adjusting:- (rejected claims were accepted):- The client was advise to contact the health insurance companies and patients; confirm patient identity, coverage, treatment dates, coding, upcoding, billings, geographical disparities, unbundling, and present supporting documents to contest the rejected claims.

2) Injury/casualty settlement:- An injured boy received a settlement of $12 million. In the settlement his mother was awarded $250,000 reimbursement for quitting her job and caring for the handicapped boy; and another $300,000 to purchase and upgrade a suitable house for him to live in. Section 104(a)(2) of the Internal Revenue Code excludes the settlement the boy received from taxable income. However, the $250,000 his mother received is taxable income, but it too was excluded from taxes because the entire settlement was listed in court documents as personal injury to the son. However, if any part of the settlement was listed as punitive damages it would have been taxable under section 61.

3) Inaccurate deductions:- I reviewed a tax return for a medical practitioner who was surprised that his business net income was high and he had to pay corporation tax. His company had leased a building and made a major leasehold improvement. It also leased equipment from a leasing company and later bought the equipment at a substantial discount after the company filed for chapter 11 bankruptcy. Finally, he moved his company into a new office building. A review of the company's tax return showed the discount was reported as taxable income. However, under section 108 the discount should have been deferred and then prorated over 5-years. This would have reduced the net income. Also, the lease payments were expensed. It is expenditure and it should have been capitalized to give the company a bonus depreciation and a deduction for the full cost of the equipment. The company had moved into a new office, hence the balance of the old leasehold improvement should have been deducted leaving the company with a net loss. This loss should be carried back to generate a tax refund for the company.

Thanks for taking time from your busy schedule to read this information. I hope it has enlightened you.