Planning Tips for those Approaching the IRA Required Minimum Distribution Age

Kris Pearce, CPA, Tax Senior 

There are many things to consider when approaching 701/2 the age for required minimum distributions from IRAs.  The following is just brief summary of some of the items that should be discussed with your attorney, accountant, and financial advisors in the year leading up to the first RMD. 

How do you Plan on Using the Money?
Will it be used to live off of, provide for a spouse, or will the money be used to pass onto the next generation?  These are important questions to ask for a couple of reasons.  If the money is going to be used to live off of, it is important to determine how much needs to be withdrawn, it might be more than the minimum required.  If the money is going to be passed on to the next generation it is important to think about how to reinvest the money after withdrawing the required amount. 

Have you Checked your Beneficiaries?
Make sure the correct individuals are listed as your beneficiaries.  This will help with post death planning and also ensure that the assets are directed to the correct individuals.  It is also important to look at this after major life events, such as death, divorce, marriage, or birth of children/grandchildren. 

Do you have More than one IRA?
It is important to determine which IRA you want to withdraw the funds from.  Distributions are computed separately but the money can be withdrawn from one account rather than a bucket of money coming out of each account. 

Do you have a favorite charity?�
If so, consider using retirement plan assets to fund charitable gifts.  For 2011, up to $100,000 RMD can go toward a charity.  You don’t receive a charitable deduction on schedule A, but the RMD is not taxed so it will result in tax savings. 

These are just a summary of some of things to consider, it is important to discuss these items with all of your advisors as well as your family.

Increasing Medical Practice Referrals

Brian D. Meyers, CPA, Health Care Consultant

The lifeblood of any medical practice is new patients.  One of the surest ways to get new patients is from referrals, whether it be from other physicians or current patients.  There are a number of ways in which to increase the referral base of your practice.  Here are just a few: 

• Provide feedback quickly:  If a current patient refers a friend, be quick to send a thank you card.  For a referral from another physician, be sure to get your consultation report back quickly, and include a thank you note at the same time.  Another option would be to meet the referring doctor for coffee and discuss the visit there. 
• Be available:  It is important for you to be accessible by phone, email, or for another doctor to drop in to your office.  Discussing a possible referral can lead to more referrals in the future.
• Get patients in quickly:  Your idea of “quickly” and the patient’s or referring physician’s idea of timeliness might not have the same meaning.  Work the referral in, even if it means you have to work longer some days or shuffle some other appointments.
• Mingle with other doctors:  Consider eating lunch in the physician areas of hospitals where you have privileges.  Attend “meet and greet” meetings with other physicians.  By being visible, people will start to remember who you are.  Hopefully, this “glad-handing” will result in some future business. 
• Focus on the customer:  Patients and referring physicians are helping you out by sending new patients your way.  Do whatever possible to ensure that it is easy for a new patient to schedule his appointment.  Too many practices, it seems, do not realize the positive impact friendly phone staff can have on patients. 

To support the last suggestion, the other day I was talking to a friend who was having knee trouble.  She was trying to schedule an appointment with an orthopedist, but was extremely put off by the staff answering the phones.  She told me that the staff person was rather rude, which is making her a bit nervous regarding the actual visit.  Is this the first impression your office reflects over the telephone? 

As you can see, there are a wide variety of things a physician can do to increase the referrals to their practice.  The ideas above are only a few of the things that can help to increase their patient base.  Have fun and good luck to you on expanding your referral base!

Mixed Service Inventory Costs

Jenny L. Meyer, MBA, CPA/ABV

We recently detailed some of the basics of the uniform capitalization rules under IRC Sec. 263A.  This code section requires that certain costs normally expensed be capitalized into inventory.  One of the cost components that must be considered are mixed service costs.  All companies have departments that perform administrative, service or support activities that are necessary for the overall operation of the company.  These departments are not directly involved in the manufacturing process, but they do benefit and support the manufacturing department operations and therefore are subject to UNICAP.  Some examples of these mixed service departments: 

• Accounting
• Human Resources
• Legal Services
• Technology
• Warehouse and Storage 

Each year when determining the 263A adjustment for tax purposes, an allocation of these mixed service costs must be included. So how do you determine how much of these costs to allocate?  A taxpayer could develop their own reasonable allocation method based on factors or relationships that reasonably relate the mixed service department costs to the benefits received.  Measures based on the total output of each department (i.e. number of hours provided to a department as a fraction of the total number of service hours provided to all departments) are acceptable. 

