Veterinarians not investing in a practice overhaul need to dig deeper to find deductions and loopholes this tax season.
Smart tax planning is key in optimizing an annual return and starts by finding a certified CPA with industry experience. A CPA will help veterinarians avoid an audit and maximize the benefits of state and federal tax laws. A professional accountant who understands the ins and outs of the profession can provide a check-off list of the type of tax information that should be gathered throughout the year and can show how to catalog those expenses.
| Bonus Depreciation
Practices that struggled financially in 2009 should be looking into bonus depreciation. Section 1201 of the 2009 American Recovery and Reinvestment Act allows additional first-year depreciation of 50 percent of the purchase cost by extending for one year the depreciation bonus created by the 2008 Economic Stimulus Act.
Depreciation bonus helps businesses that buy equipment this year decrease their 2009 tax bill.
This rule applies to purchases of tangible personal property with a Modified Accelerated Cost Recovery System (MACRS) recovery period of 20 years or less.
Like Section 179, equipment must be new, purchased and put in service in 2009. The depreciation bonus ends this year.
“Some CPAs will also offer veterinary practice management consulting, which means the CPA can assess the practice by helping the owner organize practice operations and devise a tax-goal game plan,” says Mark J. McGaunn, CPA/PFS, CFP, president of MJM Financial Advisors of Westborough, Mass. “Our goal is to prevent that gotcha moment where a client realizes he or she could have had a better return if they had done things differently during the tax year.”
The biggest mistake is the invariable April scramble to collect information, CPAs say.
“Bookkeeping is a real issue,” McGaunn says. “Vets pay for practice or work-related items personally, then lose track of the receipts and end up absorbing tax return money. Keep in mind the ultimate goal is to not get a refund and to pay minimally.”
Vets, among others, tend to think that something they pay cash for isn’t a lot of money and they discard the receipt, but lunches and other relatively small business expenses add up.
“Making purchases for the practice with cash or personal credit card, then forgetting to track the receipts, can really cost a practitioner money. Whether they’re an owner or not, many business-related expenses can be deducted,” says Tom McFerson, CPA, ABV, of Gatto McFerson Certified Public Accountants in Santa Monica, Calif. “There’s profitability in consulting a CPA about items that can be deducted. Even some mileage and other travel costs can be written off. In addition to keeping physical receipts, record the expenses using tax software.”
“The lending scene for veterinarians remains good,” says Chip Mahan, CEO of Live Oak Bank in Wilmington, N.C. “We don’t have one loan that is more than 30 days past due. Some practices even experience growth despite the economy. The hardest-hit ones are the specialty and emergency practices. We recommend a certified CPA to all of our clients to get sound tax coaching.”
Experts say it’s unwise to purchase equipment just to avoid taxes.
“I know of CPAs that make the recommendation and this is all wrong. A veterinarian should never make an equipment purpose for this reason,” McGaunn says. “First, think about why you want this equipment and what it will bring to the practice’s bottom line, and then consider client interest and ability to pay.
“The practice will also have to invest in training and marketing this new modality. If it’s something that will benefit the practice, you’ll still be paying about 60 cents on the dollar, and keep in mind you’ll be missing out on investing opportunities elsewhere.”
If a veterinarian decides to buy equipment, it must be purchased, installed and used before Dec. 31 to realize tax benefits.
Most practices haven’t lost market share but have had a 10 percent reduction in business.
~ Carol L. Amernick, C.L. Amernick Accounting
Keep in Touch
When you meet with your CPA, the conversation should focus on goals for the practice and personal tax returns.
“Meet up at veterinary conferences, teleconference, Skype, e-mail or text. Find a way to keep in touch,” says Jason Castner, CPA, CVA, of Lacher McDonald & Co. in Seminole, Fla.
“Geography isn’t the barrier it once was,” Castner says. “Communication between the CPA and veterinarian should occur at least twice a year. Tax planning will take place at the meeting, looking at financial statements and forms of income will let the veterinarian know their tax situation well before tax season.”
Be willing to file outside of the norm to get the best tax outcome. This may mean filing individual tax returns if you are married or filing personal and business taxes together if you are a practice owner.
“Itemizing your return will allow a veterinarian to get above the standard deduction in some cases,” says Carol L. Amernick, CPA, president of C.L. Amernick Accounting in Richmond, Va. “Unreimbursed employee expenses can include continuing education, laboratory coats, lab coat dry cleaning, mileage, stethoscopes and more. The CPA should always be looking at ways to shelter their client from owing money on taxes.”
Another benefit to employers is the work opportunity credit that allows 40 percent of the first $6,000 of wages paid to certain targeted groups such as unemployed veterans, disconnected youth and food stamp and welfare recipients. These groups are prequalified by the state labor department.
Dealing With the Economy
CPAs are reporting flat or slightly less veterinary practice revenue in 2009, which has prompted vets to get creative with their fees and payment policies.
Some vets are switching from a cash business to an accounts receivable policy to retain clients unable to pay in full when services are rendered. This change needs to be carefully documented.
“More practices are taking accounts receivable this year than in 2008,” Castner says. “We have more than 60 small-animal practice owner clients and have seen a jump in these practices’ allowance of payment plans. About 10 percent of their annual revenue is coming from accounts receivable this year, which is a big chunk. Practices are asking if the client wants to pay when services are rendered as opposed to how. This change means the need for an additional way to track business transactions.”
Most practices haven’t lost market share but have had a 10 percent reduction in business, Amernick says.
“Saying you have a $1 million practice would have been impressive 10 years ago, but today,” he says. “Gross revenue is the figure that matters and vets can’t keep doing business like it has been done, but the way it’s got to be done.” <HOME>