2013 presents big changes. The major one is that under the Patient Protection and Affordable Care Act (PPACA), healthcare insurance as we know it changes and income and other taxes go up. sale where you recognize the income over several years to keep your income below threshold amounts. Keep your taxable income low by maximizing contributions to a retirement plan. in 2013, if you are an employee with a savings incentive match Plan for employees of small employers plan (simPle), contributions max out at $12,000 plus an additional $2,500 for those 50 or over. if you participate in a 401(k) plan, contributions are maxed out at $17,500 plus an additional $5,500 if you are age 50 or over. if you are self-employed or an employer, consider the tax efficiency of establishing a plan which will allow you to increase your contributions through a 401(k) with a profit sharing feature. alternatively, consider establishing a plan that combines a defined contribution plan with a defined benefit plan which will allow you to defer even more dollars. as tax rates rise and surtaxes exist, the benefit of a dollar deferred for income taxes becomes more valuable. Keep your taxable income low by choosing a high deductible healthcare plan and making contributions to a tax deductible health savings account (hsa). an hsa is tax deductible, grows tax deferred, and distributions are tax free if used for healthcare costs. that is a sure bet against uncle sam! hsas can also be used as a supplemental retirement plan. non-healthcare related distributions after age 65 are not subject to a penalty, although they are included in your taxable income. Plan your income distributions in retirement. although distributions from iras are not taxable for either the 3.8 percent tax on investment income or the 0.9 percent tax on earned income, the distribution itself will increase your overall income and subject your investment income to the surtax. consider having retirement assets in roth ira accounts, which are not subject to tax upon withdrawal in retirement and do not raise your magi. if you want to convert assets from an ira to a roth ira, the amount you convert will be taxable in the year of the conversion. the optimal strategy is to plan the timing of the conversion when your marginal tax rate is lower than you expect it to be in retirement. if you FEATURE storY have retirement assets in both taxable (ira) and tax-free accounts (roth ira), consider this a hedge against future tax rates that give you a choice on sources of retirement income distributions. unlike the strategy of spreading income over several years to keep magi low, bunching some itemized deductions into one year can allow for a bigger tax deduction. both medical deductions and miscellaneous itemized deductions (e.g., accountant and investment fees) are subject to a floor. no deduction is allowed until you have exceeded 10% (medical) or 2% (miscellaneous) of your adjusted gross income. this strategy can also work for you if your itemized deductions in total are close to the available standard deduction. consider bunching deductions in one year to itemize, and in the alternate year, use the standard deduction. in addition, for high income taxpayers, total itemized deductions may be limited (the Pease limitation), so timing big deductions will be important. review your investment portfolio with your investment advisor. a portfolio invested in tax-free bonds, growth instead of income investments, and tax deferred annuities will have less of an income tax effect. taxes are complex and uncertain. We know what the rates are today and you can bet they will change in the future. Know the value of your bet, hedge it if you can (e.g., via a roth conversion), and recognize the “tax cost” of your bet. ask the right questions and understand the amount, kind, and timing of your income and deductions. You may just beat uncle sam. Kathy Dean-Bradley, CPA is a supervisor in the Tax & Small Business Department at Belfint, Lyons & Shuman, CPAs. She has been helping physicians and practices in the medical community reach their financial and business goals. By taking the time to listen to her clients’ concerns and long-term goals, Kathy is able to provide them with the recommendations and resources that enable them to spend less time worrying about financial matters and more time attaining their goals. the journal of the healthcare billing and management association 31
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