The IRS has also approved a simplified service cost method of allocating these expenses.  With this method, the production mixed service costs equal: 

Total production costs for the year (excluding mixed service costs and interest)              Total Mixed
Total business costs (excluding mixed service costs, interest and income taxes)        X        Service Costs 

The result is included with your additional 263A costs when you complete your UNICAP calculations. 

Mixed service costs are an important component and should not be overlooked when analyzing total inventory costs to capitalize.  These costs and the allocation should be reviewed annually when you calculate your 263A adjustment.

Congress Passes Extension of Payroll Tax Cut, Unemployment Benefits

After extended bickering on the matter late last year, the Republicans and Democrats in the House approved a $144 billion package to extend the payroll tax cut and unemployment insurance through the end of the year, putting differences aside until after the November elections.

The bill passed with a vote of 293-132.

The Senate approved the bill shortly after the House, in a 60-36 vote.

The payroll tax break gives workers a 2 percent tax break in their paycheck, and will benefit 160 million working Americans. The average worker will receive a $1,000 tax break over the course of the year.

The payroll tax extension will not be paid for with cuts elsewhere in the budget, which Republicans had earlier sought to avoid adding close to $100 billion to the deficit.

The bill will also extend long-term unemployment insurance and prevent doctors who treat seniors on Medicare from seeing a nearly 30 percent pay cut from the federal government at the end of this month.

The $30 billion cost of extending federal unemployment benefits will be paid for by allowing the federal government to auction off public airwaves currently used for television. It will also increase the contributions new federal workers must make to their pensions.

http://www.cbsnews.com/8301-503544_162-57380261-503544/congress-passes-extension-of-payroll-tax-cut-unemployment-benefits/

You Have to be Believed to be Heard: The Importance of First Impressions

Thomas E. Hilton, MSF, CPA/ABV/CFF, ASA, CVA
Director, Forensic & Valuation Services Group

I spend a good deal of my professional life in a courtroom. Testifying before a jury places me under a microscope.  It has also made me more conscious about how I come across to other people…..both in and out of the courtroom. We are all marketing ourselves every minute of every day whether we are conscious of it or not. Others observe us and form impressions about us at lightning speed. Those impressions also shape the credibility others place on our expressed thoughts. 

We can better shape the perception we make on others if we are aware of the ways people form impressions of others.  A landmark study conducted at UCLA concluded that we need to be aware of the “Three V’s” of communication: verbal, vocal, and visual. When it comes to the believability of the message, the study found the following levels of influence on the listener: 

Verbal                            7%

Vocal                           38%

Visual                          55%  

It shouldn’t surprise anyone that the first and most significant impression is formed visually and usually within a nanosecond.  Consequently, to make a first impression a good one, the following non-verbal tips are worth considering: 

Eye Contact�
Does anyone trust a person who cannot look us squarely in the eye? Eye contact is a critical component of credibility. Look directly at the person at the moment of introduction. Avoid the eye dart; it sends a message of anxiety, fear, and nervousness to the listener, and undermines credibility.   

Dress
“You never get a second chance to make a good first impression” said John Molloy, author of New Dress for Success. The most immediate visual impression we make is that of dress and appearance. Bert Decker, author of You’ve Got to Be Believed to Be Heard, Updated Edition: The Complete Book of Speaking…In Business and in Life, has a theory he calls the two-by-four rule. According to the theory, the impressions made in the first two seconds are so vivid that it takes another four minutes to add another 50% more impression, positive or negative, to that communication.  Since those first two seconds are entirely visual, if a poor first impression is made, it takes a really long time to overcome the damage done. Consequently, the financial expert is encouraged to dress conservatively and appropriately for the venue in question. 

Body Language
“Stand tall. The difference between towering and cowering is totally a matter of inner posture” said Malcolm Forbes, publisher of Forbes Magazine. Walk or stand with your spine erect and your head up; avoid slouching or or walking with your head down. 

