Physicians and other healthcare providers with businesses that require major expenditures for equipment have only until the end of the year to take advantage of 100 percent depreciation on equipment costs of up to $500,000 on income taxes.

The 100 percent depreciation for 2011 was part of the economic stimulus plan. The limit is going down to $125,000 in 2012, and instead of an immediate deduction, assets purchased over this amount must be depreciated over a longer period, said Kristina Bolhouse, CPA, CFA, vice-president of The Arkansas Financial Group, Inc., Little Rock.

“If physicians or clinic owners are thinking about buying equipment or computers, they should do it before the end of the year,” Bolhouse said. “The equipment must be in place, up and running by December 31. It will be a major change when the Section 179 deduction goes down.”

The other big trend she sees at present is refinancing of mortgages by healthcare professionals. Interest rates are so low right now that even people who refinanced a year ago are refinancing again, and getting as low as 3.25 percent rates on 15-year notes. Bolhouse said some people are even reducing to a ten-year note to get it paid off before retirement.

While sometimes the cost of refinancing can make it difficult to justify, Bolhouse said Metropolitan Bank in Little Rock recently offered no cost refinancing. “They are paying all closing costs including appraisals, which is pretty amazing,” she said. “We are seeing banks reach out to try to get people to refinance. I think they are trying to keep that business. Bankers are becoming much more aggressive.”

Bolhouse said the biggest mistake with tax planning she has seen is making poor investment decisions. Sometimes people make investments purely to get a tax break.

“Don’t do something purely to get a tax benefit without regard to carefully considering if it is a wise use of your money,” Bolhouse said. “We have seen people lose money on investments they went into just to get tax benefits. It isn’t something they should have gotten involved with to begin with. Doing this can put other assets at risk, as well. There is the potential for lawsuits and other possible pitfalls with high-risk investments.”

The idea of being an entrepreneur is attractive to many people. But being a successful doctor doesn’t always translate into success in other businesses. It takes more than business acumen. It can be hard to find the time to devote to another business when seeing a lot of patients and running a busy medical practice.

Another pitfall can be failure to do tax planning at all.

“It is just so hard to plan after the fact,” said Mark Lundy, CPA, a partner with BKD in Rogers. “It is not impossible, but it sure limits your opportunities. If you are going to try to plan, once third quarter numbers are available, the fourth quarter is a time to start looking at options about what to do and what to plan for.”

One simple part of the planning can be from being prepared to pay the tax when it is due. Lundy said cash is king in any situation, even when it comes to paying taxes. Having cash available to pay what taxes are due is a wise business decision.

Of course, everyone wants to minimize taxes. But Lundy said each practice is so individualized—and the goals of doctors so different—that tax planning has to be contingent on what the doctors want to accomplish.

Lundy also recommends practice succession planning. For most physician practices, the biggest asset in a physician’s estate is probably their practice. Deciding how to convert that to some kind of retirement needs to be started sooner rather than later.

Lundy said physicians should decide issues like what physician will replace them, whether to sell the practice, and if it makes sense to merge with a large practice.

“I had a small practice, and I joined BKD because I wanted security for myself and clients,” Lundy said. “Succession planning never hurts. You never know what tomorrow brings. About the time the practice gets comfortable, that is about the time one should start thinking about succession planning. You should also consider disability insurance planning. What would happen to your practice if you have a car accident or a slip and fall?”

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