The end of the year is an important time to review your practice’s 2014 financials and prepare for the 2015 tax season. Set your practice up for financial success in 2015 with these year-end tips:
Schedule time with your accountant
If you haven’t done so already, make an appointment as soon as possible, says Lee Ann Webster, MA, CPA, FACMPE, practice administrator, Pathology Associates of Alabama PC, Birmingham. Have questions ready, especially regarding income projections, Webster says.
Accelerate expenditures, but avoid a low cash balance
Many practices that are cash-based vs. accrual-based will maximize expenditures paid with cash toward the end of this year to limit taxation as much as possible. Examples include staff and physician bonuses, medical and office supplies, and equipment or facility repairs. Giving year-end bonuses to physicians or other staff is an effective way to ensure that extra cash isn’t taxed since bonuses are deductible and lower taxable income, Webster says. However don’t leave your practice cash poor. “Make sure you have some cash left over to start the new year,” she says. “Do not put yourself in a position where you’re borrowing money to pay out a bonus because you’ve depleted your cash reserves before the year is up.”
Some practices will also opt to defer pension or retirement plan contributions to the new year as a way to save cash reserves, Webster says, but she advises not to accrue a large contribution that has to be paid out at a later date, as this can put the practice in a cash bind later on.
Look for non-tax-deductible items
“Remember, only 50 percent of business-related meals and entertainment are tax-deductible,” Webster says. However, business gifts, such as to customers or colleagues, are 100 percent deductible up to $25 per recipient per year Be aware that monetary gifts to employees of any amount, including gift cards and gift certificates, and non-monetary gifts in excess of $25 per year are taxable to the employees and will need to be included in their W-2 Forms.
Other tax-deductible items include:
- Advertising, such as business cards, brochures and website design and maintenance
- Rent payments for office building
- Office supplies
- Financial management fees
- Credentialing and licensing fees
Check with your accountant or visit the Internal Revenue Service website for more information.
Project income for 2015
By assessing your practice’s income and cash flow at the end of 2014, you can also project and plan for your financial and cash flow situation for beginning 2015. You should ensure that these coordinate with your 2015 cash flow projections and budget, and make any necessary revisions to those plans.
“You’re not just projecting income,” Webster says. “You’re estimating your cash flow that’s available next year.”
When you’re trying to project your cash receipts, Webster says, remember that your anticipated cash collections are based on many factors, including volume, fee schedules and payer mix. These do change over time; for example, many fee schedules, including Medicare's, change annually. You need to take these changes into account and not just assume that your collections will be the same as last year.
Take advantage of the slow time
Since December can be a slow month, with fewer patient visits and limited staff because of vacation time, use extra time for administrative housekeeping, says Joan Hablutzel, MBA-HA, CMPE, senior industry analyst, MGMA Professional Development. This includes updating your practice policies and procedures, finalizing 2015 business plans if you operate on a calendar-year budget and addressing new employee health insurance policies that start Jan. 1.
Even if you operate on a fiscal-year schedule that starts July 1, the end of the calendar year marks the halfway point, which is a good opportunity to review your budget and business plans for the fiscal year, Hablutzel says.
Madeline Hyden is digital editor at MGMA. This post appeared first on the MGMA "In Practice" blog. Republished with permission of the Medical Group Management Association.