Temperament
Allow your personality to come through in subtle ways. Smile…..you want an expression of warmth and sincerity to become your first point of personal contact. Tonal quality is

What Is UNICAP All About?

Jenny L. Meyer, MBA, CPA/ABV, Senior Manager, Tax

You may have heard the terms UNICAP or 263A, but what does it mean?  IRC Section 263A details the uniform capitalization rules that require certain costs normally expensed be capitalized as part of inventory for tax purposes.  These rules apply to: (1) real or tangible personal property produced by the taxpayer, and (2) real or personal property acquired by the taxpayer for resale.  

There are a few exceptions to this rule.  If a taxpayer is allowed to use the cash method of accounting, they are not required to apply these capitalization rules.  Another allows resellers whose average annual gross receipts for the three previous tax years do not exceed $10 million to be exempt from this rule.  

So if you don’t meet an exception, you must look at what costs to capitalize.  Costs include:

1. Direct Costs – direct material costs that become an integral part of the property and direct labor costs.  These normally would already be included in inventory.
2. Indirect Costs – all costs that are not direct but directly benefit or are incurred by production activities.
3. Service Costs – a type of indirect cost that can be identified specifically with a service department.  These are usually general and administrative expenses. 

Once the costs are identified, the taxpayer must determine what adjustment must be added to ending inventory for tax purposes.  To minimize the burden of these rules, many taxpayers use the simplified production method. The first step is to calculate the absorption ratio – which is the additional 263A costs (those costs identified that are not already included in inventory for book purposes) divided by total inventory costs (Section 471 costs).  This ratio is then multiplied by total ending inventory resulting in the UNICAP adjustment.  This adjustment is then added to the ending inventory resulting in the ending tax inventory reported on your tax return.  

These rules apply to many taxpayers and must be included in the year-end tax preparation.  Your tax preparer should assist in making these calculations and complying with the rules of IRC Section 263A.

Increase Your Revenue without a Change in Patient Volume

Jessica Johnson, CPA, Health Care Consultant 

We all probably think that increasing the number of patients walking through the practice doors is the surest way to see an increase in revenue.  While this is our first thought regarding desired profit growth, there are several actions your office can do to increase revenue before the patient is seen. 

Under most circumstances, the initial contact an office has with the patient is over the phone while scheduling an appointment.  Developing telephone scripts for office staff is essential to ensure that all necessary information is collected at this time.  Also, be sure to develop scripts that follow the sequence of the practice management system so information can easily be entered.  Collecting all required information enables your practice to perform patient eligibility verification, receive appropriate referrals if necessary, inform patients of their financial responsibility such as deductibles, co-payments, and coinsurance, prior to the office visit. 

Another factor impacting the bottom line that should be evaluated is your hours of operation.  Is your first appointment at nine in the morning and your last appointment at three in the afternoon?  If so, you might be limiting yourself to a smaller patient population, one with the ability to schedule an appointment during those times.  Consider implementing extended office hours one evening a week to accommodate those patients unable to schedule a visit during the day. 

Although all office visits for the day are complete, the revenue cycle still continues. Another element impacting revenue includes charge entry and claims submission.  Best practice is for office charges to be entered within one day and for hospital charges to be entered within two days of receiving all necessary information, such as, operative notes and demographics.  This is typically an area where lost charges can occur, and by preparing a monthly reconciliation, these lost charges can be decreased or eliminated. 

It is essential to evaluate your key indicators to determine which areas are in need of additional attention and concentration.  The beginning process of obtaining demographic information, eligibility verification, pre-certifications, authorizations, referrals, and entering of charges can either accelerate or postpone the speed at which the practice receives its earned money. With effective internal processes, you can definitely impact your revenue without increasing the number of individuals entering the practice.

Why Do I Owe So Much To Illinois For 2011?

Lauren N. Blaies, Tax Associate

There are many people who live in Illinois and work in Missouri, I am one of them.  I have had a lot of friends inquiring why they owe so much to Illinois this year in comparison to 2010. It is not an error of the tax preparation, but in fact, their actual liability. 

