HomeBest Practices → Give the Government Their Own Medicine: Make Up for Declining Reimbursements with Financial Efficiency & Tax Savings

Give the Government Their Own Medicine: Make Up for Declining Reimbursements with Financial Efficiency & Tax Savings Print E-mail
Written by Carole C. Foos, CPA & David B. Mandell, JD, MBA   
Sunday, 29 April 2012 00:00

Recent Medicare cuts in reimbursements for most physicians and coming changes from the healthcare overhaul are making it more difficult for physicians to prosper. There are "top line" tactics for procedures and billing that can increase revenues. However, this article will address "bottom line" strategies, how the practice produces wealth for the doctor-owner. Specifically, two strategies to save in taxes what may be lost in reimbursement will be covered.

Using the Ideal Corporate Structure

Choosing the form and structure of one's medical practice is an important decision that can have a direct impact on financial efficiency and the state and federal tax burdens. Several issues to consider are:
  • Utilize a Partnership or Proprietorship. While these entities are asset protection nightmares and can be tax traps for physicians, they present a tremendous opportunity to recoup some reimbursement losses through lower taxes.
  • Do Not Treat an "S" Corporation as a "C" Corporation.   Approximately 60%-70% of all medical practices are estimated to be "S" corporations. Unfortunately, inefficient compensation structures can completely erase the tax benefits of having the "S" corporation.
  • Implement a "C" Corporation. This corporate structure has declined for medical practices, likely due to the "double tax" problem of corporate and individual taxes. While this is crucial to the proper use of a "C" corporation, there are tax-deductible benefit plans available only to "C" corporations that could counter many of the proposed reimbursement cuts.
  • Use Multiple Entities. Very few medical practices use more than one entity for the operation of the practice. Successful practices can often benefit from a superior practice structure that includes both an "S" and a "C" corporation to reap both tax reduction and asset protection benefits.
Maximizing Tax-Deductible Benefits for Doctors in a Practice

Benefit planning can help reduce taxes, but inefficient plans that are deductible to the practice may be too costly for the doctor-owners. To create an efficient benefit plan, physicians need to combine qualified retirement plans (QRPs), non-qualified plans and "hybrid plans." QRPs include 401(k) s, profit-sharing plans, money purchase plans, defined benefit plans, 403(b) s, SEP or SIMPLE IRAs, and other variations. While contributions to these plans are typically 100% tax deductible and the funds are afforded excellent asset protection, many QRPs are outdated and are only one piece of puzzle.

The Pension Protection Act recently improved the QRP options for many doctors, allowing additional contributions and deductions. Maximizing QRP options under the new rules could increase deductions significantly for a tax year. Additionally, fringe benefit plans, non-qualified plans and "hybrid plans" enjoy favorable short-term and long-term tax treatment.

With the current and upcoming reimbursement cuts, tax and efficiency planning must be a priority.

The authors welcome your questions and can be contacted at (877) 656-4362 or through the website  David Mandell, JD, MBA is an attorney, author of 5 books for doctors, and principal of the financial consulting firm OJM Group, where Carole Foos, CPA works as a CPA and tax consultant. They can be reached at  Please click HERE to read important disclosures.
Last Updated on Sunday, 27 May 2012 15:58

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