For tax year 2011 Illinois raised the individual tax rate from 3% to 5%, which is still less than Missouri’s rate of 6%.  Wouldn’t this mean that you are still paying more taxes to Missouri? The answer is no. 

In calculating the tax for both states you start with your federal adjusted gross income, and then you figure the state additions and subtractions.  These are typically not too significant on most tax returns.  The main difference between Illinois and Missouri are the state deductions.  Let’s assume you are filing as a single taxpayer, the numbers change if you are married or claiming a dependent. In Illinois you simply have your exemption, which is $2,000.  In Missouri you receive a $2,100 exemption, up to a $5,000 reduction for federal taxes paid, and either a standard deduction of $5,800 or itemized deductions (similar to federal).  In turn, in Illinois you are being taxed on 5% of your federal adjusted gross income less $2,000. In Missouri you are being taxed 6% on your federal adjusted gross income less a potential $12,900 in deductions.  

This was not a significant problem in the past due to the difference in the tax rates. Illinois employers were able to adjust the withholding for the new tax rates, but Missouri employers calculate the state withholding based on Missouri tax deductions. The Missouri withholding should cover the Missouri tax due, but the Illinois credit for taxes paid to other states is not sufficient enough to cover the Illinois liability.  This is why you may have a liability for 2011. The only ways to fix this for 2012 are: 

1. Have your employer withhold additional taxes for Illinois
2. You make estimated tax payments to Illinois (which may be mandatory for 2012 if your liability exceeded $500 for 2011) 

There is an upside if you work in the city and you have St. Louis City withholding. The amount of your withholding is also included in the calculation for your Illinois credit for taxes paid to other states, so this will reduce your Illinois tax liability. 

The tax codes are complicated and differ drastically from state to state.  This is one example of how the difference between the marginal tax rate and the effective tax rate can significantly impact taxpayers.

Transferring Investment Institutions? Transfer Your Basis!

Luke Luckett, CPA, Tax Associate

Have you ever received a brokerage statement that shows shares owned with a “not available” note where the cost basis should be?  This normally indicates that stock was purchased, and then transferred from another investment institution into the current one.  

If this has happened, you will remember your accountant asking you to go back to your records and look for documentation on the original purchase. This would include previous investment statements or receipts.  If no records exist, next you would get a possible date of purchase and look at the historical price to calculate the basis in the security.  Then some research must be done to find if there were any mergers, buyouts, stock dividends, spin-offs, etc. that might affect the basis over time.

To prevent this headache, be sure your brokerage statements or investment institution always has accurate cost basis for each security.  If you transfer investment institutions, make sure to give them a list of the cost basis of any securities transferred over.  The next important step is to check your first statement to verify they recorded the correct basis.  Once this has been confirmed, you are set.  You will always be able to call your current investment institution to get a cost basis on anything sold.

What to do with all those tax documents?

Jane M. Groeteka, Tax Associate

Being a packrat when it comes to storing those pesky tax documents may not be such a bad thing.  Many accountants get asked how long certain documents should be stored before shredding.  Here is a little insight on the timetable for keeping certain tax documents. 

Never destroy copies of your tax returns or proof that you have paid any balance due.  While the IRS will only audit you for up to three years after you file in most cases, an error of 25% or more on your return, could open the statute for up to six years.  In other situations, such as fraud, there may be no statute of limitations. 

Always save property records! One of the big difficulties many people face is in establishing the basis (tax cost) of an asset held for decades when they finally sell it. This applies to real estate, stocks, retirement accounts, insurance policies, collectibles, etc. Keep all purchase records, improvement receipts, reinvestment records, and anything else related to the ownership of your assets. 

You can shred personal utility bills after a year or two and business/rental utility bills after four to seven years.  Any bills supporting deductions on your tax returns should be kept until the statute of limitations has run out for that return. 

Even if you don’t organize your files, by keeping all records in one place, you can sort them out when necessary.  Also, if you live in a disaster-prone area, consider keeping online copies of important personal and business records — and irreplaceable family photos. That way you won’t have to struggle to reconstruct anything after an earthquake, tornado, flood, fire or hurricane.